As filed with the Securities and Exchange Commission on May 19, 2000
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CNL HEALTH CARE PROPERTIES, INC.
(Exact Name of Registrant as Specified in Charter)
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Telephone: (407) 650-1000
(Address of Principal executive offices)
JAMES M. SENEFF, JR.
Chief Executive Officer
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Telephone: (407) 650-1000
(Name, Address and Telephone
Number of Agent for Service)
COPIES TO:
THOMAS H. McCORMICK, ESQUIRE
THOMAS J. PLOTZ, ESQUIRE
Shaw Pittman 2300 N Street, N.W.
Washington, D.C. 20037
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the registration statement becomes effective.
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Proposed maximum
Title of each class of securities Amount to be offering price per Proposed maximum Amount of
to be registered registered Share aggregate offering price registration fee
- ---------------------------------------- ---------------- ------------------------ ------------------------ -----------------
Common Stock, $0.01 par value 15,000,000 $10.00 $150,000,000 $39,600 (2)
Common Stock, $0.01 par value (1) 500,000 10.00 5,000,000 1,320 (2)
- ---------------------------------------- ---------------- ------------------------ ------------------------ -----------------
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(1) Represents Shares issuable pursuant to the Company's Reinvestment Plan.
(2) Includes, pursuant to Rule 429, $40,920 previously paid in connection
with the registration of 14,000,000 shares of Common Stock, pursuant to a
registration statement on Form S-11 (Reg. No. 333-47411).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
CNL HEALTH CARE PROPERTIES, INC.
15,500,000 Shares of Common Stock
Minimum Purchase -- 250 Shares ($2,500)
100 Shares ($1,000) for IRAs and Keogh and Pension Plans
Minimum purchase may be higher in certain states
Of the 15,500,000 shares of common stock that we have registered, we
are offering 15,000,000 shares to investors who meet our suitability standards
and up to 500,000 shares to participants in our reinvestment plan.
An investment in our shares involves significant risks. See "Risk
Factors" beginning on page 11 for a discussion of material risks that you should
consider before you invest in the common stock being sold with this Prospectus,
including;
o We currently own one property, so you will not have the opportunity to
evaluate all the properties that will be in our portfolio.
o Both the number of properties that we will acquire and the
diversification of our investments will be reduced to the extent that
the total proceeds of the offering are less than $150,000,000. This
will leave us exposed to a potential adverse effect from an
underperforming tenant or an underperforming facility type.
o We will rely on CNL Health Care Corp. with respect to all investment
decisions. CNL Health Care Corp. and its affiliates have limited
previous experience in investing in health care properties, which could
adversely affect our business.
o Some of the officers of CNL Health Care Corp. and its affiliates are or
will be engaged in other activities that will result in conflicts of
interest with the services that CNL Health Care Corp. will provide to
us. Those officers could take actions that are more favorable to other
entities than to us. The resolution of conflicts in favor of other
entities could have a negative impact on our financial performance.
o There is currently no public trading market for the shares, and there
is no assurance that one will develop. If the shares are not listed on
a national securities exchange or over-the-counter market by December
31, 2008, we will sell our assets and distribute the proceeds.
o We have not obtained a commitment for permanent financing and may be
unable to do so on satisfactory terms. Without permanent financing, it
could be more difficult for us to acquire properties and make mortgage
loans and equipment financing. The secured equipment lease program is
not funded through offering proceeds and is therefore dependent upon
our obtaining financing.
o We are subject to risks arising out of government regulation of the
health care industry, which may reduce the value of our investments and
the amount of revenues we receive from tenants. Some of our tenants may
be dependent upon government reimbursements and other tenants may be
dependent on their success in attracting seniors with sufficient
independent means to pay for the tenants' services.
o We may, without the approval of a majority of our independent
directors, incur debt totalling up to 300% of the value of our net
assets, including debt to make distributions to stockholders in order
to maintain our status as a real estate investment trust, or a REIT. If
we are unable to meet our debt service obligations, we may lose our
investment in any properties that secure underlying indebtedness on
which we have defaulted.
o If we do not remain qualified as a REIT for federal income tax
purposes, we could be subject to taxation on our income at regular
corporate rates, which would reduce the amount of funds available for
distributions to stockholders.
o We expect to pay substantial fees to some of our affiliates and
estimate that approximately 9% of the proceeds from the sale of shares
will be paid in fees and expenses to our affiliates for services and as
reimbursement for offering and acquisition related expenses incurred on
our behalf. We will not have as much of the offering proceeds to
purchase properties and make mortgage loans as a result of such
payments. Of the proceeds from the sale of shares, we will use
approximately 84% to acquire properties and to make mortgage loans.
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Total
Per Share Maximum
------------ ----------------
Public Offering Price.................................................. $10.00 $155,000,000
Selling Commissions.................................................... $ 0.75 $ 11,625,000
Proceeds to the Company................................................ $ 9.25 $143,375,000
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. In addition, the Attorney General of
the State of New York has not passed on or endorsed the merits of this offering.
Any representation to the contrary is a criminal offense.
CNL SECURITIES CORP.
_________________, 2000
<PAGE>
o The managing dealer, CNL Securities Corp., is our affiliate. The
managing dealer is not required to sell any specific number or dollar
amount of shares but will use its best efforts to sell the shares.
o This offering will end no later than ________, 2001, unless we elect to
extend it to a date no later than ______, 2002 in states that permit us
to make this extension.
No one is authorized to make any statements about the offering
different from those that appear in this Prospectus. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted. We will only
accept subscriptions from people who meet the suitability standards described in
this Prospectus. You should also be aware that the description of the Company
contained in this Prospectus was accurate on __________, 2000 but may no longer
be accurate. We will amend or supplement this Prospectus, however, if there is a
material change in the affairs of the Company.
No one may make forecasts or predictions in connection with this
offering concerning the future performance of an investment in the shares.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS
Questions and Answers About CNL Health Care
Properties, Inc.'s Public
Offering........................................................................
PROSPECTUS SUMMARY..............................................................
CNL Health Care Properties, Inc............................................
Our Business...............................................................
Risk Factors...............................................................
Our REIT Status............................................................
Our Management and Conflicts of Interest...................................
Our Affiliates.............................................................
Our Investment Objectives..................................................
Management Compensation....................................................
The Offering...............................................................
RISK FACTORS
Offering-Related Risks.....................................................
We may receive insufficient offering proceeds..........................
This is an unspecified property offering...............................
You cannot evaluate properties that we have
not yet acquired or identified for acquisition................
We cannot assure you that we will obtain suitable investments.....
The managing dealer has not made an independent review of
the Company or the Prospectus.................................
There is no limitation on the number of properties of a
particular facility type which we may acquire.................
You will have no opportunity to evaluate procedures for
resolving conflicts of interest...............................
You cannot evaluate secured equipment leases in which we
have not yet entered or that we have not yetidentified........
There may be delays in investing the proceeds of this offering.........
The sale of shares by stockholders could be difficult..................
Company-Related Risks......................................................
We have limited operating history......................................
Our management has limited experience with investments in health
care facilities...................................................
We are dependent on the advisor........................................
We will be subject to conflicts of interest............................
We will experience competition for properties.....................
There will be competing demands on our officers and directors.....
The timing of sales and acquisitions may favor
the advisor...................................................
Our properties may be developed by affiliates.....................
We may invest with affiliates of the advisor......................
There is no separate counsel for the company, our affiliates
and investors.................................................
We may not have sufficient working capital.............................
Real Estate and Other Investment Risks.....................................
Possible lack of diversification increases the risk
of investment.....................................................
We do not have control over market and business conditions.............
Adverse trends in the health care and seniors' housing industry
may impact our properties.........................................
Health Care Facilities.................................................
Some of our tenants and borrowers must attract senior citizens
with ability to pay...........................................
<PAGE>
Failure to comply with government regulations could negatively
affect our tenants and borrowers..............................
Our properties may not be readily adaptable to other uses.........
Our tenants and borrowers may rely on government
reimbursement.................................................
Cost control and other health care reform measures may reduce
reimbursements to our tenants and borrowers...................
Certificate of Need Laws may impose investment barriers for us...
We will not control the management of our properties...................
We may not control the joint ventures in which we enter................
Joint venture partners may have different interests than we have.......
It may be difficult for us to exit a joint venture after an impasse....
We may not have control over properties under construction.............
We will have no economic interest in ground lease properties...........
Multiple property leases or mortgage loans with individual
tenants or borrowers increase our risks...........................
It may be difficult to re-lease our properties.........................
We cannot control the sale of some properties..........................
The liquidation of our assets may be delayed...........................
Risks of Mortgage Lending..............................................
Our mortgage loans may be impacted by unfavorable
real estate market conditions.................................
Our mortgage loans will be subject to interest rate fluctuations..
Delays in liquidating defaulted mortgage loans
could reduce our investment returns...........................
Returns on our mortgage loans may be limited by regulations.......
Risks of Secured Equipment Leasing.....................................
Our collateral may be inadequate to secure leases.................
Returns on our secured equipment leases may be
limited by regulations........................................
Our properties may be subject to environmental liabilities.............
Financing Risks............................................................
We have no commitments for long-term financing.........................
Anticipated borrowing creates risks....................................
We can borrow money to make distributions..............................
Miscellaneous Risks........................................................
Our health care facilities may be unable to compete successfully.......
Inflation could adversely affect our investment returns................
We may not have adequate insurance.....................................
Possible effect of ERISA...............................................
Our governing documents may discourage takeovers.......................
Our stockholders are subject to ownership limits.......................
Majority stockholder vote may discourage changes
of control........................................................
Investors in our Company may experience dilution.......................
The Board of Directors can take many actions without
stockholder approval..............................................
We will rely on the advisor and Board of Directors to
manage the Company................................................
Our officers and directors have limited liability......................
Tax Risks..................................................................
We will be subject to increased taxation if we fail to
qualify as a REIT for federal income tax purposes.................
Our leases may be recharacterized as financings which would
eliminate depreciation deductions on health care properties.......
<PAGE>
Excessive non-real estate asset values may jeopardize our
REIT status.......................................................
We may have to borrow funds or sell assets to meet our
distribution requirements.........................................
Ownership limits may discourage a change in control....................
We may be subject to other tax liabilities.............................
Changes in tax laws may prevent us from qualifying
as a REIT.........................................................
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE......................................
Suitability Standards......................................................
How to Subscribe...........................................................
ESTIMATED USE OF PROCEEDS.......................................................
MANAGEMENT COMPENSATION.........................................................
CONFLICTS OF INTEREST...........................................................
Prior and Future Programs..................................................
Competition to Acquire Properties and Invest in
Mortgage Loans.........................................................
Sales of Properties........................................................
Joint Investment With An Affiliated Program................................
Competition for Management Time............................................
Compensation of the Advisor................................................
Relationship with Managing Dealer..........................................
Legal Representation.......................................................
Certain Conflict Resolution Procedures.....................................
SUMMARY OF REINVESTMENT PLAN....................................................
General....................................................................
Investment of Distributions................................................
Participant Accounts, Fees and Allocation of Shares........................
Reports to Participants....................................................
Election to Participate or Terminate Participation.........................
Federal Income Tax Considerations..........................................
Amendments and Termination.................................................
REDEMPTION OF SHARES............................................................
BUSINESS
General....................................................................
Investment of Offering Proceeds............................................
Property Acquisitions......................................................
Site Selection and Acquisition of Properties...............................
Standards for Investment in Properties.....................................
Description of Properties..................................................
Description of Property Leases.............................................
Joint Venture Arrangements.................................................
Mortgage Loans.............................................................
Management Services........................................................
Borrowing..................................................................
Sale of Properties, Mortgage Loans and Secured
Equipment Leases.......................................................
Competition................................................................
Regulation of Mortgage Loans and Secured
Equipment Leases.......................................................
SELECTED FINANCIAL DATA.........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................
Introduction....................................................................
Liquidity and Capital Resources............................................
Results of Operations......................................................
<PAGE>
MANAGEMENT
General....................................................................
Fiduciary Responsibility of the Board of Directors.........................
Directors and Executive Officers...........................................
Independent Directors......................................................
Committees of the Board of Directors.......................................
Compensation of Directors and Executive Officers...........................
Management Compensation....................................................
THE ADVISOR AND THE ADVISORY AGREEMENT..........................................
The Advisor................................................................
The Advisory Agreement.....................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................
PRIOR PERFORMANCE INFORMATION...................................................
INVESTMENT OBJECTIVES AND POLICIES..............................................
General....................................................................
Certain Investment Limitations.............................................
DISTRIBUTION POLICY.............................................................
General....................................................................
Distributions..............................................................
SUMMARY OF THE ARTICLES OF INCORPORATION
AND BYLAWS
General....................................................................
Description of Capital Stock...............................................
Board of Directors.........................................................
Stockholder Meetings.......................................................
Advance Notice for Stockholder Nominations for Directors
and Proposals of New Business..........................................
Amendments to the Articles of Incorporation................................
Mergers, Combinations and Sale of Assets...................................
Control Share Acquisitions.................................................
Termination of the Company and REIT Status.................................
Restriction of Ownership...................................................
Responsibility of Directors................................................
Limitation of Liability and Indemnification................................
Removal of Directors.......................................................
Inspection of Books and Records............................................
Restrictions on "Roll-Up" Transactions.....................................
FEDERAL INCOME TAX CONSIDERATIONS...............................................
Introduction...............................................................
Taxation of the Company....................................................
Taxation of Stockholders...................................................
State and Local Taxes......................................................
Characterization of Property Leases........................................
Characterization of Secured Equipment Leases...............................
Investment in Joint Ventures...............................................
REPORTS TO STOCKHOLDERS.........................................................
THE OFFERING
General....................................................................
Plan of Distribution.......................................................
Subscription Procedures....................................................
Escrow Arrangements........................................................
ERISA Considerations.......................................................
Determination of Offering Price............................................
SUPPLEMENTAL SALES MATERIAL.....................................................
LEGAL OPINIONS
EXPERTS
ADDITIONAL INFORMATION..........................................................
DEFINITIONS
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Form of Reinvestment Plan Appendix A
Financial Information..................................................................................Appendix B
Prior Performance Tables...............................................................................Appendix C
Subscription Agreement.................................................................................Appendix D
Statement of Estimated Taxable Operating Results
Before Dividends Paid Deduction...................................................................Appendix E
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<PAGE>
Questions and Answers About
CNL Health Care Properties, Inc.'s Public Offering
<PAGE>
Q: What is CNL Health Care Properties, Inc.?
A: The Company is a real estate investment trust, or a REIT, that was formed
in 1997 to acquire properties related to health care and seniors' housing
facilities and lease them on a long-term, triple-net basis to operators
of health care facilities. 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. In addition, the Company
may provide mortgage financing loans and secured equipment leases to
operators of health care facilities.
As of April 20, 2000, the Company had invested in one assisted living
property, a newly constructed Brighton Gardens(R) by Marriott(R), in
Orland Park, Illinois. As of March 31, 2000, the Company had total assets
of over $6,000,000.
Q: What is a REIT?
A: In general, a REIT is a company that:
o combines the capital of many investors to acquire or provide financing
for real estate,
o offers benefits of a diversified portfolio under professional
management,
o typically is not subject to federal corporate income taxes on its net
income, provided certain income tax requirements are satisfied. This
treatment substantially eliminates the "double taxation" (taxation at
both the corporate and stockholder levels) that generally results from
investments in a corporation, and
o must pay distributions to investors of at least 95% of its taxable
income (90% in 2001 and thereafter).
Q: What kind of offering is this?
A: We are offering up to 15,000,000 shares of common stock on a "best
efforts" basis. In addition, we are offering up to 500,000 shares of
common stock to investors who want to participate in our reinvestment
plan.
Q: How does a "best efforts" offering work?
A: When shares are offered to the public on a "best efforts" basis, we are
not guaranteeing that any minimum number of shares will be sold. If you
choose to purchase stock in this offering, you will fill out a
Subscription Agreement, like the one attached to this Prospectus as
Appendix D, and pay for the shares at the time you subscribe. The
purchase price will be placed into escrow with SouthTrust Bank, N.A.
SouthTrust will hold your funds, along with those of other subscribers,
in an interest-bearing account until such time as you are admitted by the
Company as a stockholder. Generally, we admit stockholders no later than
the last day of the calendar month following acceptance of your
subscription.
Q: How long will the offering last?
A: This offering will not last beyond __________, 2001, unless we decide to
extend the offering until not later than _______, 2002, in any state that
allows us to extend the offering.
Q: Who can buy shares?
A: Anyone who receives this Prospectus can buy shares provided that they
have a net worth (not including home, furnishings and personal
automobiles) of at least $45,000 and annual gross income of at least
$45,000; or, a net worth (not including home, furnishings and personal
automobiles) of at least $150,000. However, these minimum levels may vary
from state to state, so you should carefully read the more detailed
description in the "Suitability Standards" section of this Prospectus.
Q: Is there any minimum required investment?
A: Yes. Generally, individuals must initially invest at least $2,500 and
IRA, Keogh or other qualified plans must initially invest at least
$1,000. Thereafter, you may purchase additional shares in $10 increments.
However, these minimum investment levels may vary from state to state, so
you should carefully read the more detailed description of the minimum
investment requirements appearing later in the "Suitability Standards"
section of this Prospectus.
Q: After I subscribe for shares, can I change my mind and withdraw my money?
A: Once you have subscribed for shares and we have deposited the
subscription price with SouthTrust, your subscription is irrevocable,
unless the Company elects to permit you to revoke your subscription.
Q: If I buy shares in the offering, how can I sell them?
A: At the time you purchase shares, they will not be listed for trading on
any national securities exchange or over-the-counter market. In fact, we
expect that there will not be any public market for the shares when you
purchase them, and we cannot be sure if one will ever develop. As a
result, you may find that if you wish to sell your shares, you may not be
able to do so promptly or at a price equal to or greater than the
offering price.
We plan to list the shares on a national securities exchange or
over-the-counter market within three to eight years after commencement of
this offering, if market conditions are favorable. Listing does not
assure liquidity. If we have not listed the shares on a national
securities exchange or over-the-counter market by December 31, 2008, we
plan to sell the properties and other assets and return the proceeds from
the liquidation to our stockholders through distributions.
Beginning one year after you receive your shares, you may ask us to
redeem at least 25% of the shares you own. The redemption procedures are
described in the "Redemption of Shares" section of this Prospectus.
As a result, if a public market for the shares never develops, you may be
able to redeem your shares through the redemption plan beginning one year
from the date on which you received your shares, provided we have
sufficient funds available. If we have not listed and we liquidate our
assets, you will receive proceeds through the liquidation process.
If we list the shares, we expect that you will be able to sell your
shares in the same manner as other listed stocks.
Q: What will you do with the proceeds from this offering?
A: We plan to use approximately 84% of the proceeds to purchase health care
and seniors' housing properties and to make mortgage loans, approximately
9% to pay fees and expenses to affiliates for their services and as
reimbursement of offering and acquisition-related expenses, and the
remaining proceeds to pay other expenses of this offering. The payment of
these fees will not reduce your invested capital. Your initial invested
capital amount will be $10 per share.
Until we invest the proceeds in real estate assets, we will invest them
in short-term, highly liquid investments. These short-term investments
will not earn as high a return as we expect to earn on our real estate
investments, and we cannot predict how long it will be before we will be
able to fully invest the proceeds in real estate.
Assuming we sell 15,000,000 shares in this offering, we expect to be able
to invest approximately $126,000,000 in health care and seniors' housing
properties and mortgage loans.
<PAGE>
Q: What types of health care facilities will you invest in?
A: We intend to purchase primarily assisted living facilities, medical
office buildings and walk-in clinics. In addition, we may purchase
congregate living facilities, skilled nursing facilities, continuing care
retirement communities and life care communities.
Q: What are the terms of your leases?
A: The leases we expect to enter into are long-term (meaning generally 10 to
20 years, plus renewal options for an additional 10 to 20 years),
"triple-net" leases. "Triple-net" means that the tenant, not the Company,
is generally responsible for repairs, maintenance, property taxes,
utilities, and insurance. Under our leases, the tenant must pay us
minimum, base rent on a monthly basis. In addition, our leases generally
will provide for automatic fixed increases in the base rent or increases
in the base rent based on increases in consumer price indices at
predetermined intervals during the term of the lease.
Q: How well have your investments done so far?
A: As of April 20, 2000, we have purchased one newly constructed assisted
living property. The property was purchased in April 2000, so we have
only limited information regarding its performance.
Q: What is the experience of the Company's officers and directors?
A: Our management team has extensive previous experience investing in real
estate on a triple-net basis. Our Chairman of the Board and Chief
Executive Officer, and President have over 25 and 20 years, respectively,
of experience with other CNL affiliates. In addition, our Chief Operating
Officer has extensive previous experience investing in health care and
seniors' housing properties. Our directors are listed below:
o James M. Seneff, Jr. -- Founder, Chairman and Chief Executive Officer
of CNL Holdings, Inc. and its subsidiaries with more than 25 years of
real estate experience. CNL and the entities it has established have
more than $4 billion in assets, representing interests in more than
2,000 properties and 900 mortgage loans in 48 states.
o Robert A. Bourne -- President and director of CNL Financial Group, Inc.
with over 20 years of real estate experience involving net lease
financing.
o David W. Dunbar -- Founder, Chairman and Chief Executive Officer of
Peoples Bank.
o Timothy S. Smick -- Former Chief Operating Officer and director of
Sunrise Assisted Living, Inc., one of the nation's leading providers of
assisted living care for seniors.
o Dr. Edward A. Moses -- Bank of America professor of finance and former
dean of the Roy E. Crummer Graduate School of Business at Rollins
College with over 25 years academic and business consulting experience.
Q: How will you choose which investments to make?
A: We have hired CNL Health Care Corp. as our advisor. The advisor has the
authority, subject to the approval of our directors, to make all of the
Company's investment decisions.
Q: Is the advisor independent of the Company?
A: No. Some of our directors and all of our officers are directors and
officers of the advisor. The conflicts of interest the Company and the
advisor face are discussed under the heading "Conflicts of Interest"
later in this Prospectus.
<PAGE>
Q: If I buy shares, will I receive distributions and, if so, how often?
A: We intend to continue to make quarterly cash distributions to our
stockholders. The Board of Directors determines the amount of
distributions. The amount typically depends on the amount of
distributable funds, current and projected cash requirements, tax
considerations and other factors. However, in order to remain qualified
as a REIT, we must make distributions equal to at least 95% of our REIT
taxable income each year (90% in 2001 and thereafter).
Q: Are distributions I receive taxable?
A: Yes. Generally, distributions that you receive will be considered
ordinary income to the extent they are from current and accumulated
earnings and profits. In addition, because depreciation expense reduces
taxable income but does not reduce cash available for distribution, we
expect a portion of your distributions will be considered return of
capital for tax purposes. These amounts will not be subject to tax
immediately but will instead reduce the tax basis of your investment.
This in effect defers a portion of your tax until your investment is sold
or the Company is liquidated. However, because each investor's tax
implications are different, we suggest you consult with your tax advisor.
Q: When will I get my tax information?
A: Your Form 1099 tax information will be mailed by January 31 of each year.
Q: Do you have a reinvestment plan where I can reinvest my distributions in
additional shares?
A: Yes. We have adopted a reinvestment plan in which some investors can
reinvest their distributions in additional shares. For information on how
to participate in our reinvestment plan, see the section of the
Prospectus entitled "Summary of Reinvestment Plan."
Who Can Help Answer Your Questions?
If you have more questions about the offering or if you would like
additional copies of this Prospectus, you should
contact your registered representative or:
CNL Marketing Services Department
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
(800) 522-3863
(407) 650-1000
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this Prospectus. It
is not complete and may not contain all of the information that you should
consider before investing in our common stock. To understand the offering fully,
you should read this entire Prospectus carefully, including the documents
attached as appendices.
CNL HEALTH CARE PROPERTIES, INC.
CNL Health Care Properties, Inc., which we sometimes refer to as the
"Company," is a Maryland corporation which is qualified and operated for federal
income tax purposes as a real estate investment trust, or a REIT. On December 2,
1999, the Company formed CNL Health Care Partners, LP, a Delaware limited
partnership. CNL Health Care GP Corp. and CNL Health Care LP Corp. are wholly
owned subsidiaries of the Company and are the general and limited partner,
respectively, of CNL Health Care Partners, LP. Properties acquired are expected
to be held by the partnership and, as a result, owned by the Company through the
partnership. The term "Company" includes CNL Health Care Properties, Inc. and
its subsidiaries, CNL Health Care GP Corp., CNL Health Care LP Corp. and CNL
Health Care Partners, LP. Our address is CNL Center at City Commons, 450 South
Orange Avenue, Orlando, Florida 32801, and our telephone number is (407)
650-1000 or toll free (800) 522-3863.
OUR BUSINESS
Our Company acquires health care and seniors' housing properties
located across the United States which it leases to operators of health care
facilities on a long-term, "triple-net" basis. This means that the tenant
generally will be responsible for repairs, maintenance, property taxes,
utilities and insurance. 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. We expect to structure the leases to provide for payment of
base annual rent with periodic increases over the terms of the leases. We may
also offer mortgage financing, and, to a lesser extent, furniture, fixtures and
equipment financing through secured equipment leases as loans or direct
financing leases, to operators of health care facilities. You can read the
section of this Prospectus under the caption "Business" for a description of the
property we currently own, the types of properties that may be selected by our
advisor, CNL Health Care Corp., the property selection and acquisition processes
and the nature of the mortgage loans and secured equipment leases.
We intend to borrow money to acquire properties, make mortgage loans,
enter into secured equipment leases and pay certain fees. We plan to obtain one
or more revolving lines of credit in an aggregate amount up to $45,000,000,
which the Board of Directors may increase in its discretion. On April 20, 2000,
we entered into an initial $25,000,000 revolving line of credit to be used by
the Company to acquire or construct health care properties. In addition to a
line of credit, we may obtain permanent financing. The Board of Directors
anticipates that we will obtain the permanent financing from a bank at a
competitive interest rate and that the aggregate amount of that financing will
not exceed 30% of our total assets. We may repay the line of credit with
offering proceeds, proceeds from the sale of assets, working capital or
permanent financing. The line of credit and permanent financing are the only
sources of funds for making secured equipment leases.
Under our Articles of Incorporation, the Company will automatically
terminate and dissolve on December 31, 2008, unless the shares of common stock
of the Company, including the shares offered by this Prospectus, are listed on a
national securities exchange or over-the-counter market before that date. If the
shares are listed, the Company automatically will become a perpetual life
entity. If we are not listed by December 31, 2008, we will sell our assets,
distribute the net sales proceeds to stockholders and limit our activities to
those related to the Company's orderly liquidation, unless the stockholders
owning a majority of the shares elect to amend the Articles of Incorporation to
extend the duration of the Company.
RISK FACTORS
An investment in our Company is subject to significant risks. We
summarize some of the more important risks below. A more detailed list of the
risk factors is found in the "Risk Factors" section, which begins on page 11.
You should read and understand all of the risk factors before making your
decision to invest.
o We currently own one property, so you will not have the opportunity to
evaluate all the properties that will be in our portfolio.
o We will have reduced diversification of our investments if we raise
less than $150,000,000 from the sale of shares. Reduced diversification
will increase the potential adverse effect on us from an
underperforming tenant or an underperforming facility type.
o We rely on the advisor which, together with the Board of Directors, has
responsibility for the management of our Company and our investments.
Not all of the officers and directors of the advisor and the Company
have extensive experience, and the advisor and our affiliates have
limited previous experience, with acquiring and leasing health care
facilities, which could adversely affect our business.
o The advisor and its affiliates are or will be engaged in other
activities that will result in potential conflicts of interest with the
services that the advisor and affiliates will provide to us. Those
officers could take actions that are more favorable to other entities
than to us. The resolution of conflicts in favor of other entities
could have a negative impact on our financial performance.
o The Board of Directors will have significant flexibility regarding our
operations, including, for example, the ability to issue additional
shares and dilute stockholders' equity interests and the ability to
change the compensation of the advisor and to employ and compensate
affiliates. The Board of Directors can take such actions solely on its
own authority and without stockholder approval.
o We may make investments that will not appreciate in value over time,
such as building only properties, with the land owned by a third-party,
and mortgage loans.
o If you must sell your shares, you will not be able to sell them quickly
because it is not anticipated that there will be a public market for
the shares in the near term, and there can be no assurance that listing
will occur.
o We have not obtained a commitment for permanent financing, and may be
unable to do so on satisfactory terms. If we do not obtain permanent
financing, we may not be able to acquire as many properties or make as
many mortgage loans or secured equipment leases as we anticipated,
which could limit the diversification of our investments and our
ability to achieve our investment objectives.
o In addition to general market and economic conditions, we are subject
to risks arising out of government regulation of the health care
industry, which may reduce the value of our investments and the amount
of revenues we receive from tenants. Some of our tenants may be
dependent upon government reimbursements and other tenants, to the
extent that they are not dependent upon government reimbursements, may
be dependent on their success in attracting senior citizens with
sufficient independent means to pay for the tenants' services.
o We cannot predict the amount of revenues we will receive from tenants
and borrowers.
o We may, without the approval of a majority of the independent
directors, incur debt totalling up to 300% of the value of our net
assets, including debt to make distributions to stockholders in order
to maintain our status as a REIT. We cannot assure you that we will be
able to meet our debt service obligations, including interest costs
which may be substantial.
o In connection with any borrowing, we may mortgage or pledge our assets,
which would put us at risk of losing the assets if we are unable to pay
our debts.
o If our tenants or borrowers default, we will have less income with
which to make distributions.
o The vote of stockholders owning at least a majority but less than all
of the shares will bind all of the stockholders as to matters such as
the election of directors and amendment of the Company's governing
documents.
o Restrictions on ownership of more than 9.8% of the shares of our common
stock by any single stockholder or certain related stockholders may
have the effect of inhibiting a change in control of the Company, even
if such a change is in the interest of a majority of the stockholders.
o We may not remain qualified as a REIT for federal income tax purposes,
which would subject us to federal income tax on our taxable income at
regular corporate rates, and reduce the amount of funds available for
paying distributions to you as a stockholder.
o We expect to pay substantial fees to affiliates and estimate that
approximately 9% of the proceeds from the sale of shares will be paid
in fees and expenses to affiliates for services and as reimbursement
for offering and acquisition related expenses incurred on our behalf.
The amount of proceeds that will be available to purchase properties
and to make mortgage loans will be decreased as a result of such
payments.
OUR REIT STATUS
We made an election to be taxed as a REIT beginning our taxable year
ending December 31, 1999. As a REIT, we generally are not subject to federal
income tax on income that we distribute to our stockholders. Under the Internal
Revenue Code of 1986, as amended, REITs are subject to numerous organizational
and operational requirements, including a requirement that they distribute at
least 95% of their taxable income, as figured on an annual basis (90% in 2001
and thereafter). If we fail to qualify for taxation as a REIT in any year, our
income will be taxed at regular corporate rates, and we may not be able to
qualify for treatment as a REIT for that year and the next four years. Even if
we qualify as a REIT for federal income tax purposes, we may be subject to
federal, state and local taxes on our income and property and to federal income
and excise taxes on our undistributed income.
OUR MANAGEMENT AND CONFLICTS OF INTEREST
We have retained the advisor to provide us with management,
acquisition, advisory and administrative services. The members of our Board of
Directors oversee the management of the Company. The majority of the directors
are independent of the advisor and have responsibility for reviewing its
performance. The directors are elected annually to the Board of Directors by the
stockholders.
All of the executive officers and directors of the advisor also are
officers or directors of the Company. The advisor has responsibility for (i)
selecting the properties that we will acquire, formulating and evaluating the
terms of each proposed acquisition, and arranging for the acquisition of the
property by the Company; (ii) identifying potential tenants for the properties
and potential borrowers for the mortgage loans, and formulating, evaluating and
negotiating the terms of each lease of a property and each mortgage loan; (iii)
locating and identifying potential lessees and formulating, evaluating and
negotiating the terms of each secured equipment lease; and (iv) negotiating the
terms of any borrowing by the Company, including lines of credit and any
long-term, permanent financing. All of the advisor's actions are subject to
approval by the Board of Directors. The advisor also has the authority, subject
to approval by a majority of the Board of Directors, including a majority of the
independent directors, to select assets for sale by the Company in keeping with
the Company's investment objectives and based on an analysis of economic
conditions both nationally and in the vicinity of the assets being considered
for sale.
You can read the sections of this Prospectus under the captions
"Management" and "The Advisor and The Advisory Agreement" for a description of
the business background of the individuals responsible for the management of the
Company and the advisor, as well as for a description of the services the
advisor will provide.
Some of our officers and directors, who are also officers or directors
of the advisor, may experience conflicts of interest in their management of the
Company. These arise principally from their involvement in other activities that
may conflict with our business and interests, including matters related to (i)
allocation of new investments and management time and services between us and
various other entities, (ii) the timing and terms of the investment in or sale
of an asset, (iii) development of our properties by affiliates, (iv) investments
with affiliates of the advisor, (v) compensation to the advisor, (vi) our
relationship with the managing dealer, CNL Securities Corp., which is an
affiliate of the Company and the advisor, and (vii) the fact that our securities
and tax counsel also serves as securities and tax counsel for some of our
affiliates, and that neither the Company nor the stockholders will have separate
counsel. The "Conflicts of Interest" section of this Prospectus discusses in
more detail the more significant of these potential conflicts of interest, as
well as the procedures that have been established to resolve a number of these
potential conflicts.
<PAGE>
OUR AFFILIATES
The "Prior Performance Information" section of this Prospectus contains
a narrative discussion of the public and private real estate programs sponsored
by our affiliates and affiliates of the advisor in the past, including 18 public
limited partnerships and two unlisted public REITs. As of December 31, 1999,
these entities, which invest in properties that are leased on a "triple-net"
basis, but do not invest in health care and seniors' housing properties, had
purchased approximately 1,400 fast-food, family-style, and casual-dining
restaurant properties and 11 hotel properties. Based on an analysis of the
operating results of the 90 real estate limited partnerships and two unlisted
public REITs in which our principals have served, individually or with others,
as general partners or officers and directors, we believe that each of these
entities has met, or is in the process of meeting, its principal investment
objectives. Statistical data relating to certain of the public limited
partnerships and the unlisted REITs are contained in Appendix C -- Prior
Performance Tables.
OUR INVESTMENT OBJECTIVES
Our Company's primary investment objectives are to preserve, protect,
and enhance our assets, while:
o making distributions.
o obtaining fixed income through the receipt of base rent and
payments on mortgage loans and secured equipment leases, and to
increase our income (and distributions) and provide protection
against inflation through automatic increases in base rent or
increases in the base rent based on increases in consumer price
indices over the terms of the leases.
o remaining qualified as a REIT for federal income tax purposes.
o providing you with liquidity for your investment within three to
eight years after commencement of this offering, either through
(i) listing our shares on a national securities exchange or
over-the-counter market or (ii) if listing does not occur within
eight years after commencement of the offering, selling our
assets and distributing the proceeds.
You can read the sections of this Prospectus under the captions
"Business -- General," "Business -- Site Selection and Acquisition of
Properties," "Business -- Description of Property Leases" and "Investment
Objectives and Policies" for a more complete description of the manner in which
the structure of our business facilitates our ability to meet our investment
objectives.
MANAGEMENT COMPENSATION
We will pay the advisor, CNL Securities Corp., which is the managing
dealer for this offering, and other affiliates of the advisor compensation for
services they will perform for us. We will also reimburse them for expenses they
pay on our behalf. The following paragraphs summarize the more significant items
of compensation and reimbursement. See "Management Compensation" for a complete
description.
Offering Stage.
Selling Commissions and Marketing Support and Due Diligence
Expense Reimbursement Fee. The Company will pay the managing dealer selling
commissions of 7.5% (a maximum of $11,250,000 if 15,000,000 shares are sold),
and a marketing support and due diligence expense reimbursement fee of 0.5% (a
maximum of $750,000 if 15,000,000 shares are sold). The managing dealer in turn
may pass along selling commissions of up to 7% on shares sold, and all or a
portion of the 0.5% marketing support and due diligence expense reimbursement
fee, to soliciting dealers who are not affiliates of the Company.
Acquisition Stage.
Acquisition Fees. The Company will pay the advisor a fee equal
to 4.5% of the total proceeds of this offering, loan proceeds from permanent
financing and amounts outstanding on the line of credit, if any, at the time of
listing ($6,750,000 if 15,000,000 shares are sold and up to an additional
$2,025,000 if permanent financing
<PAGE>
equals $45,000,000) for identifying the properties, structuring the terms of the
acquisition and leases of the properties and structuring the terms of the
mortgage loans. Amounts used to finance secured equipment leases will not be
used to calculate acquisition fees.
Operational Stage.
Asset Management Fee. The Company will pay the advisor a
monthly asset management fee of one-twelfth of 0.60% of an amount equal to the
total amount invested in the properties (exclusive of acquisition fees and
acquisition expenses) plus the total outstanding principal amounts of the
mortgage loans, as of the end of the preceding month, for managing the
properties and mortgage loans.
Soliciting Dealer Servicing Fee. Beginning on December 31 of
the year following the year in which this offering terminates, and every
December 31 thereafter until the Company's shares are listed or the Company
liquidates, the Company will pay to the managing dealer 0.20% of the product of
the number of shares from this offering held by stockholders on that date and
$10.00, reduced by distributions received by stockholders from the sale of
assets of the Company and amounts paid by the Company to repurchase shares under
its redemption plan. The managing dealer may pass along all or a portion of this
amount to soliciting dealers whose clients own shares on that date.
Secured Equipment Lease Servicing Fee. The Company will pay
the advisor a one-time secured equipment lease servicing fee of 2% of the
purchase price of the equipment that is the subject of a secured equipment lease
for negotiating secured equipment leases and supervising the secured equipment
lease program.
Operational or Liquidation Stage.
We will not pay the following fees until we have paid distributions to
stockholders equal to the sum of an aggregate, annual, cumulative, noncompounded
8% return on their invested capital plus 100% of the stockholders' aggregate
invested capital, which is what we mean when we call a fee "subordinated." In
general, we calculate the stockholders' invested capital by multiplying the
number of shares owned by stockholders by the offering price per share and
reducing the product by the portion of all prior distributions paid to
stockholders from the sale of our assets and by any amounts paid by us to
repurchase shares under the redemption plan.
Deferred, Subordinated Real Estate Disposition Fee. The
Company may pay the advisor a real estate disposition fee equal to the lesser of
one-half of a competitive real estate commission or 3% of the gross sales price
of the property for providing substantial services in connection with the sale
of any of its properties. You can read the section of this Prospectus under the
caption "The Advisor and the Advisory Agreement -- The Advisory Agreement" if
you want more information about real estate disposition fees that we may pay to
the advisor.
Deferred, Subordinated Share of Net Sales Proceeds from the
Sale of Assets. The Company will pay to the advisor a deferred, subordinated
share of net sales proceeds from the sale of assets of the Company in an amount
equal to 10% of net sales proceeds.
The Company's obligation to pay some fees may be subject to conditions
and restrictions or may change in some instances. The Company may reimburse the
advisor and its affiliates for out-of-pocket expenses that they incur on behalf
of the Company, subject to certain expense limitations. In addition, the Company
may pay the advisor and its affiliates a subordinated incentive fee if listing
of the Company's common stock on a national securities exchange or
over-the-counter market occurs.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING
Offering Size............................... o Maximum-- $155,000,000
o $150,000,000 of common
stock to be offered to
investors meeting certain
suitability standards and
up to $5,000,000 of common
stock available to
investors who purchased
their shares in this
offering or our initial
public offering and who
choose to participate in
our reinvestment plan.
Minimum Investments......................... o Individuals-- $2,500--
Additional shares may be
purchased in
ten dollar increments.
o IRA, Keogh and other
qualified plans -- $1,000
-- Additional shares may be
purchased in ten dollar
increments.
(Note: The amounts apply to most potential investors, but
minimum investments may vary from state to state. Please
see "The Offering" section, which begins on page 104).
Suitability Standards....................... o Net worth (not including home, furnishings and personal
automobiles) of at least $45,000 and annual gross income of
at least $45,000; or
o Net worth (not including
home, furnishings and
personal automobiles) of at
least $150,000.
(Note: Suitability standards may vary from state to state.
Please see the "Suitability Standards and How to Subscribe"
section, which begins on page 23).
Duration and Listing........................ Anticipated to be three to eight years from the commencement of
this offering. If the shares are listed on a national
securities exchange or over-the-counter market, our Company will
become a perpetual life entity, and we will then reinvest
proceeds from the sale of assets.
Distribution Policy......................... Consistent with our objective of qualifying as a REIT, we expect
to continue to pay quarterly distributions and distribute at
least 95% of our REIT taxable income (90% in 2001 and
thereafter).
Our Advisor................................. CNL Health Care Corp. will administer the day-to-day operations
of our Company and select our Company's real estate investments,
mortgage loans and secured equipment leases.
Estimated Use of Proceeds................... o 84%-- To acquire health care and seniors' housing properties
and make mortgage loans
o 9% -- To pay fees and expenses to affiliates for their
services and as reimbursement of offering and
acquisition-related expenses
o 7% -- To pay for other expenses of the offering
Our Reinvestment Plan....................... We have adopted a reinvestment plan which will allow some
stockholders to have the full amount of their distributions
reinvested in additional shares that may be available. We have
registered 500,000 shares of our common stock for this purpose.
See the "Summary of Reinvestment Plan" and the "Federal Income
Tax Considerations-- Taxation of Stockholders" sections and the
Form of Reinvestment Plan accompanying this Prospectus as
Appendix A for more specific information about the reinvestment
plan.
</TABLE>
<PAGE>
RISK FACTORS
An investment in our shares involves significant risks and therefore is
suitable only for persons who understand those risks and their consequences and
who are able to bear the risk of loss of their investment. You should consider
the following risks in addition to other information set forth elsewhere in this
Prospectus before making your investment decision.
We also caution you that this Prospectus contains forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our expectations
reflected in the forward-looking statements are based on reasonable assumptions,
these expectations may not prove to be correct. Important factors that could
cause our actual results to differ materially from the expectations reflected in
these forward-looking statements include those set forth below, as well as
general economic, business and market conditions, changes in federal and local
laws and regulations and increased competitive pressures.
OFFERING-RELATED RISKS
We may receive insufficient offering proceeds. We are making this
offering on a best efforts basis and there can be no assurance that we will sell
the maximum number of shares. In an offering made on a best efforts basis, there
is no guarantee that any specific amount of money will be raised in the
offering.
We commenced our first offering in September 1998 and began operations
in July 1999. However, as of March 31, 2000, we had only approximately
$6,200,000 in total assets and approximately $4,300,000 in net assets. We
purchased our first property on April 20, 2000 at a purchase price of
approximately $13,900,000. We will be able to purchase additional properties
only as additional funds are raised.
Our potential profitability and our ability to diversify our
investments, both geographically and by type of properties purchased, will be
limited by the amount of funds we raise.
This is an unspecified property offering.
You cannot evaluate properties that we have not yet acquired
or identified for acquisition. We have established certain criteria for
evaluating particular properties and the operators of the properties in which we
may invest. We have not set fixed minimum standards relating to creditworthiness
of tenants and therefore the Board of Directors has flexibility in assessing
potential tenants. As of the date of this Prospectus, we have acquired one
assisted living property. You can read the section of the Prospectus under the
caption "Business -- Property Acquisitions" for a description. Accordingly, this
is an unspecified property offering, and as a prospective investor, you have no
information to assist you in evaluating the merits of any additional properties
to be purchased or developed by the Company. In addition, the Board of Directors
may approve future equity offerings or obtain financing, the proceeds of which
may be invested in additional properties; therefore, you will not have an
opportunity to evaluate all of the properties that will be in our portfolio. You
can read the sections of this Prospectus under the captions "Business --
General" and "Business -- Standards for Investment in Properties" if you want
more information about the types of properties in which we plan to invest and
our criteria for evaluating properties.
We cannot assure you that we will obtain suitable investments.
We cannot be sure that we will be successful in obtaining suitable investments
on financially attractive terms or that, if we make investments, our objectives
will be achieved. If we are unable to find suitable investments, our financial
condition and ability to pay distributions could be adversely affected.
The managing dealer has not made an independent review of the
Company or the Prospectus. The managing dealer, CNL Securities Corp., is an
affiliate of the Company and will not make an independent review of the Company
or the offering. Accordingly, you do not have the benefit of an independent
review of the terms of this offering.
<PAGE>
There is no limitation on the number of properties of a
particular facility type which we may acquire. There is no limit on the number
of properties of a particular facility type which we may acquire, and we are not
obligated to invest in more than one type of facility. The Board of Directors,
however, including a majority of the independent directors, will review our
properties and potential investments in terms of geographic, facility type or
operator diversification.
You will have no opportunity to evaluate procedures for
resolving conflicts of interest. The advisor or its affiliates from time to time
may acquire properties on a temporary basis with the intention of subsequently
transferring the properties to one or more of the CNL Holdings, Inc. programs.
We have adopted guidelines to minimize such conflicts which you can review in
the section of this Prospectus captioned "Conflicts of Interest -- Competition
to Acquire Properties and Invest in Mortgage Loans." You will not have the
opportunity to evaluate the manner in which these conflicts of interest are
resolved.
You cannot evaluate secured equipment leases in which we have
not yet entered or that we have not yet identified. We have not yet made any
arrangements to enter into a secured equipment lease. Therefore, you will not
have any information with which to evaluate any individual secured equipment
lease or the secured equipment lease program in general. We cannot assure you
that we will be successful in choosing suitable operators who will fulfill their
obligations under secured equipment leases or that we will be able to negotiate
secured equipment leases on favorable terms.
There may be delays in investing the proceeds of this offering. We may
delay investing the proceeds of this offering for up to the later of two years
from the commencement of this offering or one year after termination of the
offering; although, we expect to invest substantially all net offering proceeds
by the end of that period. The "Prior Performance Information" section provides
a summary description of the investment experience of affiliates of the advisor
in prior CNL programs, but you should be aware that previous experience is not
necessarily indicative of the rate at which the proceeds of this offering will
be invested.
We may delay investing the proceeds from this offering, and therefore
delay the receipt of any returns from such investments, due to the inability of
the advisor to find suitable properties or mortgage loans for investment. Until
we invest in properties or make mortgage loans, our investment returns will be
limited to the rates of return available on short-term, highly liquid
investments that provide appropriate safety of principal. We expect these rates
of return, which affect the amount of cash available to make distributions to
stockholders, to be lower than we would receive for property investments or
mortgage loans. Further, if we are required to invest any funds in properties
and mortgage loans and we have not done so or reserved those funds for Company
purposes within the later of two years from the initial date of this Prospectus,
or one year after the termination of this offering, we will distribute the
remaining funds pro rata to the persons who are stockholders of the Company at
that time.
The sale of shares by stockholders could be difficult. Currently there
is no public market for the shares, so stockholders may not be able to sell
their shares promptly at a desired price. Therefore, you should consider
purchasing the shares as a long-term investment only. We do not know if we will
ever apply to list our shares on a national securities exchange or
over-the-counter market, or, if we do apply for listing, when such application
would be made or whether it would be accepted. If our shares are listed, we
cannot assure you a public trading market will develop. In any event, the
Articles of Incorporation provide that we will not apply for listing before the
completion or termination of this offering. We cannot assure you that the price
you would receive in a sale on a national securities exchange or
over-the-counter market would be representative of the value of the assets we
own or that it would equal or exceed the amount you paid for the shares.
COMPANY-RELATED RISKS
We have limited operating history. As of the date of this Prospectus,
we have acquired one assisted living property and prior to July 13, 1999, the
date our operations commenced, had no previous performance history. As a result,
you cannot be sure how the Company will be operated, whether it will pursue the
objectives described in this Prospectus or how it will perform financially.
Our management has limited experience with investments in health care
facilities. None of the prior programs organized by our affiliates has invested
in health care facilities. While certain of our directors and officers have
experience in investing in health care facilities, the lack of experience of the
majority of our management team and the advisor and its affiliates in
purchasing, leasing and selling health care facilities may adversely affect our
results of operations.
We are dependent on the advisor. The advisor, with approval from the
Board of Directors, is responsible for our daily management, including all
acquisitions, dispositions and financings. The Board of Directors may fire the
advisor, with or without cause, but only subject to payment and release of the
advisor from all guarantees and other obligations incurred as advisor, which are
referenced in the "Management Compensation" section of this Prospectus. We
cannot be sure that the advisor will achieve our objectives or that the Board of
Directors will be able to act quickly to remove the advisor if it deems removal
necessary. As a result, it is possible that we would be managed for some period
by a company that was not acting in our best interests or not capable of helping
us achieve our objectives.
We will be subject to conflicts of interest.
We will be subject to conflicts of interest arising out of our
relationships with the advisor and its affiliates, including the material
conflicts discussed below. The "Conflicts of Interest" section provides a
further discussion of the conflicts of interest between us and the advisor and
its affiliates and our policies to reduce or eliminate certain potential
conflicts.
We will experience competition for properties. The advisor or
its affiliates from time to time may acquire properties on a temporary basis
with the intention of subsequently transferring the properties to us. The
selection of properties to be transferred by the advisor to us may be subject to
conflicts of interest. We cannot be sure that the advisor will act in our best
interests when deciding whether to allocate any particular property to us. You
will not have the opportunity to evaluate the manner in which these conflicts of
interest are resolved before making your investment.
There will be competing demands on our officers and directors.
Our directors and some of our officers, and the directors and some of the
officers of the advisor have management responsibilities for other companies,
including companies that may in the future invest in some of the same types of
assets in which we may invest. For this reason, these officers and directors
will share their management time and services among those companies and us, will
not devote all of their attention to us and could take actions that are more
favorable to the other companies than to us.
The timing of sales and acquisitions may favor the advisor.
The advisor may immediately realize substantial commissions, fees and other
compensation as a result of any investment in or sale of an asset by us. Our
Board of Directors must approve any investments and sales, but the advisor's
recommendation to the Board may be influenced by the impact of the transaction
on the advisor's compensation. The agreements between us and the advisor were
not the result of arm's-length negotiations. As a result, the advisor may not
always act in the Company's best interests, which could adversely affect our
results of operations.
Our properties may be developed by affiliates. Properties that
we acquire may require development prior to use by a tenant. Our affiliates may
serve as developer and if so, the affiliates would receive the development fee
that would otherwise be paid to an unaffiliated developer. The Board of
Directors, including the independent directors, must approve employing an
affiliate of ours to serve as a developer. There is a risk, however, that we
would acquire properties that require development so that an affiliate would
receive the development fee.
We may invest with affiliates of the advisor. We may invest in
joint ventures with another program sponsored by the advisor or its affiliates.
The Board of Directors, including the independent directors, must approve the
transaction, but the advisor's recommendation may be affected by its
relationship with one or more of the co-venturers and may be more beneficial to
the other programs than to us.
There is no separate counsel for the Company, our affiliates
and investors. We may have interests that conflict with yours and those of our
affiliates, but none of us has the benefit of separate counsel.
We may not have sufficient working capital. We cannot assure you that
we will have sufficient working capital. As of March 31, 2000, we had
stockholder's equity of approximately $4,300,000. If we do not have sufficient
capital, we may not be able to pay certain expenses or loan payments due on the
line of credit or permanent financing which could result in our defaulting under
such loans.
<PAGE>
REAL ESTATE AND OTHER INVESTMENT RISKS
Possible lack of diversification increases the risk of investment.
Based on the estimated purchase price of each health care facility ranging from
$1,000,000 to $30,000,000, we anticipate owning or financing with the net
proceeds of this offering between four and 126 properties, depending on the
types of properties, if the maximum offering proceeds are raised. Assuming an
average purchase price of $10,000,000 per property, based on our present
expectation of the prices of properties in which we will most likely invest, and
assuming gross proceeds of $150,000,000 are raised, we would acquire or finance
approximately 12 properties with the proceeds of this offering. Depending on the
purchase price of each health care facility, we may not be able to achieve
diversification by tenant, facility type or geographic location. Lack of
diversification will increase the potential adverse effect on us of a single
underperforming tenant, an underperforming facility type or a depressed
geographic region.
We do not have control over market and business conditions. Changes in
general or local economic or market conditions, increased costs of energy,
increased costs of products, increased costs and shortages of labor, competitive
factors, fuel shortages, quality of management, the ability of a health care
facility to fulfill its obligations, limited alternative uses for the building,
changing consumer habits, condemnation or uninsured losses, changing
demographics, changing government regulations, inability to remodel outmoded
buildings as required by the franchise or lease agreement, voluntary termination
by a tenant of its obligations under a lease, bankruptcy of a tenant or
borrower, and other factors beyond our control may reduce the value of the
property that we currently own or those that we acquire in the future, the
ability of tenants to pay rent on a timely basis, the amount of the rent and the
ability of borrowers to make mortgage loan payments on time. If tenants are
unable to make lease payments or borrowers are unable to make mortgage loan
payments as a result of any of these factors, we might not have cash available
to make distributions to our stockholders.
Adverse trends in the health care and seniors' housing industry may
impact our properties. The success of our properties will depend largely on the
property operators' ability to adapt to dominant trends in the health care and
seniors' housing industry, including greater competitive pressures, increased
consolidation, industry overbuilding, increased regulation and reform, changing
demographics, availability of labor, price levels and general economic
conditions. The "Business -- General" section includes a description of the size
and nature of the health care and seniors' housing industry and current trends
in this industry. If operators of our properties are unable to adapt to dominant
trends in the health care and seniors' housing industry, our income and funds
available for distribution could be adversely impacted.
Health Care Facilities.
Some of our tenants and borrowers must attract senior citizens with
ability to pay. Some of the health care facilities which we intend to own or
finance, in particular, assisted living and independent living facilities,
depend on their ability to attract senior citizens with the ability to pay for
the services they receive. While a portion of the fees payable by residents of
health care facilities may be reimbursed by government and private payors, many
are substantially dependent on the ability of the residents and their families
to pay directly. In addition, some payors, such as Medicare, limit the number of
days for which payment will be made in some settings, such as skilled nursing
facilities, and all payors limit the types of services for which payment will be
made and/or the amount paid for each particular service. Inflation or other
circumstances could affect the ability of residents to continue to pay for the
services they receive. Although we do not anticipate that base lease and
mortgage loan payments will be linked to the fees or rates received by the
operators, certain leases and mortgage loans may provide that we will receive a
percentage of the fees or rates charged by the operator to residents. If
residents of health care facilities are unable to pay fees owed to the
facilities' operators, the operators could be adversely affected and may be
unable to make base lease and loan payments. This could have a material adverse
impact on the amount of lease and loan payments we receive in excess of base
amounts.
Failure to comply with government regulations could negatively affect
our tenants and borrowers. The health care industry is highly regulated by
federal, state and local licensing requirements, facility inspections,
reimbursement policies, regulations concerning capital and other expenditures,
certification requirements and other laws, regulations and rules. The failure of
any tenant or borrower to comply with such laws, requirements and regulations
could affect a tenant's or borrower's ability to operate the health care
facilities that we own or finance. Health care operators are subject to federal
and state laws and regulations that govern financial and other arrangements
between health care providers. These laws prohibit certain direct and indirect
payments or fee-splitting arrangements between health care providers that are
designed to induce or encourage the referral of patients to, or the
recommendation of, a particular provider for medical products and services. They
also require compliance with a variety of safety, health and other requirements
relating to the design and conditions of the licensed facility and quality of
care provided. These regulations may also enable the regulatory agency to place
liens on the property which may be senior to our secured position. Possible
sanctions for violation of these laws and regulations include loss of licensure
or certification, the imposition of civil monetary and criminal penalties, and
potential exclusion from the Medicare and Medicaid programs.
Because this area of the law currently is subject to intense scrutiny,
additional laws and regulations may be enacted or adopted that could require
changes in the design of the properties and certain operations of our tenants
and borrowers. For example, a tenant's loss of licensure or Medicare/Medicaid
certification could result in our having to obtain another tenant for the
affected health care facility. In addition, a tenant may be required to make
significant modifications to the property and may not have the financial ability
to do so. We cannot assure you that we could contract with another tenant on a
timely basis or on acceptable terms. Our failure to do so could have an adverse
effect on our financial condition or results of operations.
Our properties may not be readily adaptable to other uses. We
anticipate that some of the properties in which we will invest may be special
purpose properties that could not be readily converted into general residential,
retail or office use. Transfers of operations of health care facilities often
are subject to regulatory approvals not required for transfers of other types of
commercial operations and other types of real estate. Therefore, if the
operation of any of our properties becomes unprofitable for its operator due to
competition, age of improvements or other factors such that the tenant becomes
unable to meet its obligations under the lease, the liquidation value of the
property may be substantially less than would be the case if the property were
readily adaptable to other uses. The receipt of liquidation proceeds could be
delayed by the approval process of any state agency necessary for the transfer
of the property. Should any of these events occur, our income and funds
available for distribution could be reduced.
Our tenants and borrowers may rely on government
reimbursement. Our tenants and borrowers, particularly those operating skilled
nursing facilities, may derive a significant portion of their revenues from
governmentally funded programs, such as Medicaid and Medicare. Although, we do
not anticipate that lease and mortgage loan payments will be linked to the level
of government reimbursement received by the operators, to the extent that
changes in government funding programs adversely affect the operators or the
revenues received by those operators, such changes could adversely affect the
ability of the operators to make lease and loan payments to us and/or the amount
of such payments if and to the extent they are based on gross revenues. Failure
of the tenants and borrowers to make their lease and loan payments, and/or
reductions in such payments, would have a direct and material adverse effect on
our operations.
Medicaid, which is a medical assistance program for persons with few
assets and minimal income operated by individual states with the financial
participation of the federal government, provides a significant source of
revenue for skilled nursing facilities. The method of reimbursement under
Medicaid varies from state to state, but is typically based on per diem or per
diagnosis rates. The Medicaid program is subject to change and is affected by
state and federal budget shortfalls and funding restrictions which may
materially decrease rates of payment or delay payment. We cannot assure you that
Medicaid payments will remain constant or be sufficient to cover costs allocable
to Medicaid patients. While Medicare, the federal health program for the aged
and some chronically disabled individuals, is not anticipated to be a major
source of revenue for the types of health care facilities in which we expect to
invest or make mortgage loans, we have reserved the right to invest in or make
mortgage loans to other types of health care facilities that are substantially
dependent on Medicare funding. Like the Medicaid program, the Medicare program
is highly regulated and subject to frequent and substantial changes, many of
which may result in reduced levels of payment for a substantial portion of
health care services. In addition to pressures from providers of government
reimbursement, we may experience pressures from private payors attempting to
control health care costs, and reimbursement from private payors eventually may
decrease to levels approaching those of government payors.
Cost control and other health care reform measures may reduce
reimbursements to our tenants and borrowers. The health care industry is facing
various challenges, including increased government and private payor pressure on
health care providers to control costs and the vertical and horizontal
consolidation of health care providers. The pressure to control health care
costs has intensified in recent years as a result of the national health care
reform debate and has continued as Congress attempts to slow the rate of growth
of federal health care expenditures as part of its effort to balance the federal
budget. Similar debates are ongoing at the state level in many states. We
believe that government and private efforts to contain and reduce health care
costs will continue. These trends are likely to lead to reduced or slower growth
in reimbursement for services provided by some of our tenants and borrowers. We
cannot predict whether governmental reforms will be adopted and, if adopted,
whether the implementation of these reforms will have a material adverse effect
on our financial condition or results of operations.
Certificate of Need Laws may impose investment barriers for
us. Some states regulate the supply of some types of health care facilities,
such as skilled nursing facilities, through Certificate of Need Laws. A
Certificate of Need typically is a written statement issued by a state
regulatory agency evidencing a community's need for a new, converted, expanded
or otherwise significantly modified health care facility or service which is
regulated pursuant to the state's statutes. These restrictions may create
barriers to entry or expansion and may limit the availability of properties for
our acquisition or development. In addition, we may invest in properties which
cannot be replaced if they become obsolete unless such replacement is approved
or exempt under a Certificate of Need Law.
We will not control the management of our properties. Our tenants will
be responsible for maintenance and other day-to-day management of the
properties. Because our revenues will largely be derived from rents, our
financial condition will be dependent on the ability of third-party tenants that
we do not control to operate the properties successfully. We intend to enter
into leasing agreements only with tenants having substantial prior experience in
the operation of health care facilities. While our initial property acquisition
meets that criterion, there can be no assurance that we will be able to make
such arrangements on other transactions. If our tenants are unable to operate
the properties successfully, they may not be able to pay their rent, which could
adversely affect our financial condition.
We may not control the joint ventures in which we enter. Our
independent directors must approve all joint venture or general partnership
arrangements in which we enter. Subject to that approval, we may enter into a
joint venture with an unaffiliated party to purchase a property, and the joint
venture or general partnership agreement relating to that joint venture or
partnership may provide that we will share management control of the joint
venture with the unaffiliated party. In the event the joint venture or general
partnership agreement provides that we will have sole management control of the
joint venture, the agreement may be ineffective as to a third party who has no
notice of the agreement, and we therefore may be unable to control fully the
activities of the joint venture. If we enter into a joint venture with another
program sponsored by an affiliate, we do not anticipate that we will have sole
management control of the joint venture.
Joint venture partners may have different interests than we have.
Investments in joint ventures involve the risk that our co-venturer may have
economic or business interests or goals which, at a particular time, are
inconsistent with our interests or goals, that the co-venturer may be in a
position to take action contrary to our instructions, requests, policies or
objectives, or that the co-venturer may experience financial difficulties. Among
other things, actions by a co-venturer might subject property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture agreement or to other adverse consequences. If we do not have full
control over a joint venture, the value of our investment will be affected to
some extent by a third party that may have different goals and capabilities than
ours. As a result, joint ownership of investments may adversely affect our
returns on the investments and, therefore, our ability to pay distributions to
our stockholders.
It may be difficult for us to exit a joint venture after an impasse. If
we enter into a joint venture, there will be a potential risk of impasse in some
joint venture decisions since our approval and the approval of each co-venturer
will be required for some decisions. In any joint venture with an affiliated
program, however, we will have the right to buy the other co-venturer's interest
or to sell our own interest on specified terms and conditions in the event of an
impasse regarding a sale. In the event of an impasse, it is possible that
neither party will have the funds necessary to complete the buy-out. In
addition, we may experience difficulty in locating a third-party purchaser for
our joint venture interest and in obtaining a favorable sale price for the
interest. As a result, it is possible that we may not be able to exit the
relationship if an impasse develops. You can read the section of this Prospectus
under the caption "Business -- Joint Venture Arrangements" if you want more
information about the terms that our joint venture arrangements are likely to
include.
We may not have control over properties under construction. We intend
to acquire sites on which a property that we will own will be built, as well as
sites which have existing properties (including properties which require
renovation). If we acquire a property for development or renovation, we may be
subject to risks in connection with a developer's ability to control
construction costs and the timing of completion of construction or a developer's
ability to build in conformity with plans, specifications and timetables. Our
agreements with a developer will provide safeguards designed to minimize these
risks. In the event of a default by a developer, we generally will have the
right to require the tenant to purchase the property that is under development
at a pre-established price designed to reimburse us for all acquisition and
development costs. We cannot be sure, however, that the tenants will have
sufficient funds to fulfill their obligations under these agreements. You can
read the section of this Prospectus under the caption "Business -- Site
Selection and Acquisition of Properties" if you want more information about
property development and renovation.
We will have no economic interest in ground lease properties. If we
invest in ground lease properties, we will not own, or have a leasehold interest
in, the underlying land, unless we enter into an assignment or other agreement.
Therefore, with respect to ground lease properties, the Company will have no
economic interest in the land or building at the expiration of the lease on the
underlying land; although, we generally will retain partial ownership of, and
will have the right to remove any equipment that we may own in the building. As
a result, though we will share in the income stream derived from the lease, we
will not share in any increase in value of the land associated with any ground
lease property.
Multiple property leases or mortgage loans with individual tenants or
borrowers increase our risks. The value of our properties will depend
principally upon the value of the leases of the properties. Minor defaults by a
tenant or borrower may continue for some time before the advisor or Board of
Directors determines that it is in our interest to evict the tenant or foreclose
on the property of the borrower. Tenants may lease more than one property, and
borrowers may enter into more than one mortgage loan. As a result, a default by
or the financial failure of a tenant or borrower could cause more than one
property to become vacant or more than one loan to become non-performing in some
circumstances. Vacancies would reduce our cash receipts and could decrease the
properties' resale value until we are able to re-lease the affected properties.
It may be difficult to re-lease our properties. If a tenant vacates a
property, we may be unable either to re-lease the property for the rent due
under the prior lease or to re-lease the property without incurring additional
expenditures relating to the property. In addition, we could experience delays
in enforcing our rights against, and collecting rents (and, in some cases, real
estate taxes and insurance costs) due from, a defaulting tenant. Any delay we
experience in re-leasing a property or difficulty in re-leasing at acceptable
rates could affect our ability to pay distributions.
We cannot control the sale of some properties. We expect to give some
tenants the right, but not the obligation, to purchase their properties from us
beginning a specified number of years after the date of the lease. The leases
also generally will provide the tenant with a right of first refusal on any
proposed sale provisions. These policies may lessen the ability of the advisor
and the Board of Directors to freely control the sale of the property. See
"Business -- Description of Property Leases -- Right of Tenant to Purchase."
The liquidation of our assets may be delayed. If our shares are not
listed on a national securities exchange or over-the-counter market by December
31, 2008, we will undertake to sell our assets and distribute the net sales
proceeds to stockholders, and we will engage only in activities related to our
orderly liquidation, unless our stockholders elect otherwise. Neither the
advisor nor the Board of Directors may be able to control the timing of the sale
of our assets due to market conditions, and we cannot assure you that we will be
able to sell our assets so as to return our stockholders' aggregate invested
capital, to generate a profit for the stockholders or to fully satisfy our debt
obligations. We will only return all of our stockholders' invested capital if we
sell the properties for more than their original purchase price, although return
of capital, for federal income tax purposes, is not necessarily limited to
stockholder distributions following sales of properties. If we take a purchase
money obligation in partial payment of the sales price of a property, we will
realize the proceeds of the sale over a period of years. Further, any intended
liquidation of our Company may be delayed beyond the time of the sale of all of
the properties until all mortgage loans and secured equipment leases expire or
are sold, because we plan to enter into mortgage loans with terms of 10 to 20
years and secured equipment leases with terms of seven years, and those
obligations may not expire before all of the properties are sold.
Risks of Mortgage Lending.
Our mortgage loans may be impacted by unfavorable real estate
market conditions. If we make mortgage loans, we will be at risk of defaults on
those loans caused by many conditions beyond our control, including local and
other economic conditions affecting real estate values and interest rate levels.
We do not know whether the values of the properties securing the mortgage loans
will remain at the levels existing on the dates of origination of the mortgage
loans. If the values of the underlying properties drop, our risk will increase
and the values of our interests may decrease.
Our mortgage loans will be subject to interest rate
fluctuations. If we invest in fixed-rate, long-term mortgage loans and interest
rates rise, the mortgage loans will yield a return lower than then-current
market rates. If interest rates decrease, we will be adversely affected to the
extent that mortgage loans are prepaid, because we will not be able to make new
loans at the previously higher interest rate.
Delays in liquidating defaulted mortgage loans could reduce
our investment returns. If there are defaults under our mortgage loans, we may
not be able to repossess and sell the underlying properties quickly. The
resulting time delay could reduce the value of our investment in the defaulted
loans. An action to foreclose on a mortgaged property securing a loan is
regulated by state statutes and rules and is subject to many of the delays and
expenses of other lawsuits if the defendant raises defenses or counterclaims. In
the event of default by a mortgagor, these restrictions, among other things, may
impede our ability to foreclose on or sell the mortgaged property or to obtain
proceeds sufficient to repay all amounts due to us on the loan.
Returns on our mortgage loans may be limited by regulations.
The mortgage loans may also be subject to regulation by federal, state and local
authorities and subject to various laws and judicial and administrative
decisions. We may determine not to make mortgage loans in any jurisdiction in
which we believe we have not complied in all material respects with applicable
requirements. If we decide not to make mortgage loans in several jurisdictions,
it could reduce the amount of income we would receive.
Risks of Secured Equipment Leasing.
Our collateral may be inadequate to secure leases. In the
event that a lessee defaults on a secured equipment lease, we may not be able to
sell the subject equipment at a price that would enable us to recover our costs
associated with the equipment. If we cannot recover our costs, it could affect
our results of operations.
Returns on our secured equipment leases may be limited by
regulations. The secured equipment lease program may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. We may determine not to operate the
secured equipment lease program in any jurisdiction in which we believe we have
not complied in all material respects with applicable requirements. If we decide
not to operate the secured equipment lease program in several jurisdictions, it
could reduce the amount of income we would receive.
The section of this Prospectus captioned " -- Tax Risks"
discusses certain federal income tax risks associated with the secured equipment
lease program.
Our properties may be subject to environmental liabilities. Under
various federal and state environmental laws and regulations, as an owner or
operator of real estate, we may be required to investigate and clean up certain
hazardous or toxic substances, asbestos-containing materials, or petroleum
product releases at our properties. We may also be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by those parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contaminations at any of our properties may adversely affect our ability to sell
or lease the properties or to borrow using the properties as collateral. At
certain properties, such as skilled nursing facilities, medical office buildings
and walk-in clinics, some environmental and bio-medical hazardous wastes and
products will be used and generated in the course of normal operations of the
facility. While the leases will provide that the tenant is solely responsible
for any environmental hazards created during the term of the lease, we or an
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination coming from the site.
All of our properties will be acquired subject to satisfactory Phase I
environmental assessments, which generally involve the inspection of site
conditions without invasive testing such as sampling or analysis of soil,
groundwater or other media or conditions; or satisfactory Phase II environmental
assessments, which generally involve the testing of soil, groundwater or other
media and conditions. The Board of Directors and the advisor may determine that
we will acquire a property in which a Phase I or Phase II environmental
assessment indicates that a problem exists and has not been resolved at the time
the property is acquired, provided that the seller has (i) agreed in writing to
indemnify us and/or (ii) established in escrow cash funds equal to a
predetermined amount greater than the estimated costs to remediate the problem.
We cannot be sure, however, that any seller will be able to pay under an
indemnity we obtain or that the amount in escrow will be sufficient to pay all
remediation costs. Further, we cannot be sure that all environmental liabilities
have been identified or that no prior owner, operator or current occupant has
created an environmental condition not known to us. Moreover, we cannot be sure
(i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of our
properties will not be affected by tenants and occupants of the properties, by
the condition of land or operations in the vicinity of the properties (such as
the presence of underground storage tanks), or by third parties unrelated to us.
Environmental liabilities that we may incur could have an adverse effect on our
financial condition or results of operations.
FINANCING RISKS
We have no commitment for long-term financing. We intend to obtain
long-term financing; however, we have not yet obtained a commitment for any
long-term financing, and we cannot be sure that we will be able to obtain any
long-term financing on satisfactory terms. If we do not obtain long-term
financing, we may not be able to acquire as many properties or make as many
loans and leases as we anticipated, which could limit the diversification of our
investments and our ability to achieve our investment objectives.
Anticipated borrowing creates risks. We may borrow money to acquire
assets, to preserve our status as a REIT or for other corporate purposes. We may
mortgage or put a lien on one or more of our assets in connection with any
borrowing. The Board of Directors anticipates that we will obtain one or more
revolving lines of credit up to $45,000,000 to provide financing for the
acquisition of assets. On April 20, 2000, we entered into an initial $25,000,000
revolving line of credit to be used to acquire or construct health care
properties. We may also obtain long-term, permanent financing. The line of
credit may be increased at the discretion of the Board of Directors. We may
repay the line of credit using equity offering proceeds, including proceeds from
this offering, proceeds from the sale of assets, working capital or permanent
financing. Initially, we expect to repay any amounts borrowed under the line of
credit as we receive additional offering proceeds. If we do not receive enough
offering proceeds to repay the amounts due under the line of credit, we will
have to seek additional equity or debt financing. We may not borrow more than
300% of our net assets. Borrowing may be risky if the cash flow from our real
estate and other investments is insufficient to meet our debt obligations. In
addition, our lenders may seek to impose restrictions on future borrowings,
distributions and operating policies. If we mortgage or pledge assets as
collateral and we cannot meet our debt obligations, the lender could take the
collateral, and we would lose both the asset and the income we were deriving
from it. We are not limited on the amount of assets we may use as security for
the repayment of indebtedness.
We can borrow money to make distributions. We may borrow money as
necessary or advisable to assure that we maintain our qualification as a REIT
for federal income tax purposes. In such an event, it is possible that we could
make distributions in excess of our earnings and profits and, accordingly, that
the distributions could constitute a return of capital for federal income tax
purposes, although such distributions would not reduce stockholders' aggregate
invested capital.
MISCELLANEOUS RISKS
Our health care facilities may be unable to compete successfully. We
anticipate that we 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, in
the acquisition, leasing and financing of health care facilities. We may also
compete with affiliates for mortgage loans and borrowers. Further, non-profit
entities are particularly attracted to investments in health care facilities
because of their ability to finance acquisitions through the issuance of
tax-exempt bonds, providing non-profit entities with a relatively lower cost of
capital as compared to for-profit purchasers. In addition, in some states,
health care facilities owned by non-profit entities are exempt from taxes on
real property. We cannot be sure we will be able to identify suitable
investments or that we will be able to consummate investments on commercially
reasonable terms.
In addition, the health care industry is highly competitive, and we
anticipate that any property we acquire will compete with other health care
facilities in the vicinity. We cannot assure you that our tenants will be able
to compete effectively in any market that they enter. Our tenants' inability to
compete successfully would have a negative impact on our financial condition and
results of operations. In addition, due to the highly competitive environment,
it is possible that the markets in which we acquire properties will be subject
to over-building.
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Inflation could adversely affect our investment returns. Inflation may
decrease the value of some of our investments. For example, a substantial rise
in inflation over the term of an investment in mortgage loans and secured
equipment leases may reduce the actual return on those investments, if they do
not otherwise provide for adjustments based upon inflation. Inflation could also
reduce the value of our investments in properties if the inflation rate is high
enough that percentage rent and automatic increases in base rent do not keep up
with inflation.
We may not have adequate insurance. If we, as landlord, incur any
liability which is not fully covered by insurance, we would be liable for the
uninsured amounts, and returns to the stockholders could be reduced. "Business
- -- Description of Property Leases -- Insurance, Taxes, Maintenance and Repairs"
describes the types of insurance that the leases of the properties will require
the tenant to obtain.
Possible effect of ERISA. We believe that our assets will not be
deemed, under the Employee Retirement Income Security Act of 1974, as amended,
to be "plan assets" of any plan that invests in the shares, although we have not
requested an opinion of counsel to that effect. If our assets were deemed to be
"plan assets" under ERISA (i) it is not clear that the exemptions from the
"prohibited transaction" rules under ERISA would be available for our
transactions and (ii) the prudence standards of ERISA would apply to our
investments (and might not be met). ERISA makes plan fiduciaries personally
responsible for any losses resulting to the plan from any breach of fiduciary
duty and the Internal Revenue Code imposes nondeductible excise taxes on
prohibited transactions. If such excise taxes were imposed on us, the amount of
funds available for us to make distributions to stockholders would be reduced.
Our governing documents may discourage takeovers. Some provisions of
our Articles of Incorporation, including the ownership limitations, transfer
restrictions and ability to issue preferential preferred stock, may have the
effect of preventing, delaying or discouraging takeovers of our Company by third
parties. Some other provisions of the Articles of Incorporation which exempt us
from the application of Maryland's Business Combinations Statute and Control
Share Acquisition Statute, may have the effect of facilitating (i) business
combinations between us and beneficial owners of 10% or more of the voting power
of our outstanding voting stock and (ii) the acquisition by any person of shares
entitled to exercise or direct the exercise of 20% or more of our total voting
power. Because we will not be subject to the provisions of the Business
Combinations Statute and the Control Share Acquisition Statute, it may be more
difficult for our stockholders to prevent or delay business combinations with
large stockholders or acquisitions of substantial blocks of voting power by such
stockholders or other persons, should the ownership restrictions be waived,
modified or completely removed. Such business combinations or acquisitions of
voting power could cause us to fail to qualify as a REIT. You can read the
sections of this Prospectus under the captions "-- Tax Risks -- We will be
subject to increased taxation if we fail to qualify as a REIT for federal income
tax purposes," " -- Tax Risks -- Ownership limits may discourage a change in
control," "Summary of the Articles of Incorporation and Bylaws -- General,"
"Summary of the Articles of Incorporation and Bylaws -- Mergers, Combinations
and Sale of Assets," "Summary of the Articles of Incorporation and Bylaws --
Control Share Acquisitions" and "Summary of the Articles of Incorporation and
Bylaws -- Restriction of Ownership" if you want more information about ownership
limitations and transfer restrictions and the effect of business combinations
and acquisitions of large amounts of our stock on our REIT status.
Our stockholders are subject to ownership limits. The Articles of
Incorporation generally restrict ownership of more than 9.8% of the outstanding
common stock or 9.8% of any series of outstanding preferred stock by one person.
If the ownership, transfer, acquisition or change in our corporate structure
would jeopardize our REIT status, that ownership, transfer, acquisition or
change in our corporate structure would be void as to the intended transferee or
owner and the intended transferee or owner would not have or acquire any rights
to the common stock.
Majority stockholder vote may discourage changes of control.
Stockholders may take some actions, including approving amendments to the
Articles of Incorporation and Bylaws, by a vote of a majority of the shares
outstanding and entitled to vote. If approved by the holders of the appropriate
number of shares, all actions taken would be binding on all of our stockholders.
Some of these provisions may discourage or make it more difficult for another
party to acquire control of us or to effect a change in our operations.
Investors in our Company may experience dilution. Stockholders have no
preemptive rights. If we (i) commence a subsequent public offering of shares or
securities convertible into shares or (ii) otherwise issue additional shares,
investors purchasing shares in this offering who do not participate in future
stock issuances will experience dilution in the percentage of their equity
investment in our Company. Although the Board of Directors
<PAGE>
has not yet determined whether it will engage in future offerings or other
issuances of shares, it may do so if it is determined to be in our best
interests. See "Summary of the Articles of Incorporation and Bylaws --
Description of Capital Stock" and "The Offering -- Plan of Distribution."
The Board of Directors can take many actions without stockholder
approval. The Board of Directors has overall authority to conduct our
operations. This authority includes significant flexibility. For example, the
Board of Directors can (i) list our stock on a national securities exchange or
over-the-counter market without obtaining stockholder approval; (ii) prevent the
ownership, transfer and/or accumulation of shares in order to protect our status
as a REIT or for any other reason deemed to be in the best interests of the
stockholders; (iii) issue additional shares without obtaining stockholder
approval, which could dilute your ownership; (iv) change the advisor's
compensation, and employ and compensate affiliates; (v) direct our investments
toward investments that will not appreciate over time, such as building only
properties, with the land owned by a third party, and mortgage loans; and (vi)
establish and change minimum creditworthiness standards with respect to tenants.
Any of these actions could reduce the value of our assets without giving you, as
a stockholder, the right to vote.
We will rely on the advisor and Board of Directors to manage the
Company. If you invest in the Company, you will be relying entirely on the
management ability of the advisor and on the oversight of our Board of
Directors. You will have no right or power to take part in the management of our
Company, except through the exercise of your voting rights. Thus, you should not
purchase any of the shares offered by this Prospectus unless you are willing to
entrust all aspects of our management to the advisor and the Board of Directors.
Our officers and directors have limited liability. The Articles of
Incorporation and Bylaws provide that an officer or director's liability for
monetary damages to us, our stockholders or third parties may be limited.
Generally, we are obligated under the Articles of Incorporation and the Bylaws
to indemnify our officers and directors against certain liabilities incurred in
connection with their services. We have executed indemnification agreements with
each officer and director and agreed to indemnify the officer or director for
any such liabilities that he or she incurs. These indemnification agreements
could limit our ability and the ability of our stockholders to effectively take
action against our directors and officers arising from their service to us. You
can read the section of this Prospectus under the caption "Summary of the
Articles of Incorporation and Bylaws -- Limitation of Liability and
Indemnification" for more information about the indemnification of our officers
and directors.
TAX RISKS
We will be subject to increased taxation if we fail to qualify as a
REIT for federal income tax purposes. Our management believes that we operate in
a manner that enables us to meet the requirements for qualification and to
remain qualified as a REIT for federal income tax purposes. A REIT generally is
not taxed at the federal corporate level on income it distributes to its
stockholders, as long as it distributes annually at least 95% of its taxable
income to its stockholders (90% in 2001 and thereafter). We have not requested,
and do not plan to request, a ruling from the Internal Revenue Service that we
qualify as a REIT. We have, however, received an opinion from our tax counsel,
Shaw Pittman, that we meet the requirements for qualification as a REIT for the
taxable year ended December 31, 1999 and that we are in a position to continue
such qualification.
You should be aware that opinions of counsel are not binding on the
Internal Revenue Service or on any court. Furthermore, the conclusions stated in
the opinion are conditioned on, and our continued qualification as a REIT will
depend on, our management meeting various requirements, which are discussed in
more detail under the heading "Federal Income Tax Considerations -- Taxation of
the Company -- Requirements for Qualification as a REIT."
If we fail to qualify as a REIT, we would be subject to federal income
tax at regular corporate rates. In addition to these taxes, we may be subject to
the federal alternative minimum tax. Unless we are entitled to relief under
specific statutory provisions, we could not elect to be taxed as a REIT for four
taxable years following the year during which we were disqualified. Therefore,
if we lose our REIT status, the funds available for distribution to you, as a
stockholder, would be reduced substantially for each of the years involved.
Our leases may be recharacterized as financings which would eliminate
depreciation deductions on health care properties. Our tax counsel, Shaw
Pittman, is of the opinion, based upon certain assumptions, that the leases of
health care and seniors' housing facilities where we would own the underlying
land would constitute leases for federal income tax purposes. However, with
respect to the health care and seniors' housing facilities where we would not
own the underlying land, Shaw Pittman is unable to render this opinion. If the
lease of a health care and seniors' housing facility does not constitute a lease
for federal income tax purposes, it will be treated as a financing arrangement.
In the opinion of Shaw Pittman, the income derived from such a financing
arrangement would satisfy the 75% and the 95% gross income tests for REIT
qualification because it would be considered to be interest on a loan secured by
real property. Nevertheless, the recharacterization of a lease in this fashion
may have adverse tax consequences for us, in particular that we would not be
entitled to claim depreciation deductions with respect to the health care
facility (although we would be entitled to treat part of the payments we would
receive under the arrangement as the repayment of principal). In such event, in
some taxable years our taxable income, and the corresponding obligation to
distribute 95% of such income (90% in 2001 and thereafter), would be increased.
Any increase in our distribution requirements may limit our ability to invest in
additional health care and seniors' housing facilities and to make additional
mortgage loans.
Excessive non-real estate asset values may jeopardize our REIT status.
In order to qualify as a REIT, at least 75% of the value of our assets must
consist of investments in real estate, investments in other REITs, cash and cash
equivalents, and government securities. Our secured equipment leases would not
be considered real estate assets for federal income tax purposes. Therefore, the
value of the secured equipment leases, together with any other property that is
not considered a real estate asset for federal income tax purposes, must
represent in the aggregate less than 25% of our total assets.
In addition, we may not own securities in, or make secured equipment
loans to, any one company (other than a REIT) which have, in the aggregate, a
value in excess of 5% of our total assets. For federal income tax purposes, the
secured equipment leases would be considered loans. The value of the secured
equipment leases entered into with any particular tenant under a lease or
entered into with any particular borrower under a loan must not represent in
excess of 5% of our total assets.
The 25% and 5% tests are determined at the end of each calendar
quarter. If we fail to meet either test at the end of any calendar quarter, we
will cease to qualify as a REIT.
We may have to borrow funds or sell assets to meet our distribution
requirements. Subject to some adjustments that are unique to REITs, a REIT
generally must distribute 95% of its taxable income (90% in 2001 and
thereafter). For the purpose of determining taxable income, we may be required
to accrue interest, rent and other items treated as earned for tax purposes but
that we have not yet received. In addition, we may be required not to accrue as
expenses for tax purposes some items which actually have been paid or some of
our deductions might be disallowed by the Internal Revenue Service. As a result,
we could have taxable income in excess of cash available for distribution. If
this occurs, we may have to borrow funds or liquidate some of our assets in
order to meet the distribution requirement applicable to a REIT.
Ownership limits may discourage a change in control. For the purpose of
protecting our REIT status, our Articles of Incorporation generally limit the
ownership by any single stockholder of any class of our capital stock, including
common stock, to 9.8% of the outstanding shares of that class. The Articles also
prohibit anyone from buying shares if the purchase would result in our losing
our REIT status. For example, we would lose our REIT status if we had fewer than
100 different stockholders or if five or fewer stockholders, applying certain
broad attribution rules of the Internal Revenue Code, owned 50% or more of our
common stock. These restrictions may discourage a change in control, deter any
attractive tender offers for our common stock or limit the opportunity for you
or other stockholders to receive a premium for your common stock in the event a
stockholder is making purchases of shares of common stock in order to acquire a
block of shares.
We may be subject to other tax liabilities. Even if we qualify as a
REIT, we may be subject to some federal, state and local taxes on our income and
property that could reduce operating cash flow.
Changes in tax laws may prevent us from qualifying as a REIT. As we
have previously described, we are treated as a REIT for federal income tax
purposes. However, this treatment is based on the tax laws that are currently in
effect. We are unable to predict any future changes in the tax laws that would
adversely affect our status as a REIT. If there is a change in the tax laws that
prevents us from qualifying as a REIT or that requires REITs generally to pay
corporate level income taxes, we may not be able to make the same level of
distributions to our stockholders.
<PAGE>
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The shares of common stock offered through this Prospectus (the
"Shares") are suitable only as a long-term investment for persons of adequate
financial means who have no need for liquidity in this investment. Initially,
there is not expected to be any public market for the Shares, which means that
it may be difficult to sell Shares. See the "Summary of the Articles of
Incorporation and Bylaws -- Restriction of Ownership" for a description of the
transfer requirements. As a result, the Company has established suitability
standards which require investors to have either (i) a net worth (not including
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (ii) a net worth (not including home,
furnishings, and personal automobiles) of at least $150,000. The Company's
suitability standards also require that a potential investor (i) can reasonably
benefit from an investment in the Company based on such investor's overall
investment objectives and portfolio structuring, (ii) is able to bear the
economic risk of the investment based on the prospective stockholder's overall
financial situation, and (iii) has apparent understanding of (a) the fundamental
risks of the investment, (b) the risk that such investor may lose the entire
investment, (c) the lack of liquidity of the Shares, (d) the background and
qualifications of the advisor, and (e) the tax consequences of the investment.
In addition, under the laws of the States of Ohio and Pennsylvania, an
investor's investment in the Shares may not exceed 10% of such investor's net
worth (not including home, furnishings, and personal automobiles).
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
Investors should read carefully the requirements in connection with
resales of Shares as set forth in the Articles of Incorporation and as
summarized under "Summary of the Articles of Incorporation and Bylaws --
Restriction of Ownership."
In purchasing Shares, custodians or trustees of employee pension
benefit plans or IRAs may be subject to the fiduciary duties imposed by the
Employee Retirement Income Security Act of 1974 ("ERISA") or other applicable
laws and to the prohibited transaction rules prescribed by ERISA and related
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). See
"The Offering -- ERISA Considerations." In addition, prior to purchasing Shares,
the trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. For information
regarding "unrelated business taxable income," see "Federal Income Tax
Considerations -- Taxation of Stockholders -- Tax-Exempt Stockholders."
In order to ensure adherence to the suitability standards described
above, requisite suitability standards must be met, as set forth in the
Subscription Agreement in the form attached hereto as Appendix D. In addition,
soliciting dealers, broker-dealers that are members of the National Association
of Securities Dealers, Inc. or other entities exempt from broker-dealer
registration (collectively, the "Soliciting Dealers"), who are engaged by CNL
Securities Corp. (the "Managing Dealer") to sell Shares, have the responsibility
to make every reasonable effort to determine that the purchase of Shares is a
suitable and appropriate investment for an investor. In making this
determination, the Soliciting Dealers will rely on relevant information provided
by the investor, including information as to the investor's age, investment
objectives, investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See "The Offering --
Subscription Procedures." Executed Subscription Agreements will be maintained in
the Company's records for six years.
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to "SouthTrust Bank, N.A.,
Escrow Agent." See "The Offering -- Subscription Procedures." Certain Soliciting
Dealers who have "net capital," as defined in the applicable federal securities
regulations, of $250,000 or more may instruct their customers to make their
checks for Shares subscribed for payable directly to the Soliciting Dealer. Care
should be taken to ensure that the Subscription Agreement is
<PAGE>
filled out correctly and completely. Partnerships, individual fiduciaries
signing on behalf of trusts, estates, and in other capacities, and persons
signing on behalf of corporations and corporate trustees may be required to
obtain additional documents from Soliciting Dealers. Any subscription may be
rejected by the Company in whole or in part, regardless of whether the
subscriber meets the minimum suitability standards.
Certain Soliciting Dealers may permit investors who meet the
suitability standards described above to subscribe for Shares by telephonic
order to the Soliciting Dealer. This procedure may not be available in certain
states. See "The Offering -- Plan of Distribution" and "The Offering --
Subscription Procedures."
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000). For Minnesota investors, IRAs and qualified plans must make a minimum
investment of 200 Shares ($2,000) and, for Iowa investors, IRAs and qualified
plans must make a minimum investment of 250 Shares ($2,500). Following an
initial subscription for at least the required minimum investment, any investor
may make additional purchases in increments of one Share. See "The Offering --
General," "The Offering -- Subscription Procedures" and "Summary of Reinvestment
Plan."
<PAGE>
ESTIMATED USE OF PROCEEDS
The table set forth below summarizes certain information relating to
the anticipated use of offering proceeds by the Company, assuming that
15,000,000 Shares are sold. The Company estimates that 84% of gross offering
proceeds computed at $10 per share sold ("Gross Proceeds") will be available for
the purchase of properties (the "Properties") and the making of mortgage loans
("Mortgage Loans"), and approximately 9% of Gross Proceeds will be paid in fees
and expenses to affiliates of the Company ("Affiliates") for their services and
as reimbursement for offering expenses ("Offering Expenses") and acquisition
expenses ("Acquisition Expenses") incurred on behalf of the Company; the balance
will be used to pay other expenses of the offering. While the estimated use of
proceeds set forth in the table below is believed to be reasonable, this table
should be viewed only as an estimate of the use of proceeds that may be
achieved.
<TABLE>
<CAPTION>
Maximum Offering (1)
---------------------------
<S> <C>
Amount Percent
------------- ---------
GROSS PROCEEDS TO THE COMPANY(2)................................. $150,000,000 100.0%
Less:
Selling Commissions to CNL
Securities Corp. (2)...................................... 11,250,000 7.5%
Marketing Support and Due Diligence
Expense Reimbursement Fee to CNL
Securities Corp. (2)...................................... 750,000 0.5%
Offering Expenses (3)........................................ 4,500,000 3.0%
------------- ---------
NET PROCEEDS TO THE COMPANY...................................... 133,500,000 89.0%
Less:
Acquisition Fees to the Advisor (4).......................... 6,750,000 4.5%
Acquisition Expenses (5)..................................... 750,000 0.5%
Initial Working Capital Reserve. ............................ (6)
------------- ---------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
AND THE MAKING OF MORTGAGE LOANS BY
THE COMPANY (7).............................................. $126,000,000 84.0%
============= =========
</TABLE>
- ------------------------
FOOTNOTES:
(1) Excludes 500,000 Shares that may be sold pursuant to the Reinvestment
Plan.
(2) Gross Proceeds of the offering are calculated as if all Shares are sold
at $10.00 per Share and do not take into account any reduction in selling
commissions ("Selling Commissions"). See "The Offering -- Plan of
Distribution" for a description of the circumstances under which Selling
Commissions may be reduced, including commission discounts available for
purchases by registered representatives or principals of the Managing
Dealer or Soliciting Dealers, certain directors and officers and certain
investment advisers. Selling Commissions are calculated assuming that
reduced commissions are not paid in connection with the purchase of any
Shares. The Shares are being offered to the public through CNL Securities
Corp., which will receive Selling Commissions of 7.5% on all sales of
Shares and will act as Managing Dealer. The Managing Dealer is an
Affiliate of the Advisor. Other broker-dealers may be engaged as
Soliciting Dealers to sell Shares and be reallowed Selling Commissions of
up to 7%, with respect to Shares which they sell. In addition, all or a
portion of the marketing support and due diligence expense reimbursement
fee may be reallowed to certain Soliciting Dealers for expenses incurred
by them in selling the Shares, including reimbursement for bona fide
expenses incurred in connection with due diligence activities, with prior
written approval from, and in the sole discretion of, the Managing
Dealer. See "The Offering -- Plan of Distribution" for a more complete
description of this fee.
(3) Offering Expenses include legal, accounting, printing, escrow, filing,
registration, qualification, and other expenses of the offering of the
Shares, but exclude Selling Commissions and the marketing support and due
diligence expense reimbursement fee. The Advisor will pay all Offering
Expenses which exceed 3% of Gross Proceeds. The Offering Expenses paid by
the Company together with the 7.5% Selling Commissions, the 0.5%
marketing support and due diligence expense reimbursement fee, and the
Soliciting Dealer Servicing Fee incurred by the Company will not exceed
13% of the proceeds raised in connection with this offering.
(4) Acquisition fees ("Acquisition Fees") include all fees and commissions
paid by the Company to any person or entity in connection with the
selection or acquisition of any Property or the making of any Mortgage
Loan, including to Affiliates or nonaffiliates. Acquisition Fees do not
include Acquisition Expenses.
(5) Represents Acquisition Expenses that are neither reimbursed to the
Company nor included in the purchase price of the Properties, and on
which rent is not received, but does not include certain expenses
associated with Property acquisitions that are part of the purchase price
of the Properties, that are included in the basis of the Properties, and
on which rent is received. Acquisition Expenses include any and all
expenses incurred by the Company, the Advisor, or any Affiliate of the
Advisor in connection with the selection or acquisition of any
<PAGE>
Property or the making of any Mortgage Loan, whether or not acquired or
made, including, without limitation, legal fees and expenses, travel and
communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, taxes,
and title insurance, but exclude Acquisition Fees. The expenses that are
attributable to the seller of the Properties and part of the purchase
price of the Properties are anticipated to range between 1% and 2% of
Gross Proceeds.
(6) Because leases generally will be on a "triple-net" basis, it is not
anticipated that a permanent reserve for maintenance and repairs will be
established. However, to the extent that the Company has insufficient
funds for such purposes, the Advisor may, but is not required to,
contribute to the Company an aggregate amount of up to 1% of the net
offering proceeds ("Net Offering Proceeds") available to the Company for
maintenance and repairs. The Advisor also may, but is not required to,
establish reserves from offering proceeds, operating funds, and the
available proceeds of any sales of Company assets ("Sale").
(7) Offering proceeds designated for investment in Properties or the making
of Mortgage Loans temporarily may be invested in short-term, highly
liquid investments with appropriate safety of principal. The Company may,
at its discretion, use up to $100,000 per calendar quarter of offering
proceeds for redemptions of Shares. See "Redemption of Shares."
MANAGEMENT COMPENSATION
The table below summarizes the types, recipients, methods of
computation, and estimated amounts of all compensation, fees, reimbursements and
distributions to be paid directly or indirectly by the Company to the Advisor
and its Affiliates, exclusive of any distributions to which the Advisor or its
Affiliates may be entitled by reason of their purchase and ownership of Shares
in connection with this offering. The table excludes estimated amounts of
compensation relating to any Shares issued under the Company's Reinvestment
Plan. See "The Advisor and the Advisory Agreement." For information concerning
compensation and fees paid to the Advisor and its Affiliates since the date of
inception of the Company, see "Certain Relationships and Related Transactions."
For information concerning compensation to the Directors, see "Management."
A maximum of 15,000,000 Shares ($150,000,000) may be sold. An
additional 500,000 Shares ($5,000,000) may be sold to stockholders who receive a
copy of this Prospectus and who purchase Shares through the Reinvestment Plan.
Prior to the conclusion of this offering, if any of the 500,000 Shares remain
after meeting anticipated obligations under the Reinvestment Plan, the Company
may decide to sell a portion of these Shares in this offering.
The following arrangements for compensation and fees to the Advisor and
its Affiliates were not determined by arm's-length negotiations. See "Conflicts
of Interest." There is no item of compensation and no fee that can be paid to
the Advisor or its Affiliates under more than one category.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Type of Method of Computation Estimated
Compensation Maximum Amount
and Recipient
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Offering Stage
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Selling Commissions to Selling Commissions of 7.5% per Share on all Shares sold, subject $11,250,000 if 15,000,000
Managing Dealer and to reduction under certain circumstances as described in "The Shares are sold.
Soliciting Dealers Offering -- Plan of Distribution." Soliciting Dealers may be
reallowed Selling Commissions of up to 7% with respect to Shares
they sell.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Marketing support and due Expense allowance of 0.5% of Gross Proceeds to the Managing $750,000 if 15,000,000
diligence expense Dealer, all or a portion of which may be reallowed to Soliciting Shares are sold.
reimbursement fee to Dealers with prior written approval from, and in the sole
Managing Dealer and discretion of, the Managing Dealer. The Managing Dealer will pay
Soliciting Dealers all sums attributable to bona fide due diligence expenses from
this fee, in the Managing Dealer's sole discretion.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Reimbursement to the Actual expenses incurred, except that the Advisor will pay all Amount is not determinable
Advisor and its such expenses in excess of 3% of Gross Proceeds. The Offering at this time, but will not
Affil-iates for Offering Expenses paid by the Company, together with the 7.5% Selling exceed 3% of Gross
Expenses Commissions and 0.5% marketing support and due diligence expense Proceeds: $4,500,000 if
reimbursement fee, and the Soliciting Dealer Servicing Fee 15,000,000 Shares are sold.
incurred by the Company will not exceed 13% of the proceeds
raised in connection with this offering.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Acquisition Stage
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Acquisition Fee to the 4.5% of Gross Proceeds, loan proceeds from permanent financing $6,750,000 if 15,000,000
Advisor ("Permanent Financing") and amounts outstanding on the line of Shares are sold plus
credit, if any, at the time of listing the $2,025,000 if Permanent
Company's Common Stock on a national securities exchange or Financing equals $45,000,000.
over-the-counter market ("Listing"), but excluding loan proceeds
used to finance secured equipment leases (collectively, "Total
Proceeds") payable to the Advisor as Acquisition Fees.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Other Acquisition Fees to Any fees paid to Affiliates of the Advisor in connection with the Amount is not determinable
Affiliates of the Advisor financing, development, construction or renovation of a at this time.
Property. Such fees are in addition to 4.5% of
Total Proceeds payable to the Advisor as
Acquisition Fees, and payment of such fees will
be subject to approval by the Board of
Directors, including a majority of the directors
who are independent of the Advisor (the
"Independent Directors"), not otherwise
interested in the transaction.
<PAGE>
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Type of Method of Computation Estimated
Compensation Maximum Amount
and Recipient
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Reimbursement of Reimbursement to the Advisor and its Affiliates for expenses Acquisition Expenses, which
Acquisition Expenses to actually incurred. are based on a number of
the Advisor and its factors, including the
Affiliates The total of all Acquisition Fees and any Acquisition Expenses purchase price of the
payable to the Advisor and its Affiliates shall be reasonable and Properties, are not
shall not exceed an amount equal to 6% of the Real Estate Asset deter-minable at this time.
Value of a Property, or in the case of a Mortgage Loan, 6% of the
funds advanced, unless a majority of the Board of Directors,
including a majority of the Independent Directors not otherwise
interested in the transaction, approves fees in excess of this
limit subject to a determination that the transaction is
commercially competitive, fair and reasonable to the Company.
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. "Real Estate Asset Value" means the amount actually
paid or allocated to the purchase, development, construction or
improvement of a Property, exclusive of Acquisition Fees and
Acquisition Expenses.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Operational Stage
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Asset Management Fee to A monthly Asset Management Fee in an amount equal to one-twelfth Amount is not determinable
the Advisor of 0.60% of the Company's Real Estate Asset Value and the at this time. The amount
outstanding principal amount of any Mortgage Loans, as of the end of the Asset Management Fee
of the preceding month. Specifically, Real Estate Asset Value will depend upon, among
equals the amount invested in the Properties wholly owned by the other things, the cost of
Company, determined on the basis of cost, plus, in the case of the Properties and the
Properties owned by any joint venture or partnership in which the amount invested in Mortgage
Company is a co-venturer or partner ("Joint Venture"), the Loans.
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.
<PAGE>
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Type of Method of Computation Estimated
Compensation Maximum Amount
and Recipient
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Reimbursement to the Operating Expenses (which, in general, are those expenses Amount is not determinable
Advisor and Affiliates for relating to administration of the Company on an ongoing basis) at this time.
operating expenses will be reimbursed by the Company. To the extent that Operating
Expenses payable or reimbursable by the Company,
in any four consecutive fiscal quarters (the
"Expense Year"), exceed the greater of 2% of
Average Invested Assets or 25% of Net Income
(the "2%/25% Guidelines"), the Advisor shall
reimburse the Company within 60 days after the
end of the Expense Year the amount by which the
total Operating Expenses paid or incurred by the
Company exceed the 2%/25% Guidelines. "Average
Invested Assets" means, for a specified period,
the average of the aggregate book value of the
assets of the Company invested, directly or
indirectly, in equity interests in and loans
secured by real estate before reserves for
depreciation or bad debts or other similar
non-cash reserves, computed by taking the
average of such values at the end of each month
during such period. "Net Income" means for any
period, the total revenues applicable to such
period, less the total expenses applicable to
such period 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.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Soliciting Dealer An annual fee of 0.20% of the aggregate investment of Amount is not determinable
Servicing Fee to Managing stockholders who purchase Shares in this offering, generally at this time. Until such
Dealer payable to the Managing Dealer, on December 31 of each year, time as assets are sold,
commencing on December 31 of the year following the year in which the estimated amounts
the offering terminates. The Managing Dealer, in its sole payable to the Managing
discretion, in turn may reallow all or a portion of such fee to Dealer for each of the
Soliciting Dealers whose clients hold Shares from this offering years following the year of
on such date. In general, the aggregate investment of termination of the offering
stockholders who purchase Shares in this offering is the amount are expected to be $300,000
of cash paid by such stockholders to the Company for their if 15,000,000 Shares are
Shares, reduced by certain prior Distributions to such sold. The estimated
stockholders from the Sale of assets. The Soliciting Dealer maximum total amount
Servicing Fee will terminate as of the beginning of any year in payable to the Managing
which the Company is liquidated or in which Listing occurs, Dealer through December 31,
provided, however, that any previously accrued but unpaid portion 2008 is $1,800,000 if
of the Soliciting Dealer Servicing Fee may be paid in such year 15,000,000 Shares are sold.
or any subsequent year.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
<PAGE>
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Type of Method of Computation Estimated
Compensation Maximum Amount
and Recipient
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Deferred, subordinated A deferred, subordinated real estate disposition fee, payable Amount is not determinable
real estate disposition upon Sale of one or more Properties, in an amount equal to the at this time. The amount
fee payable to the Advisor lesser of (i) one-half of a Competitive Real Estate Commission, of this fee, if it becomes
from a Sale or Sales of a or (ii) 3% of the sales price of such Property or Properties. payable, will depend upon
Property not in Payment of such fee shall be made only if the Advisor provides a the price at which
liquidation of the Company substantial amount of services in connection with the Sale of a Properties are sold.
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 (as defined below) and
(ii) their aggregate investment in the Company
("Invested Capital"). In general, Invested
Capital is the amount of cash paid by the
stockholders to the Company for their Shares,
reduced by certain prior Distributions to the
stockholders from the Sale of assets. If, at the
time of a Sale, payment of the 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 of Common Stock
outstanding and the average closing price of the
Shares over a period, beginning 180 days after
Listing, of 30 days during which the Shares are
traded. "Stockholders' 8% Return," as of each
date, means an aggregate amount equal to an 8%
cumulative, noncompounded, annual return on
Invested Capital.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Subordinated incentive fee At such time, if any, as Listing occurs, the Advisor shall be Amount is not determinable
payable to the Advisor at paid the subordinated incentive fee ("Subordinated Incentive at this time.
such time, if any, as Fee") in an amount equal to 10% of the amount by which (i) the
Listing occurs market value of the Company (as defined below) plus the total
Distributions made 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 made to the stockholders in order to pay
the Stockholders' 8% Return from inception
through the date the market value is determined.
For purposes of calculating the Subordinated
Incentive Fee, the market value of the Company
shall be the average closing price or average of
bid and asked price, as the case may be, over a
period of 30 days during which the Shares are
traded with such period beginning 180 days after
Listing. The Subordinated Incentive Fee will be
reduced by the amount of any prior payment to
the Advisor of a deferred, subordinated share of
Net Sales Proceeds from Sales of assets of the
Company.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Deferred, subordinated A deferred, subordinated share equal to 10% of Net Sales Proceeds Amount is not determinable
share of Net Sales from Sales of assets of the Company payable after receipt by the at this time.
Proceeds from Sales of stockholders of Distributions equal to the sum of (i) the
assets of the Company not Stockholders' 8% Return and (ii) 100% of Invested Capital.
in liquidation of the Following Listing, no share of Net Sales Proceeds will be paid to
Company payable to the the Advisor.
Advisor
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
<PAGE>
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Type of Method of Computation Estimated
Compensation Maximum Amount
and Recipient
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Performance Fee payable Upon termination of the Advisory Agreement, if Listing has not Amount is not determinable
to the Advisor occurred and the Advisor has met applicable performance at this time.
standards, the Advisor shall be paid the
Performance Fee in the amount equal to 10% of
the amount by which (i) the appraised value of
the Company's assets on the date of termination
of the Advisory Agreement (the "Termination
Date"), less any indebtedness secured by such
assets, plus total Distributions paid to
stockholders from the Company's inception
through the Termination Date, exceeds (ii) the
sum of 100% of Invested Capital plus an amount
equal to the Stockholders' 8% Return from
inception through the Termination Date. The
Performance Fee, to the extent payable at the
time of Listing, will not be payable in the
event the Subordinated Incentive Fee is paid.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Secured Equipment Lease A fee paid to the Advisor out of the proceeds of the revolving Amount is not determinable
Servicing Fee to the line of credit (the "Line of Credit") or Permanent Financing for at this time.
Advisor negotiating furniture, fixtures and equipment ("Equipment") loans
or direct financing leases (the "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. No other fees will be payable
in connection with the Secured Equipment Lease
program.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Reimbursement to the Repayment by the Company of actual expenses incurred. Amount is not determinable
Advisor and Affiliates for at this time.
Secured Equipment Lease
servicing expenses
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Liquidation Stage
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Deferred, subordinated A deferred, subordinated real estate disposition fee, payable Amount is not determinable
real estate disposition upon Sale of one or more Properties, in an amount equal to the at this time. The amount
fee payable to the Advisor lesser of (i) one-half of a Competitive Real Estate Commission, of this fee, if it becomes
from a Sale or Sales in or (ii) 3% of the sales price of such Property or Properties. payable, will depend upon
liquidation of the Company Payment of such fee shall be made only if the Advisor provides a the price at which
substantial amount of services in connection with the Sale of a Properties are sold.
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 the
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 sub-ordination conditions are satisfied.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
Deferred, subordinated A deferred, subordinated share equal to 10% of Net Sales Amount is not determinable
share of Net Sales Proceeds from Sales of assets of the Company payable after at this time.
Proceeds from Sales of receipt by the stockholders of Distributions equal to the sum of
assets of the Company in (i) the Stockholders' 8% Return and (ii) 100% of Invested
liquidation of the Company Capital. Following Listing, no share of Net Sales Proceeds will
payable to the Advisor be paid to the Advisor.
- ---------------------------- ------------------------------------------------------------------- --- -----------------------------
</TABLE>
<PAGE>
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Company, the
Advisor and CNL Holdings, Inc., including its Affiliates that will provide
services to the Company.
<TABLE>
<CAPTION>
<S> <C>
CNL Holdings, Inc. (1)
Subsidiaries, Affiliates and Strategic Business Units
Capital Markets: Retail:
CNL Capital Markets, Inc. (2) Commercial Net Lease Realty, Inc. (6)
CNL Investment Company
CNL Securities Corp. (3) Restaurant:
CNL Asset Management, Inc. CNL American Properties Fund, Inc. (7)
CNL Institutional Advisors, Inc.
Hospitality:
Administrative Services: CNL Hospitality Properties, Inc. (8)
CNL Shared Services, Inc. (4)
Health Care:
Real Estate Services: CNL Health Care Properties, Inc.
CNL Real Estate Services, Inc. (5)
CNL Hospitality Corp. (8) Financial Services:
CNL Hotel Development Company CNL Finance, Inc.
CNL Health Care Corp. (9) CNL Capital Corp.
CNL Health Care Development, Inc. CNL Advisory Services, Inc.
CNL Corporate Properties, Inc.
CNL Community Development Corp.
</TABLE>
- -----------------------
(1) CNL Holdings, Inc. is the parent company of CNL Financial Group, Inc.
(formerly CNL Group, Inc.) and its affiliates. James M. Seneff, Jr.,
Chairman of the Board and Chief Executive Officer of the Company,
shares ownership and voting control of CNL Holdings, Inc. with Dayle L.
Seneff, his wife.
(2) CNL Capital Markets, Inc. is a wholly owned subsidiary of CNL Financial
Group, Inc. and is the parent company of CNL Investment Company.
(3) CNL Securities Corp. is a wholly owned subsidiary of CNL Investment
Company and has served as managing dealer in the offerings for various
CNL public and private real estate programs, including the Company.
(4) CNL Shared Services, Inc. (formerly CNL Corporate Services, Inc.) is a
wholly owned subsidiary of CNL Holdings, Inc., and together with other
Affiliates provides administrative services for various CNL entities,
including the Company.
(5) CNL Real Estate Services, Inc., a wholly owned subsidiary of CNL
Financial Group, Inc., is the parent company of CNL Hospitality Corp.,
CNL Health Care Corp., CNL Corporate Properties, Inc. and CNL Community
Development Corp.
(6) Commercial Net Lease Realty, Inc. is a REIT listed on the New York
Stock Exchange. Effective January 1, 1998, CNL Realty Advisors, Inc.
and Commercial Net Lease Realty, Inc. merged, at which time Commercial
Net Lease Realty, Inc. became self advised. James M. Seneff, Jr.
continues to hold the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne continues to hold the position of
Vice Chairman of the Board of Commercial Net Lease Realty, Inc.
<PAGE>
(7) CNL American Properties Fund, Inc. is a public, unlisted REIT.
Effective September 1, 1999, CNL Fund Advisors, Inc., CNL Financial
Services, Inc., CNL Financial Corp. and CNL American Properties Fund,
Inc. merged, at which time CNL American Properties Fund, Inc. became
self advised. James M. Seneff, Jr. continues to hold the position of
Chairman of the Board and Robert A. Bourne continues to hold the
position of Vice Chairman of the Board of CNL American Properties Fund,
Inc.
(8) CNL Hospitality Properties, Inc. is a public, unlisted REIT. James M.
Seneff, Jr. holds the positions of Chief Executive Officer and Chairman
of the Board, and Robert A. Bourne holds the positions of President and
Vice Chairman of the Board of CNL Hospitality Properties, Inc. CNL
Hospitality Corp., a majority owned subsidiary of CNL Real Estate
Services, Inc., provides management and advisory services to CNL
Hospitality Properties, Inc. pursuant to an advisory agreement.
(9) CNL Health Care Corp., a wholly owned subsidiary of CNL Real Estate
Services, Inc., provides management and advisory services to the
Company pursuant to the Advisory Agreement.
PRIOR AND FUTURE PROGRAMS
In the past, Affiliates of the Advisor have organized over 100 other
real estate investments, currently have other real estate holdings, and in the
future expect to form, offer interests in, and manage other real estate programs
in addition to the Company, and make additional real estate investments.
Although no Affiliate of the Advisor currently owns, operates, leases or manages
properties that would be suitable for the Company, future real estate programs
may involve Affiliates of the Advisor in the ownership, financing, operation,
leasing, and management of properties that may be suitable for the Company.
Certain of these affiliated public or private real estate programs may
in the future invest in health care properties, may purchase properties
concurrently with the Company and may lease properties to operators who also
lease or operate certain of the Company's Properties. Such other programs may
offer mortgage or equipment financing to the same or similar entities as those
targeted by the Company, thereby affecting the Company's Mortgage Loan
activities or Secured Equipment Lease program. Such conflicts between the
Company and affiliated programs may affect the value of the Company's
investments as well as its Net Income. The Company believes that the Advisor has
established guidelines to minimize such conflicts. See "-- Certain Conflict
Resolution Procedures" below.
COMPETITION TO ACQUIRE PROPERTIES AND INVEST IN MORTGAGE LOANS
Affiliates of the Advisor may compete with the Company to acquire
health care properties or to invest in mortgage loans of a type suitable for
acquisition or investment by the Company and may be better positioned to make
such acquisitions or investments as a result of relationships that may develop
with various operators of health care and seniors' housing facilities (the
"Health Care Facilities"). See "Business -- Site Selection and Acquisition of
Properties -- Interim Acquisitions." A purchaser who wishes to acquire one or
more of these properties or invest in one or more mortgage loans may have to do
so within a relatively short period of time, occasionally at a time when the
Company (due to insufficient funds, for example) may be unable to make the
acquisition or investment.
In an effort to address these situations and preserve the acquisition
and investment opportunities for the Company (and other entities with which the
Advisor or its Affiliates are affiliated), Affiliates of the Advisor may
maintain lines of credit which enable them to acquire properties or make
mortgage loans on an interim basis. In the event Affiliates acquire such
properties, these properties and/or mortgage loans generally will be purchased
from Affiliates of the Advisor, at their cost or carrying value, by one or more
existing or future public or private programs formed by Affiliates of the
Advisor.
The Advisor could experience potential conflicts of interest in
connection with the negotiation of the purchase price and other terms of the
acquisition of a Property or investment in a Mortgage Loan, as well as the terms
of the lease of a Property or the terms of a Mortgage Loan, due to its
relationship with its Affiliates and any business relationship of its Affiliates
that may develop with operators of Health Care Facilities. Consequently, the
Advisor may negotiate terms of acquisitions, investments or leases that may be
more beneficial to other entities than to the Company.
<PAGE>
The Advisor or its Affiliates also may be subject to potential
conflicts of interest at such time as the Company wishes to acquire a property,
make a mortgage loan or enter into a secured equipment lease that also would be
a suitable investment for an Affiliate of CNL. Affiliates of the Advisor serve
as Directors of the Company and, in this capacity, have a fiduciary obligation
to act in the best interest of the stockholders of the Company and, as general
partners or directors of CNL Affiliates, to act in the best interests of the
investors in other programs with investments that may be similar to those of the
Company and will use their best efforts to assure that the Company will be
treated as favorably as any such other program. See "Management -- Fiduciary
Responsibility of the Board of Directors." The Company has also developed
procedures to resolve potential conflicts of interest in the allocation of
properties and mortgage loans between the Company and certain of its Affiliates.
See "-- Certain Conflict Resolution Procedures" below.
The Company will supplement this Prospectus during the offering period
to disclose the acquisition of a Property at such time as the Advisor believes
that a reasonable probability exists that the Company will acquire the Property,
including an acquisition from the Advisor or its Affiliates. Based upon the
experience of management of the Company and the Advisor and the proposed
acquisition methods, a reasonable probability that the Company will acquire a
Property normally will occur as of the date on which (i) a commitment letter is
executed by a proposed lessee, (ii) a satisfactory credit underwriting for the
proposed lessee has been completed, (iii) a satisfactory site inspection has
been completed and (iv) a nonrefundable deposit has been paid on the Property.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's
determination as to whether or not to sell a Property, since the interests of
the Advisor and the stockholders may differ as a result of their distinct
financial and tax positions and the compensation to which the Advisor or its
Affiliates may be entitled upon the Sale of a Property. See "-- Compensation of
the Advisor" below for a description of these compensation arrangements. In
order to resolve this potential conflict, the Board of Directors will be
required to approve each Sale of a Property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored
by the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers. Potential situations
may arise in which the interests of the co-venturer or co-venturers may conflict
with those of the Company. In addition, the Company and the co-venturer or
co-venturers may reach an impasse with regard to business decisions, such as the
purchase or sale of Property, in which the approval of the Company and each
co-venturer is required. In this event, none of the parties may have the funds
necessary to purchase the interests of the other co-venturers. The Company may
experience difficulty in locating a third party purchaser for its Joint Venture
interest and in obtaining a favorable sales price for such Joint Venture
interest. See "Risk Factors -- Real Estate and Other Investment Risks -- We may
not control the joint ventures in which we enter."
COMPETITION FOR MANAGEMENT TIME
The directors and certain of the officers of the Advisor and the
Directors and certain of the officers of the Company currently are engaged, and
in the future will engage, in the management of other business entities and
properties and in other business activities, including entities, properties and
activities associated with Affiliates. They will devote only as much of their
time to the business of the Company as they, in their judgment, determine is
reasonably required, which will be substantially less than their full time.
These officers and directors of the Advisor and officers and Directors of the
Company may experience conflicts of interest in allocating management time,
services, and functions among the Company and the various entities, investor
programs (public or private), and any other business ventures in which any of
them are or may become involved. Independent Directors may serve as directors of
three REITs advised by the Advisor; however, the Company does not anticipate
that it will share Independent Directors with other REITs advised by the
Advisor.
<PAGE>
COMPENSATION OF THE ADVISOR
The Advisor has been engaged to perform various services for the
Company and will receive fees and compensation for such services. None of the
agreements for such services were the result of arm's-length negotiations. All
such agreements, including the Advisory Agreement, require approval by a
majority of the Board of Directors, including a majority of the Independent
Directors, not otherwise interested in such transactions, as being fair and
reasonable to the Company and on terms and conditions no less favorable than
those which could be obtained from unaffiliated entities. The timing and nature
of fees and compensation to the Advisor could create a conflict between the
interests of the Advisor and those of the stockholders. A transaction involving
the purchase, lease, or Sale of any Property, or the entering into or Sale of a
Mortgage Loan or a Secured Equipment Lease by the Company may result in the
immediate realization by the Advisor and its Affiliates of substantial
commissions, fees, compensation, and other income. Although the Advisory
Agreement authorizes the Advisor to take primary responsibility for all
decisions relating to any such transaction, the Board of Directors must approve
all of the Company's acquisitions and Sales of Properties and the entering into
and Sales of Mortgage Loans or Secured Equipment Leases. Potential conflicts may
arise in connection with the determination by the Advisor on behalf of the
Company of whether to hold or sell a Property, Mortgage Loan, or Secured
Equipment Lease as such determination could impact the timing and amount of fees
payable to the Advisor. See "The Advisor and the Advisory Agreement."
RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the
Advisor. Certain of the officers and Directors of the Company are also officers,
directors, and registered principals of the Managing Dealer. This relationship
may create conflicts in connection with the fulfillment by the Managing Dealer
of its due diligence obligations under the federal securities laws. Although the
Managing Dealer will examine the information in the Prospectus for accuracy and
completeness, the Managing Dealer is an Affiliate of the Company and will not
make an independent review of the Company or the offering. Accordingly, the
investors do not have the benefit of such independent review. Certain of the
Soliciting Dealers have made, or are expected to make, their own independent due
diligence investigations. The Managing Dealer is not prohibited from acting in
any capacity in connection with the offer and sale of securities offered by
entities that may have some or all investment objectives similar to those of the
Company and is expected to participate in other offerings sponsored by one or
more of the officers or Directors of the Company.
LEGAL REPRESENTATION
Shaw Pittman, which serves as securities and tax counsel to the Company
in this offering, also serves as securities and tax counsel for certain of its
Affiliates, including other real estate programs, in connection with other
matters. In addition, certain members of the firm of Shaw Pittman have invested
as limited partners or stockholders in prior programs sponsored by Affiliates of
the Advisor in aggregate amounts which do not exceed one percent of the amounts
sold by any of these programs, and members of the firm also may invest in the
Company. Neither the Company nor the stockholders will have separate counsel. In
the event any controversy arises following the termination of this offering in
which the interests of the Company appear to be in conflict with those of the
Advisor or its Affiliates, other counsel may be retained for one or both
parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, the Articles of Incorporation contain a number of restrictions
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of properties,
mortgage loans and secured equipment leases among certain affiliated entities.
These restrictions include the following:
1. No goods or services will be provided by the Advisor or its
Affiliates to the Company except for transactions in which the Advisor or its
Affiliates provide goods or services to the Company in accordance with the
Articles of Incorporation, 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.
2. The Company will not purchase or lease Properties in which the
Advisor or its Affiliates has an interest without the determination, by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction, that such transaction is
competitive and commercially reasonable to the Company and at a price to the
Company no greater than the cost of the asset to the Advisor or its Affiliate
unless there is substantial justification for any amount that exceeds such cost
and such excess amount is determined to be reasonable. In no event shall the
Company acquire any such asset at an amount in excess of its appraised value.
The Company will not sell or lease Properties to the Advisor or its Affiliates
unless a majority of the Directors (including a majority of the Independent
Directors) not interested in the transaction determine the transaction is fair
and reasonable to the Company.
3. The Company will not make any loans to Affiliates. Any loans to the
Company by the Advisor or its Affiliates must be approved by a majority of the
Directors (including a majority of the Independent Directors) not otherwise
interested in such transaction as fair, competitive, and commercially
reasonable, and no less favorable to the Company than comparable loans between
unaffiliated parties. It is anticipated that the Advisor or its Affiliates shall
be entitled to reimbursement, at cost, for actual expenses incurred by the
Advisor or its Affiliates on behalf of the Company or Joint Ventures in which
the Company is a co-venturer, subject to the 2%/25% Guidelines (2% of Average
Invested Assets or 25% of Net Income) described under "The Advisor and the
Advisory Agreement -- The Advisory Agreement."
4. Until completion of this offering, the Advisor and its Affiliates
will not offer or sell interests in any subsequently formed public program that
has investment objectives and structure similar to those of the Company and that
intends to (i) invest, on a cash and/or leveraged basis, in a diversified
portfolio of health care properties to be leased on a "triple-net" basis to
operators of Health Care Facilities, (ii) offer mortgage loans and (iii) offer
secured equipment leases. The Advisor and its Affiliates also will not purchase
a property or offer or invest in a mortgage loan or secured equipment lease for
any such subsequently formed public program that has investment objectives and
structure similar to the Company and that intends to invest on a cash and/or
leveraged basis primarily in a diversified portfolio of health care properties
to be leased on a "triple-net" basis to operators of Health Care Facilities
until substantially all (generally, 80%) of the funds available for investment
(Net Offering Proceeds) by the Company have been invested or committed to
investment. (For purposes of the preceding sentence only, funds are deemed to
have been committed to investment to the extent written agreements in principle
or letters of understanding are executed and in effect at any time, whether or
not any such investment is consummated, and also to the extent any funds have
been reserved to make contingent payments in connection with any Property,
whether or not any such payments are made.) The Advisor or its Affiliates in the
future may offer interests in one or more public or private programs organized
to purchase properties of the type to be acquired by the Company, to offer
Mortgage Loans and/or to offer Secured Equipment Leases.
5. The Board of Directors and the Advisor have agreed that, in the
event that an investment opportunity becomes available which is suitable for
both the Company and a public or private entity with which the Advisor or its
Affiliates are affiliated, for which both entities have sufficient uninvested
funds, then the entity which has had the longest period of time elapse since it
was offered an investment opportunity will first be offered the investment
opportunity. An investment opportunity will not be considered suitable for a
program if the requirements of Item 4 above could not be satisfied if the
program were to make the investment. In determining whether or not an investment
opportunity is suitable for more than one program, the Advisor and its
Affiliates will examine such factors, among others, as the cash requirements of
each program, the effect of the acquisition both on diversification of each
program's investments by types of health care facilities and geographic area,
and on diversification of the tenants of its properties (which also may affect
the need for one of the programs to prepare or produce audited financial
statements for a property or a tenant), the anticipated cash flow of each
program, the size of the investment, the amount of funds available to each
program, and the length of time such funds have been available for investment.
If a subsequent development, such as a delay in the closing of a property or a
delay in the construction of a property, causes any such investment, in the
opinion of the Advisor and its Affiliates, to be more appropriate for an entity
other than the entity which committed to make the investment, however, the
Advisor has the right to agree that the other entity affiliated with the Advisor
or its Affiliates may make the investment.
6. With respect to Shares owned by the Advisor, the Directors, or any
Affiliate, neither the Advisor, nor the Directors, nor any of their Affiliates
may vote or consent on matters submitted to the stockholders regarding the
removal of the Advisor, Directors, or any Affiliate or any transaction between
the Company and any of them. In determining the requisite percentage in interest
of Shares necessary to approve a matter on which the Advisor, Directors, and any
Affiliate may not vote or consent, any Shares owned by any of them shall not be
included.
Additional conflict resolution procedures are identified under " --
Sales of Properties," " -- Joint Investment With An Affiliated Program" and " --
Legal Representation."
SUMMARY OF REINVESTMENT PLAN
The Company has adopted the Reinvestment Plan pursuant to which some
stockholders may elect to have the full amount of their cash Distributions from
the Company reinvested in additional Shares of the Company. Each prospective
investor who wishes to participate in the Reinvestment Plan should consult with
such investor's Soliciting Dealer as to the Soliciting Dealer's position
regarding participation in the Reinvestment Plan. The following discussion
summarizes the principal terms of the Reinvestment Plan. The Reinvestment Plan
is attached hereto as Appendix A.
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Securities, Inc., will act on behalf of the participants in the Reinvestment
Plan (the "Participants"). The Reinvestment Agent at all times will be
registered as a broker-dealer with the Securities and Exchange Commission (the
"Commission") and each state securities commission. At any time that the Company
is engaged in an offering, including the offering described herein, the
Reinvestment Agent will invest all Distributions attributable to Shares owned by
Participants in Shares of the Company at the public offering price per Share,
which currently is $10.00 per Share. At any time that the Company is not engaged
in an offering, and until Listing, the price per Share will be determined by (i)
quarterly appraisal updates performed by the Company based on a review of the
existing appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from that
Property; and (ii) a review of the outstanding Mortgage Loans and Secured
Equipment Leases focusing on a determination of present value by a
re-examination of the capitalization rate applied to the stream of payments due
under the terms of each Mortgage Loan and Secured Equipment Lease. The
capitalization rate used by the Company and, as a result, the price per Share
paid by the Participants in the Reinvestment Plan prior to Listing will be
determined by the Advisor in its sole discretion. The factors that the Advisor
will use to determine the capitalization rate include (i) its experience in
selecting, acquiring and managing properties similar to the Properties; (ii) an
examination of the conditions in the market; and (iii) capitalization rates in
use by private appraisers, to the extent that the Advisor deems such factors
appropriate, as well as any other factors that the Advisor deems relevant or
appropriate in making its determination. The Company's internal accountants will
then convert the most recent quarterly balance sheet of the Company from a
"GAAP" balance sheet to a "fair market value" balance sheet. Based on the "fair
market value" balance sheet, the internal accountants will then assume a Sale of
the Company's assets and the liquidation of the Company in accordance with its
constitutive documents and applicable law and compute the appropriate method of
distributing the cash available after payment of reasonable liquidation
expenses, including closing costs typically associated with the sale of assets
and shared by the buyer and seller, and the creation of reasonable reserves to
provide for the payment of any contingent liabilities. All Shares available for
purchase under the Reinvestment Plan either are registered pursuant to this
Prospectus or will be registered under the Securities Act of 1933 through a
separate prospectus relating solely to the Reinvestment Plan. Until this
offering has terminated, Shares will be available for purchase out of the
additional 500,000 Shares registered with the Commission in connection with this
offering. See "The Offering -- Plan of Distribution." After the offering has
terminated, Shares will be available from any additional Shares which the
Company elects to register with the Commission for the Reinvestment Plan. The
Reinvestment Plan may be amended or supplemented by an agreement between the
Reinvestment Agent and the Company at any time, including, but not limited to an
amendment to the Reinvestment Plan to add a voluntary cash contribution feature
or to substitute a new Reinvestment Agent to act as agent for the Participants
or to increase the administrative charge payable to the Reinvestment Agent, by
mailing an appropriate notice at least 30 days prior to the effective date
thereof to each Participant at his or her last address of record; provided, that
any such amendment must be approved by a majority of the Independent Directors
of the Company. Such amendment or supplement shall be deemed conclusively
accepted by each Participant except those Participants from whom the Company
receives written notice of termination prior to the effective date thereof.
Stockholders who have received a copy of this Prospectus and
participate in this offering can elect to participate in and purchase Shares
through the Reinvestment Plan at any time and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in this offering, or the
initial public offering (the "Initial Offering"), may purchase Shares through
the Reinvestment Plan only after receipt of a separate prospectus relating
solely to the Reinvestment Plan.
At any time that the Company is not engaged in an offering, the price
per Share purchased pursuant to the Reinvestment Plan shall be the fair market
value of the Shares based on quarterly appraisal updates of the Company's assets
until such time, if any, as Listing occurs. Upon Listing, the Shares to be
acquired for the Reinvestment Plan may be acquired either through such market or
directly from the Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per-Share price equal to the then
prevailing market price on the national securities exchange or over-the-counter
market on which the Shares are listed at the date of purchase. In the event
that, after Listing occurs, the Reinvestment Agent purchases Shares on a
national securities exchange or over-the-counter market through a registered
broker-dealer, the amount to be reinvested shall be reduced by any brokerage
commissions charged by such registered broker-dealer. In the event that such
registered broker-dealer charges reduced brokerage commissions, additional funds
in the amount of any such reduction shall be left available for the purchase of
Shares. The Company is unable to predict the effect which such a proposed
Listing would have on the price of the Shares acquired through the Reinvestment
Plan.
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly
following the payment date with respect to such Distributions, to purchase
Shares on behalf of the Participants from the Company. All such Distributions
shall be invested in Shares within 30 days after such payment date. Any
Distributions not so invested will be returned to Participants.
At this time, Participants will not have the option to make voluntary
contributions to the Reinvestment Plan to purchase Shares in excess of the
amount of Shares that can be purchased with their Distributions. The Board of
Directors reserves the right, however, to amend the Reinvestment Plan in the
future to permit voluntary contributions to the Reinvestment Plan by
Participants, to the extent consistent with the Company's objective of
qualifying as a REIT.
PARTICIPANT ACCOUNTS, FEES AND ALLOCATION OF SHARES
For each Participant, the Reinvestment Agent will maintain a record
which shall reflect for each fiscal quarter the Distributions received by the
Reinvestment Agent on behalf of such Participant. The Company shall be
responsible for all administrative charges and expenses charged by the
Reinvestment Agent. Any interest earned on such Distributions will be paid to
the Company to defray certain costs relating to the Reinvestment Plan. The
administrative charge for each fiscal quarter will be the lesser of 5% of the
amount reinvested for the Participant or $2.50, with a minimum charge of $0.50.
The maximum annual charge is $10.00.
The Reinvestment Agent will use the aggregate amount of Distributions
to all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants exceeds
the amount required to purchase all Shares then available for purchase, the
Reinvestment Agent will purchase all available Shares and will return all
remaining Distributions to the Participants within 30 days after the date such
Distributions are made. The purchased Shares will be allocated among the
Participants based on the portion of the aggregate Distributions received by the
Reinvestment Agent on behalf of each Participant, as reflected in the records
maintained by the Reinvestment Agent. The ownership of the Shares purchased
pursuant to the Reinvestment Plan shall be reflected on the books of the
Company.
Subject to the provisions of the Articles of Incorporation relating to
certain restrictions on and the effective dates of transfer, Shares acquired
pursuant to the Reinvestment Plan will entitle the Participant to the same
rights and to be treated in the same manner as those purchased by the
Participants in the offering. Accordingly, the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under "The Offering -- Plan of Distribution") and a marketing support
and due diligence fee of 0.5%. The Company will also pay the Advisor Acquisition
Fees of 4.5% of the purchase price of the Shares sold pursuant to the
Reinvestment Plan until the termination of the offering. Thereafter, Acquisition
Fees will be paid by the Company only in the event that proceeds of the sale of
Shares are used to acquire Properties or to invest in Mortgage Loans. As a
result, aggregate fees payable to Affiliates of the Company will total between
8.0% and 12.5% of the proceeds of reinvested Distributions, up to 7.5% of which
may be reallowed to Soliciting Dealers.
The allocation of Shares among Participants may result in the ownership
of fractional Shares, computed to four decimal places.
<PAGE>
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares purchased during the quarter, the per Share purchase price for such
Shares, the total administrative charge paid by the Company on behalf of each
Participant (see "-- Participant Accounts, Fees and Allocation of Shares"
above), and the total number of Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Until such time, if any, as Listing occurs,
the statement of account also will report the most recent fair market value of
the Shares, determined as described above. See "-- General" above.
Tax information for income earned on Shares under the Reinvestment Plan
will be sent to each participant by the Company or the Reinvestment Agent at
least annually.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Stockholders of the Company who purchase Shares in this offering may
become Participants in the Reinvestment Plan by making a written election to
participate on their Subscription Agreements at the time they subscribe for
Shares. Any other stockholder who receives a copy of this Prospectus or a
separate prospectus relating solely to the Reinvestment Plan and who has not
previously elected to participate in the Reinvestment Plan may so elect at any
time by written notice to the Board of Directors of such stockholder's desire to
participate in the Reinvestment Plan. Participation in the Reinvestment Plan
will commence with the next Distribution made after receipt of the Participant's
notice, provided it is received at least ten days prior to the record date for
such Distribution. Subject to the preceding sentence, the election to
participate in the Reinvestment Plan will apply to all Distributions
attributable to the fiscal quarter in which the stockholder made such written
election to participate in the Reinvestment Plan and to all fiscal quarters
thereafter, whether made (i) upon subscription or subsequently for stockholders
who participate in this offering, or (ii) upon receipt of a separate prospectus
relating solely to the Reinvestment Plan for stockholders who do not participate
in this offering. Participants will be able to terminate their participation in
the Reinvestment Plan at any time without penalty by delivering written notice
to the Board of Directors ten business days before the end of a fiscal quarter.
A Participant who chooses to terminate participation in the
Reinvestment Plan must terminate his or her entire participation in the
Reinvestment Plan and will not be allowed to terminate in part. If a Participant
terminates his or her participation the Reinvestment Agent will send him or her
a check in payment for any fractional Shares in his or her account based on the
then market price of the Shares and the Company's record books will be revised
to reflect the ownership records of his or her whole Shares. There are no fees
associated with a Participant's terminating his or her interest in the
Reinvestment Plan. A Participant in the Reinvestment Plan who terminates his or
her interest in the Reinvestment Plan will be allowed to participate in the
Reinvestment Plan again upon receipt of the then current version of this
Prospectus or a separate current prospectus relating solely to the Reinvestment
Plan by notifying the Reinvestment Agent and completing any required forms.
The Board of Directors reserves the right to prohibit Qualified Plans
from participating in the Reinvestment Plan if such participation would cause
the underlying assets of the Company to constitute "plan assets" of Qualified
Plans. See "The Offering -- ERISA Considerations."
FEDERAL INCOME TAX CONSIDERATIONS
Stockholders subject to federal taxation who elect to participate in
the Reinvestment Plan will incur a tax liability for Distributions allocated to
them even though they have elected not to receive their Distributions in cash
but rather to have their Distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. A stockholder designating a Distribution for
reinvestment will be taxed on the amount of such Distribution as ordinary income
to the extent such Distribution is from current or accumulated earnings and
profits, unless the Company has designated all or a portion of the Distribution
as a capital gain dividend. In such case, such designated portion of the
Distribution will be taxed as long-term capital gain.
<PAGE>
AMENDMENTS AND TERMINATION
The Company reserves the right to renew, extend, or amend any aspect of
the Reinvestment Plan without the consent of stockholders, provided that notice
of the amendment is sent to Participants at least 30 days prior to the effective
date thereof. The Company also reserves the right to terminate the Reinvestment
Plan for any reason, at any time, by ten days prior written notice of
termination to all Participants.
REDEMPTION OF SHARES
Prior to such time, if any, as Listing occurs, any stockholder who has
held Shares for not less than one year (other than the Advisor) may present all
or any portion equal to at least 25% of such Shares to the Company for
redemption at any time, in accordance with the procedures outlined herein. At
such time, the Company may, at its sole option, redeem such Shares presented for
redemption for cash to the extent it has sufficient funds available. There is no
assurance that there will be sufficient funds available for redemption and,
accordingly, a stockholder's Shares may not be redeemed. If the Company elects
to redeem Shares, the following conditions and limitations would apply. The full
amount of the proceeds from the sale of Shares under the Reinvestment Plan (the
"Reinvestment Proceeds") attributable to any calendar quarter will be used to
redeem Shares presented for redemption during such quarter. 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. Any amount
of offering proceeds which is available for redemptions, but which is unused,
may be carried over to the next succeeding calendar quarter for use in addition
to the amount of offering proceeds and Reinvestment Proceeds that would
otherwise be available for redemptions. At no time during a 12-month period,
however, may the number of shares redeemed by the Company exceed 5% of the
number of shares of the Company's outstanding common stock at the beginning of
such 12-month period.
In the event there are insufficient funds to redeem all of the Shares
for which redemption requests have been submitted, the Company plans to redeem
the Shares in the order in which such redemption requests have been received. A
stockholder whose Shares are not redeemed due to insufficient funds can ask that
the request to redeem the Shares be honored at such time, if any, as there are
sufficient funds available for redemption. In such case, the redemption request
will be retained and such Shares will be redeemed before any subsequently
received redemption requests are honored. Alternatively, a stockholder whose
Shares are not redeemed may withdraw his or her redemption request. Stockholders
will not relinquish their Shares, until such time as the Company commits to
redeeming such Shares.
If the full amount of funds available for any given quarter exceeds the
amount necessary for such redemptions, the remaining amount shall be held for
subsequent redemptions unless such amount is sufficient to acquire an additional
Property (directly or through a Joint Venture) or to invest in additional
Mortgage Loans, or is used to repay outstanding indebtedness. In that event, the
Company may use all or a portion of such amount to acquire one or more
additional Properties, to invest in one or more additional Mortgage Loans or to
repay such outstanding indebtedness, provided that the Company (or, if
applicable, the Joint Venture) enters into a binding contract to purchase such
Property or Properties or invests in such Mortgage Loan or Mortgage Loans, or
uses such amount to repay outstanding indebtedness, prior to payment of the next
Distribution and the Company's receipt of requests for redemption of Shares.
A stockholder who wishes to have his or her Shares redeemed must mail
or deliver a written request on a form provided by the Company and executed by
the stockholder, its trustee or authorized agent, to the redemption agent (the
"Redemption Agent"), which is currently MMS Securities, Inc. The Redemption
Agent at all times will be registered as a broker-dealer with the Commission and
each state securities commission. Within 30 days following the Redemption
Agent's receipt of the stockholder's request, the Redemption Agent will forward
to such stockholder the documents necessary to effect the redemption, including
any signature guarantee the Company or the Redemption Agent may require. The
Redemption Agent will effect such redemption for the calendar quarter provided
that it receives the properly completed redemption documents relating to the
Shares to be redeemed from the stockholder at least one calendar month prior to
the last day of the current calendar quarter and has sufficient funds available
to redeem such Shares. The effective date of any redemption will be the last
date during a quarter during which the Redemption Agent receives the properly
completed redemption documents. As a result, the Company anticipates that,
assuming sufficient funds for redemption, the effective date of redemptions will
be no later than thirty days after the quarterly determination of the
availability of funds for redemption.
Upon the Redemption Agent's receipt of notice for redemption of Shares,
the redemption price will be on such terms as the Company shall determine. The
redemption price for Shares redeemed during an offering would equal the then
current offering price, which the Company anticipates will continue to be $10.00
per Share, until such time, if any, as Listing occurs, less a discount of 8.0%,
for a net redemption price of $9.20 per Share. The net redemption price
approximates the per Share net proceeds received by the Company in the offering,
after deducting Selling Commissions of 7.5% and a 0.5% marketing support and due
diligence fee payable to the Managing Dealer and certain Soliciting Dealers in
such offering.
It is not anticipated that there will be a market for the Shares before
Listing occurs (although liquidity is not assured thereby). Accordingly, during
periods when the Company is not engaged in an offering, it is expected that the
purchase price for Shares purchased from stockholders will be determined by
reference to the following factors, as well as any others deemed relevant or
appropriate by the Company: (i) the price at which Shares have been purchased by
stockholders, either pursuant to the Reinvestment Plan or outside of the
Reinvestment Plan (to the extent the Company has information regarding the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation provided to certain stockholders (see "Reports to
Stockholders"), and (iii) the price at which stockholders are willing to sell
their Shares. Shares purchased during any particular period of time therefore
may be purchased at varying prices. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part of its regular
communications with stockholders. Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.
A stockholder may present fewer than all of his or her Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which must be presented for redemption shall be at least 25% of his or her
Shares, and (ii) if such stockholder retains any Shares, he or she must retain
at least 250 Shares (100 Shares for an IRA, Keogh Plan or pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; (v)
they determine, in their sole discretion, that such redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of
Shares in the Company, could cause direct or indirect ownership of Shares of the
Company to become concentrated to an extent which would prevent the Company from
qualifying as a REIT under the Code; or (vi) the Directors, in their sole
discretion, deem such suspension to be in the best interest of the Company. For
a discussion of the tax treatment of such redemptions, see "Federal Income Tax
Considerations -- Taxation of Stockholders." The redemption plan will terminate,
and the Company no longer shall accept Shares for redemption, if and when
Listing occurs. See "Risk Factors -- Offering-Related Risks -- The sale of
shares by stockholders could be difficult."
BUSINESS
GENERAL
The Company is a Maryland corporation that was organized on December
22, 1997. On December 2, 1999, the Company formed CNL Health Care Partners, LP,
a Delaware limited partnership ("Health Care Partners"). CNL Health Care GP
Corp. and CNL Health Care LP Corp. are wholly owned subsidiaries of the Company
and are the general and limited partner, respectively, of Health Care Partners.
Properties acquired are expected to be held by Health Care Partners and, as a
result, owned by the Company through Health Care Partners. The term "Company"
includes CNL Health Care Properties, Inc. and its subsidiaries, CNL Health Care
GP Corp., CNL Health Care LP Corp. and CNL Health Care Partners, LP.
The Company has been formed primarily to acquire Properties related to
Health Care Facilities located across the United States. The Health Care
Facilities may include 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 (generally, 10 to 20 years, plus renewal options for an
additional 10 to 20 years), "triple-net" basis to operators of Health Care
Facilities. "Triple-net" means that the tenant generally will be responsible for
repairs, maintenance, property taxes, utilities, and insurance. The Properties
may consist of land and building, the land underlying the building with the
building owned by the tenant or a third party, or the building only with the
land owned by a third party. The Company may provide Mortgage Loans to operators
of Health Care Facilities secured by real estate owned by the operators. To a
lesser extent, the Company may also offer Secured Equipment Leases to operators
of Health Care Facilities pursuant to which the Company will finance, through
loans or direct financing leases, the Equipment.
The Properties, which typically will be freestanding and will be
located across the United States, will be leased to operators of Health Care
Facilities to be selected by the Advisor and approved by the Board of Directors.
Each Property acquisition and Mortgage Loan will be submitted to the Board of
Directors for approval. The Company has not specified any percentage of Net
Offering Proceeds to be invested in any particular type of Health Care Facility.
It is anticipated that the Health Care Facilities will be leased to selected
national and regional operators. Properties purchased by the Company are
expected to be leased under arrangements generally requiring base annual rent
equal to a specified percentage of the Company's cost of purchasing a particular
Property with (i) automatic fixed increases in base rent or (ii) increases in
the base rent based on increases in consumer price indices, over the term of the
lease. See "-- Description of Property Leases -- Computation of Lease Payments,"
below.
The Company believes that demographic trends are significant when
looking at the potential for future growth in the health care industry.
According to data released from the U.S. Bureau of Census in January 2000, the
elderly population is projected to more than double between now and the year
2050, to 80 million. As illustrated below, most of this growth is expected to
occur between 2010 and 2030 when the number of elderly is projected to grow by
an average of 2.8% annually.
Elderly Population Estimates
<TABLE>
<CAPTION>
Date Over 85 Population (000) Over 65 Population (000)
- ----------------- --------------------------- ---------------------------
<S> <C>
July 1, 1998 4,054 34,401
July 1, 2000 4,312 34,835
July 1, 2005 4,968 36,370
July 1, 2010 5,786 39,715
July 1, 2015 6,396 45,959
July 1, 2020 6,763 53,733
July 1, 2025 7,441 62,641
July 1, 2030 8,931 70,319
July 1, 2035 11,486 74,774
July 1, 2040 14,284 77,177
July 1, 2045 17,220 79,142
July 1, 2050 19,352 81,999
</TABLE>
Source: U.S. Bureau of Census
In addition to the growth in the number of elderly people, life
expectancies are increasing. Those 85 and over are the most rapidly growing
elderly age group. Between 1960 and 1994, this group grew 274%. During this same
period of time, the entire population of the United States grew 45%.
Life Expectancy Trends
at Age 65 (in years)
Year Male Female
- ------------ ------- ----------
1965 12.9 16.3
1980 14.0 18.4
1985 14.4 18.6
1990 15.0 19.0
1991 15.1 19.1
<PAGE>
Year Male Female
- ------------ ------- ----------
1992 15.2 19.2
1993 15.1 19.0
1994 15.3 19.0
1995 15.3 19.0
1996* 15.8 19.1
1997* 15.6 19.2
1998** 15.7 19.2
1999** 15.7 19.3
* preliminary data
** estimated
Source: Social Security Administration Office of Programs: Data from
the Office of the Actuary
Based on information from the Economic and Statistic Administration of
the U.S. Department of Commerce, management believes that all of these trends
suggest that as more people live to the oldest ages, there may also be more who
face chronic, limiting illnesses or conditions. These conditions result in
people becoming dependent on others for help in performing the activities of
daily living. The U.S. General Accounting Office anticipates that the number of
older people needing assistance with activities of daily living will increase to
14 million by 2020, from 7 million in 1994.
Percent of Persons Needing Assistance with
Activities of Daily Living (ADLs)
Years of Age Percentage
------------------ --------------
65-69 9%
70-74 11%
75-79 20%
80-84 31%
85+ 50%
Source: U.S. Bureau of Census, 1991 data
In addition to an aging population, according to 1997 data from the
U.S. Department of Commerce, a significant segment of the elderly population has
the financial resources to afford seniors' housing facilities, with people age
55 to 64 making a mean household income of $58,000 per year. The mean household
income for those age 65 and over is more than $33,000 per year. In addition,
according to June 30, 1999 data from the U.S. Bureau of Census, the average
household wealth for those age 65 and over exceeds the national average for all
age groups by 54%, and 27% of those households have an annual income in excess
of $50,000. Management believes that other changes and trends in the health care
industry will create opportunities for growth of seniors' housing facilities,
including (i) the growth of operators serving specific health care niches, (ii)
the consolidation of providers and facilities through mergers, integration of
physician practices, and elimination of duplicative services, (iii) the
pressures to reduce the cost of providing quality health care, (iv) more
dual-income and single-parent households leaving fewer family members available
for in-home care of aging parents and necessitating more senior care facilities,
and (v) an anticipated increase in the number of insurance companies and health
care networks offering privately funded long-term care insurance.
According to the Health Care Financing Administration and the National
Health Statistics Group, the health care industry represents over 13.5% of the
United States' gross domestic product ("GDP") with at least $1.092 trillion in
annual expenditures. The U.S. Department of Health and Human Services expects
this figure to rise to over 23.6% of the GDP by 2008, with $2.18 trillion in
annual expenditures. According to the U.S. Bureau of Census, U.S. health care
construction expenditures are estimated to be $17.4 billion per year and
growing. With regard to housing for seniors, there are three major contributors
to growth and the attraction of capital, according to the National Investment
Conference for the Senior Living and Long Term Care Industries in 1996.
They are (i)
<PAGE>
demographics, (ii) the limited supply of new product, and (iii) the investment
community's increased understanding of the industry. The Company believes the
growth in demand and facilities will continue at least 50 years due to the
favorable demographics, the increase in public awareness of the industry, the
preference of seniors for obtaining care in non-institutional settings and the
cost savings realized in a non-institutional environment.
Estimate of Effective Demand for Seniors' Housing Categories
Elderly Population with Income Over $25,000
Thousands of Beds
<TABLE>
<CAPTION>
Base Independent Living Assisted Living Skilled Nursing
- ------------ --------------------- ------------------ ------------------
<S> <C>
1996 826 427 524
2000 849 457 567
2005 887 492 619
2010 963 537 681
2015 1,108 597 752
2020 1,292 671 834
2025 1,507 778 957
2030 1,694 903 1,120
Source: Price Waterhouse, LLP for the National Investment Conference for the Senior Living
and Long Term Care Industries, October 1996
</TABLE>
The Company intends to capitalize on the growing real estate needs in
the seniors' housing and health care industries primarily by acquiring
Properties and leasing them to health care operators on a long-term (generally,
10 to 20 years, plus renewal options for an additional 10 to 20 years),
"triple-net" basis. The Properties that the Company will acquire and lease are
expected to include one or more of the following types:
o Seniors' Housing, Which Includes Congregate Living and Assisted Living
Facilities. Congregate living communities offer a lifestyle choice,
including residential accommodations with access to services, such as
housekeeping, transportation, dining and social activities, for those
who wish to maintain their lifestyles independently. The fastest
growing segment of the seniors' housing industry is assisted living.
While skilled nursing facilities focus on more intensive care, assisted
living facilities provide housing for seniors that need assistance with
activities of daily living, such as grooming, dressing, bathing, and
eating. Assisted living facilities provide accommodations with limited
health care available when needed but do not have an institutional
feel. Certain assisted living facilities are also now specializing in
meeting the needs of Alzheimer's and dementia patients prior to the
time that their condition warrants a nursing home setting or, in some
instances, in competition with what would otherwise be provided in a
nursing home setting. According to the U.S. Department of Health and
Human Services, at least 15%, and possibly as much as 70%, of the
patients in nursing homes could more appropriately be cared for in a
less institutional and more cost effective setting. In addition,
seniors' housing facilities include continuing care retirement
communities and life care communities which provide a full range of
long-term care services in one location, such as congregate living,
assisted living and skilled nursing facilities and home health care.
o Medical Office Buildings. Medical office buildings, including doctors'
offices, special purpose facilities, such as diagnostic, cancer
treatment and outpatient centers, and walk-in clinics also provide
investment opportunities as more small physician practices consolidate
to save on the increasing costs of private practice and single purpose
medical facilities become more common.
o Skilled Nursing Facilities. Skilled nursing facilities provide
extensive skilled nursing and other long-term care services to patients
that may require full time medical observation, medication monitoring,
ventilation and intravenous therapies, sub-acute care, and
Alzheimer's/dementia care. Throughout much of the United States, the
supply of new skilled nursing facilities is limited by complex
Certificate of Need Laws or similar state licensing regulations, as a
result of the National Health Planning and Resources Development Act of
1974, which require nursing home providers to obtain prior approval
from regulators before undertaking any major new construction or
renovation projects. As a result, the supply of skilled nursing
facilities is growing very slowly. Demand for skilled nursing
facilities is coming from a rapidly growing population over 75 years of
age and the shift of sub-acute patients to lower cost formats for
treatment. Some states have eliminated Certificate of Need Laws
allowing the market to address the issue of supply and demand. If
trends such as this continue, it is probable that new skilled nursing
facilities will be constructed to meet the demand, thereby providing
potential development and investment opportunities for the Company.
Continuum of long-term care facilities*
<TABLE>
<CAPTION>
Retirement/Congregate
Living Assisted Living Skilled Nursing Facility Acute Care Hospitals
- --------------------------- --------------------------- -------------------------- ---------------------------
<S> <C>
Informal concierge, 24-hour supervision, 24-hour medical care and Short-term acute medical
emergency call system, personal assistance as protective oversight, care
housekeeping & needed, emergency medication management,
maintenance, some group response system, social emergency response
activities, food service activities, housekeeping system, 3 meals per day,
and transportation and maintenance, 3 meals assistance with ADLs
per day, transportation,
assistance with
medication and shopping
</TABLE>
* Interspersed throughout the continuum are visits to physicians offices,
physical therapy, occupational therapy, and other short-term necessary
health care services.
Legg Mason Wood Walker, Inc. in its industry analysis, Health Facility
REITs Substantial Growth Ahead (December 15, 1997), estimates the value of
health care facilities in the United States to be $584 billion. Management
believes, based on historical costs of property owned by publicly traded health
care REITs, only a small portion of health care facilities in the United States
are owned by REITs. Management believes that this fact, coupled with the health
care industry trends previously discussed, provides a significant investment
opportunity for the Company. Demographic trends may vary depending on the
properties and regions selected for investment. The success of the future
operations of the Company's Properties will depend largely on each operator's
ability to adapt to dominant trends in the health care and seniors' housing
industry in each specific region, including, among others, greater competitive
pressures, increased consolidation and changing demographics. There can be no
assurance that the operators of the Company's Properties will be able to adapt
to such trends.
Management intends to structure the Company's leases to require the
tenant to pay base annual rent with (i) automatic fixed increases in the base
rent or (ii) increases in the base rent based on increases in consumer price
indices over the term of the lease. In an effort to provide regular cash flow to
the Company, the Company intends generally to structure its leases to provide a
minimum level of rent, with automatic increases in the minimum rent, which is
payable regardless of the amount of gross revenues at a particular Property. The
Company also will endeavor to maximize growth and minimize risks associated with
ownership and leasing of real estate that operates in this industry segment
through careful selection and screening of its tenants (as described in "--
Standards for Investment in Properties" below) in order to reduce risks of
default, monitoring statistics relating to operators of Health Care Facilities
and continuing to develop relationships in the industry in order to reduce
certain risks associated with investment in real estate. See "-- Standards for
Investment in Properties" below for a description of the standards which the
Board of Directors will employ in selecting operators and particular Properties
for investment.
Management expects to acquire Properties in part with a view to
diversification among facility type and in the geographic location of the
Properties. There are no restrictions on the types of Health Care Facilities in
which the Company may invest. In addition, there are no restrictions on the
geographic area or areas within the United States in which Properties acquired
by the Company may be located. It is anticipated that the Properties acquired by
the Company will be located in various states and regions within the United
States.
<PAGE>
The Company may also provide Mortgage Loans to operators of Health Care
Facilities, or their affiliates, to enable them to acquire the land, land and
buildings or buildings. The Mortgage Loans will be secured by property owned by
the borrower. The Company expects that the interest rate and terms (generally,
10 to 20 years) of the Mortgage Loans will be similar to those of its leases.
To a lesser extent, the Company may also offer Secured Equipment Leases
to operators of Health Care Facilities. The Secured Equipment Leases will
consist primarily of leases of, and loans for the purchase of, Equipment. As of
the date of this Prospectus, the Company has neither identified any prospective
operators that will participate in such financing arrangements nor negotiated
any specific terms of a Secured Equipment Lease. The Company cannot predict
terms and conditions of the Secured Equipment Leases, although the Company
expects that the Secured Equipment Leases will (i) have terms that equal or
exceed the useful life of the subject Equipment (although such terms will not
exceed 7 years), (ii) in the case of the leases, include an option for the
lessee to acquire the subject Equipment at the end of the lease term for a
nominal fee, (iii) include a stated interest rate, and (iv) in the case of the
leases, provide that the Company and the lessees will each treat the Secured
Equipment Leases as loans secured by personal property for federal income tax
purposes. See "Federal Income Tax Considerations -- Characterization of Secured
Equipment Leases." In addition, the Company expects that each of the Secured
Equipment Leases will be secured by the Equipment to which it relates. Payments
received from lessees under Secured Equipment Leases will be treated as payments
of principal and interest. All Secured Equipment Leases will be negotiated by
the Advisor and approved by the Board of Directors including a majority of the
Independent Directors.
The Company will borrow money to acquire Properties, Mortgage Loans and
Secured Equipment Leases (collectively, the "Assets") and to pay certain fees.
The Company intends to encumber Assets in connection with the borrowing. The
Company plans to obtain one or more revolving Lines of Credit in an aggregate
amount up to $45,000,000, and may, in addition, obtain Permanent Financing. On
April 20, 2000, we entered into an initial $25,000,000 revolving line of credit
to be used to acquire or construct health care Properties. See "Business --
Borrowing" for a description of the $25,000,000 line of credit. The Line of
Credit may be increased at the discretion of the Board of Directors. The Board
of Directors anticipates that the aggregate amount of any Permanent Financing,
if obtained, shall not exceed 30% of the Company's total assets. In any event,
the Company's total borrowings will be limited to 300% of Net Assets. The
Permanent Financing would be used to acquire Assets, and pay a fee of 4.5% of
any Permanent Financing, excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, to the Advisor for identifying the Properties, structuring the
terms of the acquisition and leases of the Properties and structuring the terms
of the Mortgage Loans. The Line of Credit may be repaid with offering proceeds,
proceeds from the sale of assets, working capital or Permanent Financing. The
Line of Credit and Permanent Financing are the only source of funds for making
Secured Equipment Leases and for paying the Secured Equipment Lease Servicing
Fee to the Advisor. The Company has not yet received a commitment for any
Permanent Financing and there is no assurance that the Company will obtain any
Permanent Financing on satisfactory terms.
As of April 20, 2000, the Company had acquired one assisted living
Property. However, as of April 20, 2000, the Company had not entered into any
arrangements that create a reasonable probability that the Company will enter
into any Mortgage Loan or Secured Equipment Lease.
INVESTMENT OF OFFERINGS PROCEEDS
The Company has undertaken to supplement this Prospectus during the
offering period to disclose the acquisition of Properties at such time as the
Company believes that a reasonable probability exists that any such Property
will be acquired by the Company. Based upon the experience and acquisition
methods of the Affiliates of the Company and the Advisor, this normally will
occur, with regard to acquisition of Properties, as of the date on which (i) a
commitment letter is executed by a proposed lessee, (ii) a satisfactory credit
underwriting for the proposed lessee has been completed, (iii) a satisfactory
site inspection has been completed and (iv) a nonrefundable deposit has been
paid on the Property. However, the initial disclosure of any proposed
acquisition cannot be relied upon as an assurance that the Company ultimately
will consummate such proposed acquisition or that the information provided
concerning the proposed acquisition will not change between the date of such
supplement and the actual purchase or extension of financing. The terms of any
borrowing by the Company will also be disclosed by supplement following receipt
by the Company of an acceptable commitment letter from a potential lender.
<PAGE>
Acquisition of a Property for a Health Care Facility generally involves
an investment in land and building ranging from approximately $1,000,000 to
$30,000,000, although higher or lower amounts for individual Properties are
possible. In light of current market conditions, if the maximum number of Shares
is sold in this offering, the Company could invest in approximately four to 126
Properties depending on the types of Properties, and assuming an average
purchase price of $10,000,000 per Property, the Company would acquire or finance
a total of approximately 12 Properties with the proceeds of this offering. In
certain cases, the Company may become a co-venturer in a Joint Venture that will
own the Property. In each such case, the Company's cost to purchase an interest
in such Property will be less than the total purchase price and the Company
therefore will be able to acquire interests in a greater number of Properties.
In addition, the Board of Directors may determine to engage in future offerings
of common stock, the proceeds of which could be used to acquire additional
Properties or make Mortgage Loans. The Company may also borrow to acquire
Properties. See " -- Borrowing." Management estimates that 15% to 25% of the
Company's investment will be for the cost of land and 75% to 85% for the cost of
buildings. See "-- Joint Venture Arrangements" below and "Risk Factors -- Real
Estate and Other Investment Risks -- Possible lack of diversification increases
the risk of investment." Management cannot estimate the number of Mortgage Loans
that may be entered into. The Company may also borrow money to make Mortgage
Loans.
Although management cannot estimate the number of Secured Equipment
Leases that may be entered into, it expects to fund the Secured Equipment Lease
program from the proceeds of the Line of Credit or Permanent Financing in an
amount not to exceed 10% of Gross Proceeds. Management has undertaken,
consistent with its objective of qualifying as a REIT for federal income tax
purposes, to ensure that the total value of all Secured Equipment Leases will
not exceed 25% of the Company's total assets, and that Secured Equipment Leases
to a single lessee, in the aggregate, will not exceed 5% of total assets.
PROPERTY ACQUISITIONS
Brighton Gardens(R) by Marriott(R) located in Orland Park, Illinois. On
April 20, 2000, the Company acquired a Brighton Gardens assisted living Property
located in Orland Park, Illinois (the "Orland Park Property") for $13,848,900
from Marriott Senior Living Services, Inc. The Company, as lessor, has entered
into a long-term lease agreement relating to this Property. The general terms of
the lease agreement are described in "Business -- Description of Property
Leases." The principal features of the lease are as follows:
o The initial term of the lease expires in 15 years.
o At the end of the initial lease term, the tenant will have four
consecutive renewal options of five years each.
o The lease requires minimum rent payments of $1,350,268 per year for the
first and second lease years and $1,384,890 for each lease year
thereafter.
o In addition to minimum rent, the lease requires percentage rent equal
to seven percent of gross revenues in excess of the "Baseline Gross
Revenues." The Baseline Gross Revenues will be established when the
facility achieves average occupancy of 93% for four consecutive
quarters.
o A security deposit equal to $553,956 has been retained by the Company
as security for the tenant's obligations under the lease.
o The tenant has established a reserve fund which will be used for the
replacement and renewal of furniture, fixtures and equipment relating
to the assisted living Property (the "FF&E Reserve"). Deposits to the
FF&E Reserve are made every four weeks as follows: 1% of gross receipts
for the first through fourth lease year; 2% of gross receipts for the
fifth through eighth lease year; and 3% of gross receipts every lease
year thereafter.
o Marriott International, Inc. has, with certain limitations, guaranteed
the tenant's obligation to pay minimum rent under the lease. The
guarantee terminates on the earlier of the end of the fifth lease year
or at such time as the net operating income from the Property exceeds
minimum rent due under the lease by 25% for any trailing 12-month
period. The maximum amount of the guarantee is $2,769,780.
The estimated federal income tax basis of the depreciable portion of
the Orland Park Property is approximately $12.5 million.
The Orland Park Property, which opened in October 1999, is a newly
constructed Brighton Gardens by Marriott located in Orland Park, Illinois. The
Orland Park Property includes 82 assisted living units and 24 special care units
for residents with Alzheimer's and related memory disorders. The facility
provides assistance with daily living activities such as bathing, dressing and
medication reminders. Special amenities include a common activities room and
common dining room, a private dining area, library and garden. The assisted
living community, which is located southwest of Chicago, is approximately six
miles from two medical facilities, Palos Community Hospital and Oak Forest
Community Hospital, and less than two miles from the Orland Square Shopping
Center. According to a report published by Project Market Decision and Claritas,
a research and data collection firm, the greater Chicago area is the third
largest seniors market in the country with more than 263,800 seniors age 75 and
older. The number of seniors in the ten-mile area surrounding the Property is
expected to grow by 11% between 1999 and 2004. Other senior living facilities
located in proximity to the Orland Park Property include Victorian Village,
Sunrise of Palos Park, Peace Memorial Village and Arden Courts of Manor Drive.
The average occupancy rate and the revenue per available unit for the period the
assisted living facility has been operational are as follows:
Orland Park Property
-----------------------------------------------------
Average Revenue
Occupancy per Available
Year Rate Unit
------------ -------------- ----------------
*1999 23.30% $118.11
**2000 36.30% $109.89
* Data for the Orland Park Property represents the period October 11,
1999 through December 31, 1999.
** Data for 2000 represents the period January 1, 2000 through March 24,
2000.
The Company believes that the results achieved by the Property for 1999
and year-to-date 2000, are not indicative of its long-term operating potential,
as the Property had been open for less than six months during the reporting
period.
Marriott Brands. Brighton Gardens by Marriott is a quality-tier
assisted living concept which generally has 90 assisted living suites, and in
certain locations, 30 to 45 nursing beds in a community. In some communities,
separate on-site centers also provide specialized care for residents with
Alzheimer's or other memory-related disorders. According to Marriott
International, Inc.'s 1999 Form 10-K, Marriott Senior Living Services, Inc.,
which is a wholly owned subsidiary of Marriott International, Inc., operates 99
assisted senior living communities principally under the names "Brighton Gardens
by Marriott," "Village Oaks," and "Marriott MapleRidge," and 45 independent
living communities. Marriott Senior Living Services, Inc. is one of the largest
participants in the seniors' housing industry with $559 million in sales for
1999. The communities are designed in a comfortable, home-like setting and
provide residents with a sense of community through a variety of activities,
restaurant-style dining, on-site security, weekly housekeeping and scheduled
transportation. The communities are distinguished by an innovative wellness
program that enables residents to remain as independent as possible for as long
as possible, while providing a personally tailored program of services and care.
Marriott Senior Living Services, Inc. has provided seniors with excellent
service and quality care since 1984. In 1999, the American Seniors Housing
Association, a seniors housing trade association, ranked Marriott Seniors Living
Services, Inc. as the nation's second largest manager of senior housing.
SITE SELECTION AND ACQUISITION OF PROPERTIES
General. It is anticipated that the operators of Health Care Facilities
selected by the Advisor, and as approved by the Board of Directors, will have
personnel engaged in site selection and evaluation. In addition, due to rapid
expansion, some operators may outsource their site selection process to
consultants or developers for review or may rely on third party analyses. The
operators of Health Care Facilities and other parties generally conduct studies
which typically include such factors as population trends, hospital or other
medical facilities development, residential development, per capita or household
median income, per capita or household median age, and other factors. The
operators of the Health Care Facilities are expected to make their site
evaluations and analyses available to the Company.
The Board of Directors, on behalf of the Company, will elect to
purchase and lease Properties based principally on an examination and evaluation
by the Advisor of the potential value of the site, the financial condition and
business history of the proposed tenant, the demographics of the area in which
the property is located or to be located, the proposed purchase price and
proposed lease terms, geographic and market diversification, and potential
revenues expected to be generated by the business located on the property. The
Advisor also will perform an independent break-even analysis of the potential
profitability of a property using historical data and other data developed by
the Company and provided by the operator.
The Board of Directors will exercise its own judgment as to, and will
be solely responsible for, the ultimate selection of both tenants and
Properties. Therefore, some of the properties proposed and approved by an
operator may not be purchased by the Company.
In each Property acquisition, it is anticipated that the Advisor will
negotiate the lease agreement with the tenant. In certain instances, the Advisor
may negotiate an assignment of an existing lease, in which case the terms of the
lease may vary substantially from the Company's standard lease terms, if the
Board of Directors, based on the recommendation of the Advisor, determines that
the terms of an acquisition and lease of a Property, taken as a whole, are
favorable to the Company. It is expected that the structure of the long-term,
"triple-net" lease agreements, which generally provide for monthly rental
payments with automatic fixed increases in base rent at specified times during
the lease terms or increases in the base rent based on increases in consumer
price indices over the term of the leases, will increase the value of the
Properties and provide an inflation hedge. See "Description of Property Leases"
below for a discussion of the anticipated terms of the Company's leases. In
connection with a Property acquisition, in the event the tenant does not enter
into a Secured Equipment Lease with the Company, the tenant will provide at its
own expense all Equipment necessary to operate the Company's Property as a
Health Care Facility. Generally, a tenant either pays cash or obtains a loan
from a third party to purchase such items. If the tenant obtains such a loan,
the tenant will own this personal property subject to the tenant's obligations
under its loan. In the experience of the Affiliates of the Company and the
Advisor, there may be rare circumstances in which a tenant defaults under such a
loan, in which event the lender may attempt to remove the personal property from
the building, resulting in the Property becoming inoperable until new Equipment
can be purchased and installed. In order to prevent repossession of this
personal property by the lender, and only on an interim basis in order to
preserve the value of a Property, the Company may elect (but only to the extent
consistent with the Company's objective of qualifying as a REIT) to use Company
reserves to purchase this personal property from the lender, generally at a
discount for the remaining unpaid balance under the tenant's loan. The Company
then would expect, consistent with the Company's objective of qualifying as a
REIT, to resell the personal property to a new tenant in connection with the
transfer of the lease to that tenant.
Some lease agreements will be negotiated to provide the tenant with the
opportunity to purchase the Property under certain conditions, generally either
at a price not less than fair market value (determined by appraisal or
otherwise) or through a right of first refusal to purchase the Property. In
either case, the lease agreements will provide that the tenant may exercise
these rights only to the extent consistent with the Company's objective of
qualifying as a REIT. See "-- Sale of Properties, Mortgage Loans and Secured
Equipment Leases" below and "Federal Income Tax Considerations --
Characterization of Property Leases."
The purchase of each Property will be supported by an appraisal of the
real estate prepared by an independent appraiser. The Advisor, however, will
rely on its own independent analysis and not on such appraisals in determining
whether or not to recommend that the Company acquire a particular property. The
purchase price of each such Property, plus any Acquisition Fees paid by the
Company in connection with such purchase, will not exceed the Property's
appraised value. (In connection with the acquisition of a Property that has
recently been or is to be constructed or renovated, the comparison of the
purchase price and the appraised value of such Property ordinarily will be based
on the "stabilized value" of such Property.) The stabilized value is the value
at the point which the Property has reached its level of competitiveness at
which it is expected to operate over the long term. It should be noted that
appraisals are estimates of value and should not be relied upon as measures of
true worth or realizable value. Each appraisal will be maintained in the
Company's records for at least five years and will be available for inspection
and duplication by any stockholder.
The titles to Properties purchased by the Company will be insured by
appropriate title insurance policies and/or abstract opinions consistent with
normal practices in the jurisdictions in which the Properties are located.
<PAGE>
Construction and Renovation. In some cases, construction or renovation
will be required after the purchase contract has been entered into, but before
the total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated and as to which the Company
will own both the land and the building or building only, the Company generally
will advance funds for construction or renovation costs, as they are incurred,
pursuant to a development agreement with the developer. The developer may be the
tenant or an Affiliate of the Company. An Affiliate may serve as a developer and
enter into the development agreement with the Company if the transaction is
approved by a majority of the Directors, including a majority of the Independent
Directors. The Company believes that the ability to have an Affiliate capable of
serving as the developer provides the Company an advantage by enhancing its
relationship with key tenants and by giving it access to tenant opportunities at
an earlier stage of the development cycle. As a result, the Company believes it
will have a greater number of opportunities for investment presented to it than
it might otherwise have and it will be able to obtain better terms by
negotiating the terms of its investment at an earlier stage in the development
cycle when there are fewer competitive alternatives available to the tenant.
The developer will enter into all construction contracts and will
arrange for and coordinate all aspects of the construction or renovation of the
property improvements. The developer will be responsible for the construction or
renovation of the building improvements, although it may employ co-developers or
sub-agents in fulfilling its responsibilities under the development agreement.
All general contractors performing work in connection with such building
improvements must provide a payment and performance bond or other satisfactory
form of guarantee of performance. All construction and renovation will be
performed or supervised by persons or entities acceptable to the Advisor. The
Company will be obligated, as construction or renovation costs are incurred, to
make the remaining payments due as part of the purchase price for the
Properties, provided that the construction or renovation conforms to definitive
plans, specifications, and costs approved by the Advisor and the Board of
Directors and embodied in the construction contract.
Under the terms of the development agreement, the Company generally
will advance its funds on a monthly basis to meet the construction draw requests
of the developer. The Company, in general, only will advance its funds to meet
the developer's draw requests upon receipt of an inspection report and a
certification of draw requests from an inspecting architect or engineer suitable
to the Company, and the Company may retain a portion of any advance until
satisfactory completion of the project. The certification generally must be
supported by color photographs showing the construction work completed as of the
date of inspection. The total amount of the funds advanced to the developer
(including the purchase price of the land plus closing costs and certain other
costs) generally will not exceed the maximum amount specified in the development
agreement. Such maximum amount will be based on the Company's estimate of the
costs of such construction or renovation.
In some cases, construction or renovation will be required before the
Company has acquired the Property. In this situation, the Company may have made
a deposit on the Property in cash or by means of a letter of credit. The
renovation or construction may be made by an Affiliate or a third party. The
Company may permit the proposed developer to arrange for a bank or another
lender, including an Affiliate, to provide construction financing to the
developer. In such cases, the lender may seek assurance from the Company that it
has sufficient funds to pay to the developer the full purchase price of the
Property upon completion of the construction or renovation. In the event that
the Company segregates funds as assurance to the lender of its ability to
purchase the Property, the funds will remain the property of the Company, and
the lender will have no rights with respect to such funds upon any default by
the developer under the development agreement or under the loan agreement with
such lender, or if the closing of the purchase of the Property by the Company
does not occur for any reason, unless the transaction is supported by a letter
of credit in favor of the lender.
Under the development agreement, the developer generally will be
obligated to complete the construction or renovation of the building
improvements within a specified period of time from the date of the development
agreement, which generally will be between eight to 12 months. If the
construction or renovation is not completed within that time and the developer
fails to remedy this default within 10 days after notice from the Company, the
Company will have the option to grant the developer additional time to complete
the construction, to take over construction or renovation of the building
improvements, or to terminate the development agreement and require the
developer to purchase the Property at a price equal to the sum of (i) the
Company's purchase price of the land, including all fees, costs and expenses
paid by the Company in connection with its purchase of the land, (ii) all fees,
costs and expenses disbursed by the Company pursuant to the development
agreement for construction of the building improvements, and (iii) the Company's
"construction financing costs." The "construction financing costs" of the
Company is an amount equal to a return, at the annual percentage rate used in
calculating the minimum annual rent under the lease, on all Company payments and
disbursements described in clauses (i) and (ii) above.
The Company also generally will enter into an indemnification and put
agreement (the "Indemnity Agreement") with the developer. The Indemnity
Agreement will provide for certain additional rights to the Company unless
certain conditions are met. In general, these conditions are (i) the developer's
acquisition of all permits, approvals and consents necessary to permit
commencement of construction or renovation of the building improvements within a
specified period of time after the date of the Indemnity Agreement (normally, 60
days), or (ii) the completion of construction or renovation of the building as
evidenced by the issuance of a certificate of occupancy, within a specified
period of time after the date of the Indemnity Agreement. If such conditions are
not met, the Company will have the right to grant the developer additional time
to satisfy the conditions or to require the developer to purchase the Property
from the Company at a purchase price equal to the total amount disbursed by the
Company in connection with the acquisition and construction or renovation of the
Property (including closing costs), plus an amount equal to the return described
in item (iii) of the preceding paragraph. Failure of the developer to purchase
the Property from the Company upon demand by the Company under the circumstances
specified above will entitle the Company to declare the developer in default
under the lease and to declare each guarantor in default under any guarantee of
the developer's obligations to the Company.
In certain situations where construction or renovation is required for
a Property, the Company will pay a negotiated maximum amount upon completion of
construction or renovation rather than providing financing to the developer,
with such amount to be based on the developer's actual costs of such
construction or renovation.
Affiliates of the Company also may provide construction financing to
the developer of a Property. In addition, the Company may purchase from an
Affiliate of the Company a Property that has been constructed or renovated by
the Affiliate. Any fees paid to Affiliates of the Company in connection with the
financing, construction or renovation of a Property acquired by the Company will
be considered Acquisition Fees and will be subject to approval by a majority of
the Board of Directors, including a majority of the Independent Directors, not
otherwise interested in the transaction. See "Management Compensation" and
"Conflicts of Interest -- Certain Conflict Resolution Procedures." Any such fees
will be included in the cost of the Property and, therefore, will be included in
the calculation of base rent.
In all situations where construction or renovation of a Property is
required, the Company also will have the right to review the developer's books,
records, and agreements during and following completion of construction to
verify actual costs.
Interim Acquisitions. The Advisor and its Affiliates regularly may have
opportunities to acquire properties suitable for the Company as a result of
their relationships with various operators. See "General" above. These
acquisitions often must be made within a relatively short period of time,
occasionally at a time when the Company may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities of the Company (and other Affiliates of the Advisor), the Advisor
and its Affiliates maintain lines of credit which enable them to acquire these
properties on an interim basis and temporarily own them for the purpose of
facilitating their acquisition by the Company (or other entities with which the
Company is affiliated). At such time as a Property acquired on an interim basis
is determined to be suitable for acquisition by the Company, the interim owner
of the Property will sell its interest in the Property to the Company at a price
equal to the lesser of its cost (which includes carrying costs and, in instances
in which an Affiliate of the Company has provided real estate brokerage services
in connection with the initial purchase of the Property, indirectly includes
fees paid to an Affiliate of the Company) to purchase such interest in the
Property or the Property's appraised value, provided that a majority of
Directors, including a majority of the Independent Directors, determine that the
acquisition is fair and reasonable to the Company. See "Conflicts of Interest --
Certain Conflict Resolution Procedures." Appraisals of Properties acquired from
such interim owners will be obtained in all cases.
Acquisition Services. Acquisition services performed by the Advisor may
include, but are not limited to, site selection and/or approval; review and
selection of tenants and negotiation of lease agreements and related documents;
monitoring Property acquisitions; and the processing of all final documents
and/or procedures to complete the acquisition of Properties and the commencement
of tenant occupancy and lease payments.
The Company will pay the Advisor a fee of 4.5% of the Total Proceeds as
Acquisition Fees. See Management Compensation." The total of all Acquisition
Fees and Acquisition Expenses shall be reasonable and shall not exceed an amount
equal to 6% of the Real Estate Asset Value of a Property, or in the case of a
Mortgage Loan, 6% of the funds advanced, unless a majority of the Board of
Directors, including a majority of the Independent Directors, not otherwise
interested in the transaction approves fees in excess of these limits subject to
a determination that the transaction is commercially competitive, fair and
reasonable to the Company. The total of all Acquisition Fees payable to all
persons or entities will not exceed the compensation customarily charged in
arm's-length transactions by others rendering similar services as an ongoing
activity in the same geographical location and for comparable types of
properties.
The Advisor engages counsel to perform legal services, and such counsel
also may provide legal services to the Company in connection with the
acquisition of Properties. The legal fees payable to such counsel by the Company
will not exceed those generally charged for similar services.
STANDARDS FOR INVESTMENT IN PROPERTIES
Selection of Operators of Health Care Facilities. The selection of
operators of Health Care Facilities by the Advisor, as approved by the Board of
Directors, will be based on a number of factors which may include: an evaluation
of the operations of their health care facilities, the number of health care
facilities operated, the relationship of average revenue per available unit (or
bed) to the average capital cost per unit (or bed) for each health care facility
operated, the relative competitive position among the same types of health care
facilities offering similar services, market penetration, the relative financial
success of the operator in the geographic area in which the Property is located,
overall historical financial performance of the operator, and the management
capability of the operator. The operators of the Health Care Facilities are not
expected to be affiliated with the Advisor, the Company or any Affiliate.
Selection of Properties. In making investments in Properties, the
Advisor will consider relevant real property and financial factors, including
the condition, use, and location of the Property, income-producing capacity, and
the prospects for long-term appreciation. The Company will obtain an independent
appraisal for each Property it purchases. The proper location, design and
amenities are important to the success of a Property.
In selecting specific Properties, the Advisor, as approved by the Board
of Directors, will apply the following minimum standards.
1. Each Property will be in what the Advisor believes is a prime
location for that type of Property.
2. Base (or minimum) annual rent will provide a specified minimum
return on the Company's cost of purchasing, and if applicable, developing the
Property, and the lease also will generally provide for automatic fixed
increases in base rent at specified times during the lease term or increases in
the base rent based on increases in consumer price indices over the term of the
lease.
3. The initial lease term typically will be at least 10 to 20 years.
4. In general, the Company will not acquire a Property if the Board of
Directors, including a majority of the Independent Directors, determines that
the acquisition would adversely affect the Company in terms of geographic,
property type or chain diversification.
DESCRIPTION OF PROPERTIES
The one assisted living Property owned by the Company as of April 20,
2000, conforms to, and the Advisor expects that any Properties purchased by the
Company will conform generally to, the following specifications of size, cost,
and type of land and buildings. The Company anticipates acquiring Properties
related to Health Care Facilities which may include, but will not be limited to,
the following types:
Congregate Living Facilities. Congregate living facilities are
primarily apartment buildings which contain a significant amount of common space
to accommodate dining, recreation, activities and other support services for
senior citizens. These properties range in size from 100 to 500 units, with an
average size of approximately 225 units. Units include studios and one and two
bedrooms ranging in size from 450 square feet to over 1,500 square feet.
Residents generally pay a base rent for their housing, which includes a meal
program. In addition, a menu of other services is provided at an additional
charge. The cost of congregate living facilities generally ranges from
$10,000,000 to $30,000,000.
<PAGE>
Assisted Living Facilities. Assisted living facilities provide a
special combination of housing, supportive services, personalized assistance and
health care to their residents in a manner which is designed to respond to
individual needs. These facilities offer a lower-cost alternative to skilled
nursing facilities for those who do not require intensive nursing care. Industry
standards suggest that a person is suitable for an assisted living facility when
he or she needs assistance with three or fewer activities of daily living
("ADLs") on a daily basis. ADLs are activities such as eating, dressing,
walking, bathing, and bathroom use. Assisted living facilities also provide
assistance with instrumental activities of daily living ("IADLs"), such as
shopping, telephone use and money management. The level of care provided by
assisted living facilities has increased in recent years. With an increase in
demand for the lower-cost services they provide, assisted living facilities have
begun to provide care for an increasing number of physical disabilities, certain
non-ambulatory conditions and early stages of specific diseases, such as
Alzheimer's disease, where intensive medical treatment is not required.
Current industry practice generally is to build freestanding assisted
living facilities with an average of between 40 and 100 units, depending on such
factors as market forces, site constraints and program orientation. Current
economics place the size of the private living space of a unit in the range of
300 gross square feet for an efficiency unit to 750 square feet for a large one
bedroom unit. Units are typically private, allowing residents the same general
level of control over their units as residents of a rental apartment would
typically have. Common areas on the most recently developed assisted living
facilities may total as much as 30 to 40 percent of the gross square footage of
a facility. The cost of assisted living facilities generally ranges from
$8,000,000 to $15,000,000.
Skilled Nursing Facilities. In addition to housing, meals,
transportation, housekeeping, ADL and IADL care, skilled nursing facilities
provide comprehensive nursing and long term care to their residents. Skilled
nursing facilities accommodate persons who require varying levels of care. Many
skilled nursing facilities are capable of serving residents with intensive
needs. Some skilled nursing facilities specialize in certain types of disease
care, such as Alzheimer's or Dementia care. The cost of the care provided in
skilled nursing facilities is among the most expensive in the senior care
segment of the health care industry, providing potential for substantial revenue
generation. Based on discussions with executives with senior living/housing
firms and studies performed by health care industry associations, Price
Waterhouse, in a 1996 study it developed for institutional investors, estimated
that the total monthly cost per resident of a skilled nursing facility is
between $2,880 and $4,000. According to a 1997 study developed by NatWest
Securities for certain of its investors, the high demand for beds in skilled
nursing facilities, along with a restricted supply of new beds, has resulted in
high occupancy rates and minimal skilled nursing facility lease and mortgage
default rates.
Skilled nursing facilities are also generally freestanding, but are
typically more institutional in nature, allowing for efficient cleaning and
sterilization. The rooms in skilled nursing facilities are equipped with patient
monitoring devices and emergency call systems. Oxygen systems may also be
present. Both multiple floor and single floor designs are common. Individual
rooms in skilled nursing facilities may be as small as 100 square feet, with
common areas varying greatly in size. Skilled nursing facilities historically
have been located in close proximity to hospitals to facilitate doctors' visits.
Today, the location of these facilities is less important where rotational
visiting systems are in place and where more highly skilled nursing staffs are
responsible for functions that used to be handled by doctors. The cost of
skilled nursing facilities generally ranges from $5,000,000 to $10,000,000.
Continuing Care Retirement Communities. Congregate living facilities
sometimes have assisted living and/or skilled nursing facilities attached or
adjacent to their locations. When this occurs, the projects are often referred
to as continuing care retirement communities or life care communities. The
intent of continuing care retirement communities or life care communities is to
provide a continuum of care to the residents. In other words, as residents age
and their health care needs increase, they can receive the care they need
without having to move away from the "community" which has become their home.
Continuing care retirement communities typically operate on a fee-for-service
basis and the units are rented on a monthly basis to residents, while life care
centers generally charge an entrance fee that is partially refundable and covers
the cost of all of the residents' health care- related services, plus a monthly
maintenance fee. Continuing care retirement communities and life care
communities are the most expensive seniors' housing accommodations today with
prices for each facility generally ranging from $40,000,000 to over
$100,000,000.
Medical Office Buildings. Medical office buildings, including walk-in
clinics, are conventional office buildings with additional plumbing, mechanical
and electrical service amenities, which facilitate physicians and medical
delivery companies in the practice of medicine and delivery of health care
services. These facilities can range in size from 3,000 square feet (walk-in
clinic) up to 100,000 square feet (medical office building), with costs
generally ranging from $1,000,000 to $10,000,000. It is common for medical
office buildings to be located in close proximity to hospitals where physicians
have practice privileges. Walk-in clinics are normally placed in
retail/commercial locations to make accessibility convenient for patients and to
provide medical services in areas which are not close or convenient to hospitals
and larger physician practices.
Either before or after construction or renovation, the Properties to be
acquired by the Company will be one of a Health Care Facility operator's
approved designs. Prior to purchase of all Properties, other than those
purchased prior to completion of construction, the Company will receive a copy
of the certificate of occupancy issued by the local building inspector or other
governmental authority and all other governmental certificates or permits which
permit the use of the Property as a Health Care Facility, and shall receive a
certificate from the operator of the Health Care Facility to the effect that (i)
the Property is operational and in compliance with all required governmental
permits and certificates and (ii) the Property is in compliance with all of the
Health Care Facility operator's requirements, including, but not limited to,
building plans and specifications approved by the operator. The Company also
will receive a certificate of occupancy and all other required governmental
permits or certificates for each Property for which construction has not been
completed at the time of purchase, prior to the Company's payment of the final
installment of the purchase price for the Property.
Generally, Properties to be acquired by the Company will consist of
both land and building, although in a number of cases the Company may acquire
only the land underlying the building with the building owned by the tenant or a
third party, and also may acquire the building only with the land owned by a
third party. In general, the Properties will be freestanding and surrounded by
paved parking areas and landscaping. Although, buildings may be suitable for
conversion to various uses through modifications, some Properties may not be
economically convertible to other uses.
A tenant generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs, and equipment and maintain the leasehold in a manner that
allows operation for its intended purpose. These capital expenditures generally
will be paid by the tenant during the term of the lease.
DESCRIPTION OF PROPERTY LEASES
The terms and conditions of any lease entered into by the Company with
regard to a Property may vary from those described below. The Advisor in all
cases will use its best efforts to obtain terms at least as favorable as those
described below. If the Board of Directors determines, based on the
recommendation of the Advisor, that the terms of an acquisition and lease of a
Property, taken as a whole, are favorable to the Company, the Board of Directors
may, in its sole discretion, cause the Company to enter into leases with terms
which are substantially different than the terms described below, but only to
the extent consistent with the Company's objective of qualifying as a REIT. In
making such determination, the Advisor will consider such factors as the type
and location of the Property, the creditworthiness of the tenant, the purchase
price of the Property, the prior performance of the tenant, and the prior
business experience of management of the Company and the Company's Affiliates
with the operator.
General. In general, the leases are expected to be "triple-net" leases,
which means that the tenants will be required to pay for all repairs,
maintenance, property taxes, utilities, and insurance. The tenants also will be
required to pay for special assessments, sales and use taxes, and the cost of
any renovations permitted under the leases. The Company will be the lessor under
each lease except in certain circumstances in which it may be a party to a Joint
Venture which will own the Property. In those cases, the Joint Venture, rather
than the Company, will be lessor, and all references in this section to the
Company as lessor therefore should be read accordingly. See "-- Joint Venture
Arrangements" below.
Term of Leases. It presently is anticipated that Properties will be
leased for an initial term of 10 to 20 years with up to four, five-year renewal
options. The minimum rental payment under the renewal option generally is
expected to be greater than that due for the final lease year of the initial
term of the lease. Upon termination of the lease, the tenant will surrender
possession of the Property to the Company, together with any improvements made
to the Property during the term of the lease, except that for Properties in
which the Company owns only the building and not the underlying land, the owner
of the land may assume ownership of the building.
<PAGE>
Computation of Lease Payments. During the initial term of the lease,
the tenant will pay the Company, as lessor, minimum annual rent equal to a
specified percentage of the Company's cost of purchasing the Property.
Typically, the leases will provide for automatic fixed increases in the minimum
annual rent or increases in the base rent based on increases in consumer price
indices at predetermined intervals during the term of the lease. In the case of
Properties that are to be constructed or renovated pursuant to a development
agreement, the Company's costs of purchasing the Property will include the
purchase price of the land, including all fees, costs, and expenses paid by the
Company in connection with its purchase of the land, and all fees, costs, and
expenses disbursed by the Company for construction of building improvements. See
"-- Site Selection and Acquisition of Properties -- Construction and Renovation"
above.
In the case of Properties in which the Company owns only the building,
the Company will structure its leases to recover its investment in the building
by the expiration of the lease.
Assignment and Sublease. In general, it is expected that no lease may
be assigned or subleased without the Company's prior written consent (which may
not be unreasonably withheld). A tenant may, however, assign or sublease a lease
to its corporate affiliate or subsidiary or to its successor by merger or
acquisition, if such assignee or subtenant agrees to operate the same type of
Health Care Facility on the premises, but only to the extent consistent with the
Company's objective of qualifying as a REIT. The leases will set forth certain
factors (such as the financial condition of the proposed tenant or subtenant)
that are deemed to be a reasonable basis for the Company's refusal to consent to
an assignment or sublease. In addition, the Company may refuse to permit any
assignment or sublease that would jeopardize the Company's continued
qualification as a REIT. The original tenant generally will remain fully liable,
however, for the performance of all tenant obligations under the lease following
any such assignment or sublease unless the Company agrees in writing to release
the original tenant from its lease obligations.
Alterations to Premises. A tenant generally will have the right,
without the prior written consent of the Company and at the tenant's own
expense, to make certain improvements, alterations or modifications to the
Property. Under certain leases, the tenant, at its own expense, may make certain
immaterial structural improvements (with a cost of up to $10,000) without the
prior consent of the Company. Certain leases may require the tenant to post a
payment and performance bond for any structural alterations with a cost in
excess of a specified amount.
Right of Tenant to Purchase. It is anticipated that if the Company
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party, the tenant of that Property will have the right to purchase the Property
for the same price, and on the same terms and conditions, as contained in the
offer. In certain cases, the tenant also may have a right to purchase the
Property seven to 20 years after commencement of the lease at a purchase price
equal to the greater of (i) the Property's appraised value at the time of the
tenant's purchase, or (ii) a specified amount, generally equal to the Company's
purchase price of the Property, plus a predetermined percentage (generally, 15%
to 20%) of such purchase price. See "Federal Income Tax Considerations --
Characterization of Property Leases."
Substitution of Properties. Under certain leases, the tenant of a
Property, at its own expense and with the Company's prior written consent, may
be entitled to operate another form of approved Health Care Facility on the
Property as long as such approved Health Care Facility has an operating history
which reflects an ability to generate gross revenues and potential revenue
growth equal to or greater than that experienced by the tenant in operating the
original Health Care Facility.
In addition, it is anticipated that certain Property leases will
provide the tenant with the right, to the extent consistent with the Company's
objective of qualifying as a REIT, to offer the substitution of another property
selected by the tenant in the event that the tenant determines that the Health
Care Facility has become uneconomic (other than as a result of an insured
casualty loss or condemnation) for the tenant's continued use and occupancy in
its business operation and the tenant's board of directors has determined to
close and discontinue use of the Health Care Facility. The tenant's
determination that a Health Care Facility has become uneconomic is to be made in
good faith based on the tenant's reasonable business judgment after comparing
the results of operations of the Health Care Facility to the results of
operations at the majority of other health care facilities then operated by the
tenant. If either of these events occurs, the tenant will have the right to
offer the Company the opportunity to exchange the Property for another property
(the "Substituted Property") with a total cost for land and improvements thereon
(including overhead, construction interest, and other related charges) equal to
or greater than the cost of the Property to the Company.
Generally, the Company will have 30 days following receipt of the
tenant's offer for exchange of the Property to accept or reject such offer. In
the event that the Company requests an appraisal of the Substituted Property, it
will have at least ten days following receipt of the appraisal to accept or
reject the offer. If the Company accepts such offer, (i) the Substituted
Property will be exchanged for the Property in a transaction designed and
intended to qualify as a "like-kind exchange" within the meaning of section 1031
of the Code with respect to the Company and (ii) the lease of the Property will
be amended to (a) provide for minimum rent in an amount equal to the sum
determined by multiplying the cost of the Substituted Property by the Property
lease rate and (b) provide for lease renewal options sufficient to permit the
tenant, at its option, to continue its occupancy of the Substituted Property for
a specified number of years from the date on which the exchange is made. The
Company will pay the tenant the excess, if any, of the cost of the Substituted
Property over the cost of the Property. If the substitution does not take place
within a specified period of time after the tenant makes the offer to exchange
the Property for the Substituted Property, either party thereafter will have the
right not to proceed with the substitution. If the Company rejects the
Substituted Property offered by the tenant, the tenant is generally required to
offer at least three additional alternative properties for the Company's
acceptance or rejection. If the Company rejects all Substituted Properties
offered to it pursuant to the lease, or otherwise fails or refuses to consummate
a substitution for any reason other than the tenant's failure to fulfill the
conditions precedent to the exchange, then the tenant will be entitled to
terminate the lease on the date scheduled for such exchange by purchasing the
Property from the Company for a price equal to the then-fair market value of the
Property.
Neither the tenant nor any of its subsidiaries, licensees, or
sublicensees or any other affiliate will be permitted to use the original
Property as a health care facility or other business of the same type for at
least one year after the closing of the original Property. In addition, in the
event the tenant or any of its affiliates sells the Property within twelve
months after the Company acquires the Substituted Property, the Company will
receive, to the extent consistent with its objective of qualifying as a REIT,
from the proceeds of the sale the amount by which the selling price exceeds the
cost of the Property to the Company.
Insurance, Taxes, Maintenance and Repairs. Tenants of Properties will
be required, under the terms of the leases, to maintain, for the benefit of the
Company and the tenant, insurance that is commercially reasonable given the
size, location and nature of the Property. All tenants, other than those tenants
with a substantial net worth, generally also will be required to obtain "rental
value" or "business interruption" insurance to cover losses due to the
occurrence of an insured event for a specified period, generally six to twelve
months. Additionally, all tenants will be required to maintain liability
coverage, including, where applicable, professional liability insurance. In
general, no lease will be entered into unless, in the opinion of the Advisor, as
approved by the Board of Directors, the insurance required by the lease
adequately insures the Property.
The leases are expected to require that the tenant pay all taxes and
assessments, maintenance, repair, utility, and insurance costs applicable to the
real estate and permanent improvements. Tenants will be required to maintain
such Properties in good order and repair. Such tenants generally will be
required to maintain the Property and repair any damage to the Property, except
damage occurring during the last 24 to 48 months of the lease term (as such
lease term may be extended), which in the opinion of the tenant renders the
Property unsuitable for occupancy, in which case the tenant will have the right
instead to pay the insurance proceeds to the Company and terminate the lease.
The tenant generally will be required to repair the Property in the
event that less than a material portion of the Property (for example, more than
20% of the building or more than 40% of the land) is taken for public or
quasi-public use. The Company's leases generally will provide that, in the event
of any condemnation of the Property that does not give rise to an option to
terminate the lease or in the event of any condemnation which does give rise to
an option to terminate the lease and the tenant elects not to terminate, the
Company will remit to the tenant the award from such condemnation and the tenant
will be required to repair and restore the Property. To the extent that the
award exceeds the estimated costs of restoring or repairing the Property, the
tenant is required to deposit such excess amount with the Company. Until a
specified time (generally, ten days) after the tenant has restored the premises
and all improvements thereon to the same condition as existed immediately prior
to such condemnation insofar as is reasonably possible, a "just and
proportionate" amount of the minimum annual rent will be abated from the date of
such condemnation. In addition, the minimum annual rent will be reduced in
proportion to the reduction in the then rental value of the premises or the fair
market value of the premises after the condemnation in comparison with the
rental value or fair market value prior to such condemnation.
<PAGE>
Events of Default. The leases generally are expected to provide that
the following events, among others, will constitute a default under the lease:
(i) the insolvency or bankruptcy of the tenant, provided that the tenant may
have the right, under certain circumstances, to cure such default, (ii) the
failure of the tenant to make timely payment of rent or other charges due and
payable under the lease, if such failure continues for a specified period of
time (generally, five to 30 days) after notice from the Company of such failure,
(iii) the failure of the tenant to comply with any of its other obligations
under the lease (for example, the discontinuance of operations of the leased
Property) if such failure continues for a specified period of time (generally,
ten to 45 days), (iv) in cases where the Company enters into a development
agreement relating to the construction or renovation of a building, a default
under the development agreement or the Indemnity Agreement or the failure to
establish the minimum annual rent at the end of the development period, (v) in
cases where the Company has entered into other leases with the same tenant, a
default under such lease, (vi) loss of licensure, (vii) loss of Medicare or
Medicaid Certification and (viii) the forced removal of more than a specified
number of patients as a result of deficiencies in the care provided at, or
physical condition of, the facility.
Upon default by the tenant, the Company generally will have the right
under the lease and under most state laws to evict the tenant, re-lease the
Property to others, and hold the tenant responsible for any deficiency in the
minimum lease payments. Similarly, if the Company determined not to re-lease the
Property, it could sell the Property. (Unless required to do so by the lease or
its investment objectives, however, the Company does not intend to sell any
Property prior to five to ten years after the commencement of the lease on such
Property. See "-- Right of Tenant to Purchase" above.) In the event that a lease
requires the tenant to make a security deposit, the Company will have the right
under the lease to apply the security deposit, upon default by the tenant,
towards any payments due from the defaulting tenant. In general, the tenant will
remain liable for all amounts due under the lease to the extent not paid from a
security deposit or by a new tenant.
In the event that a tenant defaults under a lease with the Company, the
Company either will attempt to locate a replacement operator or will discontinue
operation of the Health Care Facility, the latter of which would require the
Company or the defaulting operator to arrange for an orderly transfer of the
residents to another qualified health care facility. The Company will have no
obligation to operate the Health Care Facilities and no operator of a Health
Care Facility will be obligated to permit the Company or a replacement operator
to operate the Health Care Facility.
JOINT VENTURE ARRANGEMENTS
The Company may enter into a Joint Venture to own and operate a
Property with various unaffiliated persons or entities or with another program
formed by the principals of the Company or the Advisor or their Affiliates, if a
majority of the Directors, including a majority of the Independent Directors,
not otherwise interested in the transaction determine that the investment in the
Joint Venture is fair and reasonable to the Company and on substantially the
same terms and conditions as those to be received by the co-venturer or
co-venturers. The Company may take more or less than a 50% interest in any Joint
Venture, subject to obtaining the requisite approval of the Directors. See "Risk
Factors -- Real Estate and Other Investment Risks -- We may not control the
joint ventures in which we enter" and "It may be difficult for us to exit a
joint venture after an impasse."
Under the terms of each Joint Venture agreement, it is anticipated that
the Company and each joint venture partner would be jointly and severally liable
for all debts, obligations, and other liabilities of the Joint Venture, and the
Company and each joint venture partner would have the power to bind each other
with any actions they take within the scope of the Joint Venture's business. In
addition, it is expected that the Advisor or its Affiliates will be entitled to
reimbursement, at cost, for actual expenses incurred by the Advisor or its
Affiliates on behalf of the Joint Venture. Joint Ventures entered into to
purchase and hold a Property for investment generally will have an initial term
of 10 to 20 years (generally the same term as the initial term of the lease for
the Property in which the Joint Venture invests), and, after the expiration of
the initial term, will continue in existence from year to year unless terminated
at the option of either joint venturer or unless terminated by an event of
dissolution. Events of dissolution will include the bankruptcy, insolvency, or
termination of any co-venturer, sale of the Property owned by the Joint Venture,
mutual agreement of the Company and its joint venture partner to dissolve the
Joint Venture, and the expiration of the term of the Joint Venture. The Joint
Venture agreement typically will restrict each venturer's ability to sell,
transfer, or assign its joint venture interest without first offering it for
sale to its co-venturer. In addition, in any Joint Venture with another program
sponsored by the Advisor or its Affiliates, where such arrangements are entered
into for the purpose of purchasing and holding Properties for investment, in the
event that one party desires to sell the Property and the other party does not
desire to sell, either party will have the right to trigger dissolution of the
Joint Venture by sending a notice to the other party. The notice will establish
the price and terms for the sale or purchase of the other party's interest in
the Joint Venture to the other party. The Joint Venture agreement will grant the
receiving party the right to elect either to purchase the other party's interest
on the terms set forth in the notice or to sell its own interest on such terms.
The following paragraphs describe the allocations and distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Company and its co-venturer each have a 50% ownership interest. In any
other case, the allocations and distributions are expected to be similar to
those described below, except that allocations and distributions which are
described below as being made 50% to each co-venturer will instead be made in
proportion to each co-venturer's respective ownership interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each co-venturer. Profits from the
sale or other disposition of Joint Venture property first will be allocated to
any co-venturers with negative capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
co-venturer. Similarly, losses from the sale or other disposition of Joint
Venture property first will be allocated to joint venture partners with positive
capital account balances in proportion to such balances until such capital
accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any
other provisions in the Joint Venture agreement, income, gain, loss, and
deductions with respect to any contributed property will be shared in a manner
which takes into account the variation between the basis of such property and
its fair market value at the time of contribution in accordance with section
704(c) of the Code.
Net cash flow from operations of the Joint Venture generally will be
distributed 50% to each joint venture partner. Any liquidation proceeds, after
paying joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter 50% to each joint venture partner.
In order that the allocations of Joint Venture income, gain, loss, and
deduction provided in Joint Venture agreements may be respected for federal
income tax purposes, it is expected that any Joint Venture agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or deductions to the extent such allocation would cause or increase an
"Adjusted Capital Account Deficit," and (iii) will require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury Regulation ss.1.704-1(b)(2)(iv) and (b) that distributions of
proceeds from the liquidation of a partner's interest in the Joint Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance. See "Federal
Income Tax Considerations -- Investment in Joint Ventures."
Prior to entering into any Joint Venture arrangement with any
unaffiliated co-venturer (or the principals of any unaffiliated co-venturer),
the Company will confirm that such person or entity has demonstrated to the
satisfaction of the Company that requisite financial qualifications are met.
The Company may acquire Properties from time to time by issuing limited
partnership units in CNL Health Care Partners, LP to sellers of such Properties
pursuant to which the seller, as owner, would receive partnership interests
convertible at a later date into Common Stock of the Company. CNL Health Care GP
Corp. is a wholly owned subsidiary of the Company and is the general partner of
CNL Health Care Partners, LP. This structure enables a property owner to
transfer property without incurring immediate tax liability, and therefore may
allow the Company to acquire Properties on more favorable terms than otherwise.
MORTGAGE LOANS
The Company may provide Mortgage Loans to operators of the Health Care
Facilities to enable them to acquire the land, buildings and land, or buildings.
The Mortgage Loans will be secured by such property.
Generally, management believes the interest rate and terms of these
transactions will be substantially the same as those of the Company's Property
leases. The borrower will be responsible for all of the expenses of owning the
property, as with the "triple-net" leases, including expenses for insurance and
repairs and maintenance. Management expects the Mortgage Loans will be fully
amortizing loans over a period of 10 to 20 years (generally, the same term as
the initial term of the Property leases), with payments of principal and
interest due monthly. In addition, management expects the interest rate charged
under the terms of the Mortgage Loan will be fixed over the term of the loan and
generally will be comparable to, or slightly lower than, lease rates charged to
tenants for the Properties.
The Company may combine leasing and financing in connection with a
Property. For example, it may make a Mortgage Loan with respect to the building
and lease the underlying land to the borrower. Management believes that the
combined leasing and financing structure provides the benefit of allowing the
Company to receive, on a fixed income basis, the return of its initial
investment in each financed building, which is generally a depreciating asset,
plus interest. At the same time, the Company retains ownership of the underlying
land, which may appreciate in value, thus providing an opportunity for a capital
gain on the sale of the land. In such cases, in which the borrower is also the
tenant under a Property lease for the underlying land, if the borrower does not
elect to exercise its purchase option to acquire the Property under the terms of
the lease, the building and improvements on the Property will revert to the
Company at the end of the term of the lease, including any renewal periods. If
the borrower does elect to exercise its purchase option as the tenant of the
underlying land, the Company will generally have the option of selling the
Property at the greater of fair market value or cost plus a specified
percentage.
The Company will not make or invest in Mortgage Loans unless an
appraisal is obtained concerning the property that secures the Mortgage Loan. In
cases in which the majority of the Independent Directors so determine, and in
all cases in which the Mortgage Loan involves the Advisor, Directors, or
Affiliates, such appraisal must be obtained from an independent expert
concerning the underlying property. Such appraisal shall be maintained in the
Company's records for at least five years, and shall be available for inspection
and duplication by any stockholder. In addition to the appraisal, a mortgagee's
or owner's title insurance policy or commitment as to the priority of the
mortgage or condition of the title must be obtained.
Management believes that the criteria for investing in such Mortgage
Loans are substantially the same as those involved in the Company's investments
in Properties; therefore, the Company will use the same underwriting criteria as
described above in "Business -- Standards for Investment in Properties." In
addition, the Company will not make or invest in Mortgage Loans on any one
property if the aggregate amount of all mortgage loans outstanding on the
property, including the loans of the Company, would exceed an amount equal to
85% of the appraised value of the property as determined by appraisal unless
substantial justification exists because of the presence of other underwriting
criteria. In no event shall mortgage indebtedness on any property exceed such
property's appraised value. For purposes of this limitation, the aggregate
amount of all mortgage loans outstanding on the property, including the loans of
the Company, shall include all interest (excluding contingent participation in
income and/or appreciation in value of the mortgaged property), the current
payment of which may be deferred pursuant to the terms of such loans, to the
extent that deferred interest on each loan exceeds 5% per annum of the principal
balance of the loan.
Further, the Company will not make or invest in any Mortgage Loans that
are subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Directors, or Affiliates of the Company. The Company currently
expects to provide Mortgage Loans in the aggregate principal amount of
approximately 5% to 10% of the Company's total assets.
MANAGEMENT SERVICES
The Advisor will provide management services relating to the Company,
the Properties, the Mortgage Loans, and the Secured Equipment Lease program
pursuant to an Advisory Agreement between it and the Company. Under this
agreement, the Advisor will be responsible for assisting the Company in
negotiating leases, Mortgage Loans and Secured Equipment Leases, collecting
rental, Mortgage Loan and Secured Equipment Lease payments, inspecting the
Properties and the tenants' books and records, and responding to tenant
inquiries and notices. The Advisor also will provide information to the Company
about the status of the leases, the Properties, the Mortgage Loans, the Line of
Credit, the Permanent Financing and the Secured Equipment Leases. In exchange
for these services, the Advisor will be entitled to receive certain fees from
the Company. For supervision of the Properties and Mortgage Loans, the Advisor
will receive the Asset Management Fee, which, generally, is payable monthly in
an amount equal to one-twelfth of 0.60% of Real Estate Asset Value and the
outstanding principal amount of the Mortgage Loans, as of the end of the
preceding month. For negotiating Secured Equipment Leases and supervising the
Secured Equipment Lease program, the Advisor will receive, upon entering into
each lease, a Secured Equipment Lease Servicing Fee payable out of the proceeds
of the borrowings equal to 2% of the purchase price of the Equipment subject to
each Secured Equipment Lease. See "Management Compensation."
<PAGE>
BORROWING
The Company will borrow money to acquire Assets and to pay certain
related fees. The Company intends to encumber Assets in connection with the
borrowing. The Company plans to obtain one or more revolving Lines of Credit in
an aggregate amount up to $45,000,000, and may also obtain Permanent Financing.
The Line of Credit may be increased at the discretion of the Board of Directors
and may be repaid with offering proceeds, proceeds from the sale of assets,
working capital or Permanent Financing. The Line of Credit and Permanent
Financing are the only source of funds for making Secured Equipment Leases and
for paying the Secured Equipment Lease Servicing Fee.
On April 20, 2000, the Company entered into an initial revolving line
of credit and security agreement with a bank to be used by the Company to
acquire and construct health care Properties. The line of credit provides that
the Company will be able to receive advances of up to $25,000,000 until April
19, 2005, with an annual review to be performed by the bank to indicate that
there has been no substantial deterioration, in the bank's reasonable
discretion, of the credit quality. Interest expense on each advance shall be
payable monthly, with all unpaid interest and principal due no later than five
years from the date of the advance. Generally, advances under the line of credit
will bear interest at either (i) a rate per annum equal to LIBOR plus the
difference between LIBOR and the bank's base rate at the time of the advance or
(ii) a rate per annum equal to the bank's base rate, whichever the Company
selects at the time advances are made. The interest rate will be adjusted daily
in accordance with fluctuations with the bank's rate or the LIBOR rate, as
applicable. Notwithstanding the above, the interest rate on the first $9,700,000
drawn will be 8.75% through April 1, 2002, and thereafter will hear interest at
either (i) or (ii) above as of April 1, 2002. Each loan made under the line of
credit will be secured by the assignment of rents and leases. In addition, the
line of credit provides that the Company will not be able to further encumber
the applicable health care Property during the term of the loan without the
bank's consent. The Company will be required, at each closing, to pay all costs,
fees and expenses arising in connection with the line of credit. The Company
must also pay the bank's attorneys fees, subject to a maximum cap, incurred in
connection with the line of credit and each advance. On April 20, 2000, the
Company obtained one advance totalling $8,100,000 relating to the line of
credit. In connection with the line of credit, the Company incurred an
origination fee, legal fees and closing costs of $55,917. The proceeds were used
in connection with the purchase of one health care Property described in "--
Property Acquisitions."
Management believes that any financing obtained during the offering
period will allow the Company to make investments in Assets that the Company
otherwise would be forced to delay until it raised a sufficient amount of
proceeds from the sale of Shares. By eliminating this delay the Company will
also eliminate the risk that these investments will no longer be available, or
the terms of the investment will be less favorable, when the Company has raised
sufficient offering proceeds. Alternatively, Affiliates of the Advisor could
make such investments, pending receipt by the Company of sufficient offering
proceeds, in order to preserve the investment opportunities for the Company.
However, Assets acquired by the Company in this manner would be subject to
closing costs both on the original purchase by the Affiliate and on the
subsequent purchase by the Company, which would increase the amount of expenses
associated with the acquisition of Assets and reduce the amount of offering
proceeds available for investment in income-producing assets. Management
believes that the use of borrowings will enable the Company to reduce or
eliminate the instances in which the Company will be required to pay duplicate
closing costs, which may be substantial in certain states.
Similarly, management believes that the borrowings will benefit the
Company by allowing it to take advantage of its ability to borrow at favorable
interest rates. Specifically, the Company intends to structure the terms of any
financing so that the lease rates for Properties acquired and the interest rates
for Mortgage Loans and Secured Equipment Leases made with the loan proceeds will
exceed the interest rate payable on the financing. To the extent that the
Company is able to structure the financing on these terms, the Company will
increase its net revenues. In addition, the use of financing will increase the
diversification of the Company's portfolio by allowing it to acquire more Assets
than would be possible using only the Gross Proceeds from the offering.
As a result of existing relationships between Affiliates of the Advisor
and certain financing sources, the Company may have the opportunity to obtain
financing at more favorable interest rates than the Company could otherwise
obtain. In connection with any financing obtained by the Company as a result of
any such relationship, the Company will pay a loan origination fee to the
Affiliate. In addition, certain lenders may require, as a condition of providing
financing to the Company, that the Affiliate with which the lender has an
existing relationship act as a loan servicing agent. In connection with any such
arrangement, the Company will pay a loan servicing fee to the Affiliate. Any
loan origination fee or loan servicing fee paid to an Affiliate of the Company
is subject to the approval by a majority of the Board of Directors (including a
majority of the Independent Directors) not otherwise interested in the
transaction as fair and reasonable to the Company and on terms not less
favorable to the Company than those available from unaffiliated third parties
and not less favorable than those available from the Advisor or its Affiliates
in transactions with unaffiliated third parties. See "Conflicts of Interest --
Certain Conflict Resolution Procedures."
The Company may also borrow funds for the purpose of preserving its
status as a REIT. For example, the Company may borrow to the extent necessary to
permit the Company to make Distributions required in order to enable the Company
to qualify as a REIT for federal income tax purposes; however, the Company will
not borrow for the purpose of returning Invested Capital to the stockholders
unless necessary to eliminate corporate-level tax to the Company. The aggregate
borrowing of the Company, secured and unsecured, shall be reasonable in relation
to Net Assets of the Company and shall be reviewed by the Board of Directors at
least quarterly. The Board of Directors anticipates that the Company will have
one or more Lines of Credit initially in amounts up to $45,000,000; however, the
Line of Credit may be increased at the discretion of the Board of Directors. The
aggregate amount of the Permanent Financing will not exceed 30% of the Company's
total assets. However, in accordance with the Company's Articles of
Incorporation, the maximum amount of borrowing in relation to Net Assets, shall
not exceed 300% of Net Assets.
SALE OF PROPERTIES, MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
For the first three to eight years after the commencement of the
offering, the Company intends, to the extent consistent with the Company's
objective of qualifying as a REIT, to reinvest in additional Properties or
Mortgage Loans any proceeds of the Sale of a Property or a Mortgage Loan that
are not required to be distributed to stockholders in order to preserve the
Company's REIT status for federal income tax purposes. The Company may also use
such proceeds to reduce its outstanding indebtedness. Similarly, and to the
extent consistent with REIT qualification, the Company plans to use the proceeds
of the Sale of a Secured Equipment Lease to fund additional Secured Equipment
Leases, or to reduce its outstanding indebtedness on the borrowings. At or prior
to the end of such eight-year period (December 31, 2008), the Company intends to
provide stockholders of the Company with liquidity of their investment, either
in whole or in part, through Listing (although liquidity cannot be assured
thereby) or by commencing the orderly Sale of the Company's Assets. If Listing
occurs, the Company intends to use any Net Sales Proceeds not required to be
distributed to stockholders in order to preserve the Company's status as a REIT
to reinvest in additional Properties, Mortgage Loans and Secured Equipment
Leases or to repay outstanding indebtedness. If Listing does not occur within
eight years after the commencement of the offering, the Company thereafter will
undertake the orderly liquidation of the Company and the Sale of the Company's
Assets and will distribute any Net Sales Proceeds to stockholders. In addition,
the Company will not sell any Assets if such Sale would not be consistent with
the Company's objective of qualifying as a REIT.
In deciding the precise timing and terms of Property Sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. See "Business -- Description
of Property Leases -- Right of Tenant to Purchase." The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain tenants. In connection with Sales of Properties by the
Company, purchase money obligations may be taken by the Company as part payment
of the sales price. The terms of payment will be affected by custom in the area
in which the Property is located and by prevailing economic conditions. When a
purchase money obligation is accepted in lieu of cash upon the Sale of a
Property, the Company will continue to have a mortgage on the Property and the
proceeds of the Sale will be realized over a period of years rather than at
closing of the Sale.
The Company does not anticipate selling the Secured Equipment Leases
prior to expiration of the lease term, except in the event that the Company
undertakes orderly liquidation of its assets. In addition, the Company does not
anticipate selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building improvements which secure the Mortgage Loan and the Sale of the
Property occurs, or (ii) the Company undertakes an orderly Sale of its Assets.
<PAGE>
COMPETITION
The Company anticipates that it will compete with other REITs, real
estate partnerships, health care providers and other investors, including, but
not limited to banks and insurance companies, many of which will have greater
financial resources than the Company, in the acquisition, leasing and financing
of Health Care Facilities. Further, non-profit entities are particularly
attracted to investments in senior care facilities because of their ability to
finance acquisitions through the issuance of tax-exempt bonds, providing
non-profit entities with a relatively lower cost of capital as compared to
for-profit purchasers. In addition, in certain states, health care facilities
owned by non-profit entities are exempt from taxes on real property. As
profitability increases for investors in health care Properties, competition
among investors likely will become increasingly intense.
REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
The Mortgage Loan and Secured Equipment Lease programs may be subject
to regulation by federal, state and local authorities and subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions, including among other things, regulating credit granting
activities, establishing maximum interest rates and finance charges, requiring
disclosures to customers, governing secured transactions, and setting
collection, repossession and claims handling procedures and other trade
practices. In addition, certain states have enacted legislation requiring the
licensing of mortgage bankers or other lenders and these requirements may affect
the Company's ability to effectuate its Mortgage Loan and Secured Equipment
Lease programs. Commencement of operations in these or other jurisdictions may
be dependent upon a finding of financial responsibility, character and fitness
of the Company. The Company may determine not to make Mortgage Loans or enter
into Secured Equipment Leases in any jurisdiction in which it believes the
Company has not complied in all material respects with applicable requirements.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Appendix B.
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31, 1999
2000 (1) (1) (2) Year Ended December 31,
(Unaudited) (Unaudited) 1999 (1) 1998 (2) 1997 (2)(3)
-------------- ----------------- ---------- ---------- -----------
<S> <C>
Revenues $ 72,962 -- $ 86,231 $ -- $ --
General operating and administrative
expenses 98,140 -- 79,621 -- --
Organizational costs -- -- 35,000 -- --
Net loss (25,178 ) -- (28,390 ) -- --
Cash distributions declared (4) 43,593 -- 50,404 -- --
Cash from operations 10,409 -- 12,851 -- --
Funds from operations (5) (25,178 ) -- (28,390 ) -- --
Loss per Share (.04 ) -- (.07 ) -- --
Cash distributions declared per Share .075 -- .125 -- --
Weighted average number of Shares
outstanding (6) 601,758 -- 412,713 -- --
March 31, March 31, 1999
2000 (1) December 31,
(Unaudited) (Unaudited) 1999 1998 1997
-------------- ----------------- ---------- ---------- -----------
Total assets $6,236,495 $1,115,219 $5,088,560 $976,579 $280,330
Total stockholder's equity 4,269,768 200,000 3,292,137 200,000 200,000
</TABLE>
(1) No operations commenced until the Company received minimum offering
proceeds of $2,500,000 and funds were released from escrow on July 14,
1999. As of March 31, 2000, the Company had not yet acquired any
Properties; therefore, revenues consisted only of interest income on
funds held in interest bearing accounts pending investment in a
Property. The Company acquired a Property subsequent to the periods
presented, on April 20, 2000.
(2) No significant operations had commenced because the Company was in its
development stage.
(3) Selected financial data for 1997 represents the period December 22,
1997 (date of inception) through December 31, 1997.
(4) Cash distributions are declared by the Board of Directors and generally
are based on various factors, including cash available from operations.
For the quarter ended March 31, 2000 and the year ended December 31,
1999, 100% of cash distributions represent a return of capital in
accordance with generally accepted accounting principles ("GAAP"). Cash
distributions treated as a return of capital on a GAAP basis represent
the amount of cash distributions in excess of accumulated net earnings
on a GAAP basis, including organization costs that were expensed for
GAAP purposes. The Company has not treated such amount as a return of
capital for purposes of calculating Invested Capital and the
Stockholders' 8% Return.
(5) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net earnings
determined in accordance with GAAP, excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization
of real estate assets and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a
relative measure of performance and liquidity of an equity REIT in
order to recognize that income-producing real estate historically has
not depreciated on the basis determined under GAAP. However, FFO (i)
does not represent cash generated from operating activities determined
in accordance with GAAP (which, unlike FFO, generally reflects all cash
effects of transactions and other events that enter into the
determination of net earnings), (ii) is not necessarily indicative of
cash flow available to fund cash needs and (iii) should not be
considered as an alternative to net earnings determined in accordance
with GAAP as an indication of the Company's operating performance, or
to cash flow from operating activities determined in accordance with
GAAP as a measure of either liquidity or the Company's ability to make
distributions. Accordingly, the Company believes that in order to
facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO should be considered in
conjunction with the Company's net earnings and cash flows as reported
in the accompanying financial statements and notes thereto. See
Appendix B -- Financial Information.
(6) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following 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. These statements generally are characterized by
the use of terms such as "believe," "expect" and "may." Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include the following: changes in
general economic conditions, changes in local and national real estate
conditions, the availability of capital from borrowings under the Company's Line
of Credit, availability of proceeds from the Company's offering, the ability of
the Company to obtain Permanent Financing on satisfactory terms, the ability of
the Company to continue to identify suitable investments, the ability of the
Company to continue 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. Given these uncertainties, readers are cautioned not
to place undue reliance on such statements.
Introduction
CNL Health Care Properties, Inc. is a Maryland corporation that was
organized on December 22, 1997. CNL Health Care GP Corp. and CNL Health Care LP
Corp. are wholly owned subsidiaries of CNL Health Care Properties, Inc.,
organized in Delaware in December 1999. CNL Health Care Partners, LP is a
Delaware limited partnership formed in December 1999. CNL Health Care GP Corp.
and CNL Health Care LP Corp. are the general and limited partner, respectively,
of CNL Health Care Partners, LP. Assets acquired are expected to be held by CNL
Health Care Partners, LP and, as a result, owned by CNL Health Care Properties,
Inc. through the Partnership. The term "Company" includes CNL Health Care
Properties, Inc. and its subsidiaries, CNL Health Care GP Corp., CNL Health Care
LP Corp. and CNL Health Care Partners, LP.
The Company was formed to acquire Properties related to 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. The Company may also provide 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 Secured Equipment Leases to operators of Health Care Facilities. The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of Gross Proceeds.
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).
Liquidity and Capital Resources
During the period December 22, 1997 (date of inception) through
December 31, 1998, a capital contribution of $200,000 from the Advisor was the
Company's sole source of capital.
On September 18, 1998, the Company commenced an initial public offering
of up to $155,000,000 of Shares (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 "Initial Offering"). As of July 13,
1999, the Company had received aggregate subscription proceeds of $2,751,052
(275,105 Shares) from the Initial Offering, which exceeded the minimum offering
amount of $2,500,000, and $2,526,052 of the funds were released from escrow. The
remaining subscription proceeds of $225,000 (representing funds received from
Pennsylvania investors) will be held in escrow until the Company receives
aggregate subscriptions of at least $7,775,000.
As of March 31, 2000 and December 31, 1999, the Company had received
aggregate subscription proceeds of $6,769,154 (676,915 Shares) and $5,435,283
(543,528 Shares), respectively, including $23,190 (2,319 Shares) and $12,540
(1,254 Shares), respectively, through its Reinvestment Plan and approximately
$383,000 (38,300 Shares) and $235,000 (23,500 Shares), respectively, from
Pennsylvania investors. The Company anticipates additional sales of Shares prior
to the closing of the Initial Offering. The Company has elected to extend the
Initial Offering until a date no later than September 18, 2000.
As of April 20, 2000, the Company had received subscription proceeds
(including subscriptions from Pennsylvania investors) of $7,089,384 (708,938
Shares) from its Initial Offering. As of April 20, 2000, net proceeds to the
Company from its Initial Offering of Shares and capital contributions from the
Advisor, after deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and organizational and offering expenses
totalled approximately $6,134,000. The Company had used approximately $6,100,000
of net offering proceeds from its Initial Offering and $8,100,000 in advances
relating to its Line of Credit, described in "Business -- Borrowing," to invest
approximately $13,900,000 in one assisted living Property and to pay
approximately $302,000 in Acquisition Fees and certain Acquisition Expenses,
leaving approximately $27,000 available to invest in Properties and Mortgage
Loans. See "Business -- Property Acquisitions" for a description of the Property
owned as of April 20, 2000. As of April 20, 2000, the Company had not entered
into any Mortgage Loans.
The Company expects to use net offering proceeds it receives in the
future from its Initial Offering, plus any Net Offering Proceeds (Gross Proceeds
less fees and expenses of the offering) from this offering, to purchase
Properties and, to a lesser extent, make Mortgage Loans. See "Investment
Objectives and Policies." In addition, the Company intends to borrow money to
acquire Assets and to pay certain related fees. The Company intends to encumber
Assets in connection with such borrowings. The Company plans to obtain one or
more revolving Lines of Credit initially in an amount up to $45,000,000, and
may, in addition, also obtain Permanent Financing. The Line of Credit may be
increased at the discretion of the Board of Directors and may be repaid with
offering proceeds, proceeds from the sale of assets, working capital or
Permanent Financing. Although the Board of Directors anticipates that the Lines
of Credit initially may be in the amount of up to $45,000,000 and the aggregate
amount of any Permanent Financing shall not exceed 30% of the Company's total
Assets, the maximum amount the Company may borrow is 300% of the Company's Net
Assets. As of April 20, 2000, the Company has obtained an initial $25,000,000
revolving line of credit, described below. However, as of such date, the Company
has not yet received a commitment for any Permanent Financing and there is no
assurance that the Company will obtain any Permanent Financing on satisfactory
terms. The number of Properties to be acquired and Mortgage Loans to be invested
in will depend upon the amount of net offering proceeds received from the
Company's Initial Offering and this offering and loan proceeds available to the
Company. The amount invested in Secured Equipment Leases is not expected to
exceed 10% of Gross Proceeds.
On April 20, 2000, the Company entered into a $25,000,000 revolving
line of credit and security agreement with a bank to be used by the Company to
acquire and construct health care Properties. The line of credit provides that
the Company may receive advances of up to $25,000,000 until April 19, 2005, with
an annual review to be performed by the bank to indicate that there has been no
substantial deterioration, in the bank's reasonable discretion, of the credit
quality. Interest expense on each advance shall be payable monthly, with all
unpaid interest and principal due no later than five years from the date of the
advance. Generally, advances under the line of credit will bear interest at
either (i) a rate per annum equal to London Interbank Offered Rate (LIBOR) plus
the difference between LIBOR and the bank's base rate at the time of the advance
or (ii) a rate equal to the bank's base rate, whichever the Company selects at
the time advances are made. The interest rate will be adjusted daily in
accordance with fluctuations with the bank's rate or the LIBOR rate, as
applicable. Notwithstanding the above, the interest rate on the first $9,700,000
drawn will be 8.75% through April 1, 2002, and thereafter will bear interest at
either (i) or (ii) above as of April 1, 2002. In addition, a fee of .5% per
advance will be due and payable to the bank on funds as advanced. Each advance
made under the line of credit will be collateralized by the assignment of rents
and leases. In addition, the line of credit provides that the Company will not
be able to further encumber the applicable Property during the term of the
advance without the bank's consent. The Company will be required, at each
closing, to pay all costs, fees and expenses arising in connection with the line
of credit. The Company must also pay the bank's attorneys fees, subject to a
maximum cap, incurred in connection with the line of credit and each advance.
On April 20, 2000, the Company obtained an advance under the Line of
Credit of $8,100,000 in connection with the acquisition of a private-pay
assisted living community in Orland Park, Illinois. In connection with the line
of credit, the Company incurred an origination fee, legal fees and closing costs
of $55,917. The Company anticipates repaying the amounts outstanding on the line
of credit with future net offering proceeds as they are received.
The Company may be subject to interest rate risk through any
outstanding balances on its variable rate Line of Credit. The Company may
mitigate this risk by paying down any outstanding balances on the Line of Credit
from offering proceeds should interest rates rise substantially.
As of April 20, 2000, the Company had not entered into any arrangements
creating a reasonable probability that an additional Property would be acquired
or a particular Mortgage Loan or Secured Equipment Lease would be funded. The
Company is presently negotiating to acquire additional Properties, but as of
April 20, 2000, the Company had not acquired any such Properties or entered into
any Mortgage Loans.
The Property owned as of April 20, 2000 is, and Properties acquired in
the future are expected to be, leased on a long-term, triple-net basis, meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems associated with operating the Properties are
currently anticipated by management.
Until Properties are acquired or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments, such as demand deposit
accounts at commercial banks, certificates of deposit and money market accounts,
which management believes to have appropriate safety of principal. This
investment strategy provides high liquidity in order to facilitate the Company's
use of these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At March 31, 2000, the
Company had $5,812,893 invested in such short-term investments as compared to
$4,744,222 at December 31, 1999. The increase in the amount invested in
short-term investments reflects subscriptions proceeds received from the sale of
Shares during the quarter ended March 31, 2000. These funds will be used
primarily to purchase Properties, to make Mortgage Loans, to pay offering
expenses relating to the Initial Offering and Acquisition Expenses, to pay
Distributions to stockholders and other Company expenses and, in management's
discretion, to create cash reserves.
During the quarter ended March 31, 2000, the years ended December 31,
1999 and 1998 and the period December 22, 1997 (date of inception) through
December 31, 1997, Affiliates of the Company incurred on behalf of the Company
$18,641, $421,878, $562,739 and $43,398, respectively, for certain
organizational and offering expenses relating to its Initial Offering. In
addition, during the quarter ended March 31, 2000 and the year ended December
31, 1999, Affiliates of the Company incurred $22,283 and $98,206, respectively,
for certain Acquisition Expenses and $40,821 and $41,307, respectively, for
certain Operating Expenses on behalf of the Company. As of March 31, 2000 and
December 31, 1999, the Company owed the Affiliates $1,938,627 and $1,775,256,
respectively, for such amounts and unpaid fees and administrative expenses
(including accounting; financial, tax, and regulatory compliance and reporting,
due diligence and marketing; and investor relations). The Advisor of the Company
has agreed to pay all organizational and offering expenses (excluding selling
commissions and marketing support and due diligence expense reimbursement fees)
in excess of three percent of Gross Proceeds of the offering.
Since the commencement of the Initial Offering through March 31, 2000,
approximately $510,892 has been incurred by the Company in Selling Commissions
and marketing support and due diligence expense reimbursement fees to related
parties, $457,230 of which was reallowed to other broker-dealer firms. In
addition, since the commencement of the Initial Offering through March 31, 2000,
the Company has reimbursed Affiliates approximately $135,339 for certain
organizational and offering expenses incurred on behalf of the Company and
administrative services related to the Initial Offering.
During the quarter ended March 31, 2000 and the year ended December 31,
1999, the Company generated cash from operations (which includes interest
received less cash paid for Operating Expenses) of $12,851 and $10,409,
respectively. Based on current and anticipated future cash from operations, the
Company declared Distributions to its stockholders of $43,593 and $50,404 during
the quarter ended March 31, 2000 and the period July 14,1999 (the date
operations commenced through December 31, 1999, respectively. No Distributions
were paid or declared for the period December 22, 1997 (date of inception)
through July 13, 1999 because operations had not commenced. On April 1 and April
20, 2000, the Company declared Distributions of $0.025 and $0.012, respectively,
per Share, to stockholders of record on April 1 and April 20, 2000,
respectively. The Company has also declared a distribution of $0.058 per Share
to stockholders of record on May 1, 2000, payable in June 2000. For the quarter
ended March 31, 2000 and the year ended December 31, 1999, 100% of the
Distributions received by stockholders were considered to be ordinary income for
federal income tax purposes. No amounts distributed or to be distributed to the
stockholders as of April 20, 2000, were required to be or have been treated by
the Company as a return of capital for purposes of calculating the Stockholders'
8% Return on Invested Capital.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that Permanent
Financing has 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 are necessary at this time. Management has the right to
cause the Company to maintain reserves if, in their discretion, they determine
such reserves are required to meet the Company's working capital needs.
Management is not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor does management expect any material changes in the availability
and relative cost of such capital resources, other than as referred to in this
Prospectus.
Management expects that the cash to be generated from operations will
be adequate to pay Operating Expenses and to make Distributions to stockholders.
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on July 14, 1999. The Company did not acquire any
Properties or enter into any Mortgage Loans during the quarter ended March 31,
2000 and the year ended December 31, 1999.
During the quarter ended March 31, 2000 and the year ended December 31,
1999, the Company earned $72,962 and $86,231, respectively, in interest income
from investments in money market accounts. Interest income is expected to
increase as the Company invests subscription proceeds received in the future in
highly liquid investments pending investment in Properties and Mortgage Loans.
However, as Net Offering Proceeds are invested in Properties and used to make
Mortgage Loans, the percentage of the Company's total revenues from interest
income from investments in money market accounts or other short-term, highly
liquid investments is expected to decrease.
Operating expenses were $98,140 and $114,621 including organizational
expenses of $35,000, for the quarter ended March 31, 2000 and the year ended
December 31, 1999, respectively. Operating expenses represent only a portion of
operating expenses which the Company is expected to incur during a quarter and
year in which the Company owns Properties. The dollar amount of operating
expenses is expected to increase as the Company acquires Properties and invests
in Mortgage Loans. However, general and administrative expenses as a percentage
of total revenues is expected to decrease as the Company acquires Properties and
invests in Mortgage Loans. Organizational expenses represent the cost related to
forming a new entity and are not expected to be incurred on an ongoing basis.
The Company has elected, pursuant to Internal Revenue Code Section
856(c)(1), to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, and related regulations. As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal income tax purposes
for four years following the year during which qualification is lost. Such an
event could materially affect the Company's net earnings. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the year ended December 31, 1999. In addition, the
Company intends to continue to operate the Company so as to remain qualified as
a REIT for federal income tax purposes.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the effect of
inflation. Such provisions will include clauses requiring the payment of
percentage rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
In April of 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities," which became effective for the Company 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. During the year ended
December 31, 1999, operating expenses include a charge of $35,000 for
organizational costs.
Management is not aware of any known trends or uncertainties, other
than national economic conditions, which may reasonably be expected to have a
material impact, favorable or unfavorable, on revenues or income from the
acquisition and operations of real properties, other than those Properties
referred to in this Prospectus.
There currently are no material changes being considered in the
objectives and policies of the Company as set forth in this Prospectus.
MANAGEMENT
GENERAL
The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries. As required
by applicable regulations, a majority of the Independent Directors and a
majority of the Directors have reviewed and ratified the Articles of
Incorporation and have adopted the Bylaws.
The Company currently has five Directors; it may have no fewer than
three Directors and no more than 15. Directors will be elected annually, and
each Director will hold office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. There is no limit on
the number of times that a Director may be elected to office. Although the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for this
purpose. The notice of such meeting shall indicate that the purpose, or one of
the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and
control of the affairs of the Company; however, the Board of Directors will
retain the Advisor to manage the Company's day-to-day affairs and the
acquisition and disposition of investments, subject to the supervision of the
Board of Directors.
The Directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of the
Company as their duties require. The Board of Directors will meet quarterly in
person or by telephone, or more frequently if necessary. It is not expected that
the Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will establish written policies on investments and
borrowings and will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. For purposes of this determination, Net Assets are the Company's total
assets (other than intangibles), calculated at cost before deducting
depreciation or other non-cash reserves, less total liabilities, and computed at
least quarterly on a basis consistently applied. Such determination will be
reflected in the minutes of the meetings of the Board of Directors. In addition,
a majority of the Independent Directors and a majority of Directors not
otherwise interested in the transaction must approve each transaction with the
Advisor or its Affiliates. The Board of Directors also will be responsible for
reviewing and evaluating the performance of the Advisor before entering into or
renewing an advisory agreement. The Independent Directors shall determine from
time to time and at least annually that compensation to be paid to the Advisor
is reasonable in relation to the nature and quality of services to be performed
and shall supervise the performance of the Advisor and the compensation paid to
it by the Company to determine that the provisions of the Advisory Agreement are
being carried out. Specifically, the Independent Directors will consider factors
such as the amount of the fee paid to the Advisor in relation to the size,
composition and performance of the Company's investments, the success of the
Advisor in generating appropriate investment opportunities, rates charged to
other comparable REITs and other investors by advisors performing similar
services, additional revenues realized by the Advisor and its Affiliates through
their relationship with the Company, whether paid by the Company or by others
with whom the Company does business, the quality and extent of service and
advice furnished by the Advisor, the performance of the investment portfolio of
the Company and the quality of the portfolio of the Company relative to the
investments generated by the Advisor for its own account. Such review and
evaluation will be reflected in the minutes of the meetings of the Board of
Directors. The Board of Directors shall determine that any successor Advisor
possesses sufficient qualifications to (i) perform the advisory function for the
Company and (ii) justify the compensation provided for in its contract with the
Company.
The liability of the officers and Directors while serving in such
capacity is limited in accordance with the Articles of Incorporation and
applicable law. See "Summary of the Articles of Incorporation and Bylaws --
Limitation of Liability and Indemnification."
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---------------------------- ------- ---------------------------------------------------------------
<S> <C>
James M. Seneff, Jr. 53 Director, Chairman of the Board, and Chief Executive Officer
Robert A. Bourne 53 Director and President
David W. Dunbar 47 Independent Director
Timothy S. Smick 48 Independent Director
Edward A. Moses 58 Independent Director
Phillip M. Anderson, Jr. 40 Chief Operating Officer and Executive Vice President
Thomas J. Hutchison III 58 Executive Vice President
Jeanne A. Wall 41 Executive Vice President
Lynn E. Rose 51 Secretary and Treasurer
</TABLE>
James M. Seneff, Jr. Director, Chairman of the Board and Chief
Executive Officer. Mr. Seneff is a director, Chairman of the Board and Chief
Executive Officer of CNL Health Care Corp., the Advisor to the Company. Mr.
Seneff is a principal stockholder of CNL Holdings, Inc., the parent company of
CNL Financial Group, Inc. (formerly CNL Group, Inc.), a diversified real estate
company, and has served as a director, Chairman of the Board and Chief Executive
Officer of CNL Financial Group, Inc. and its subsidiaries since CNL's formation
in 1973. CNL Financial Group, Inc. is the parent company, either directly or
indirectly through subsidiaries, of CNL Real Estate Services, Inc., CNL Health
Care Corp., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities
Corp., the Managing Dealer in this offering. CNL and the entities it has
established have more than $4 billion in assets, representing interests in more
than 2,000 properties and 900 mortgage loans in 48 states. Mr. Seneff also
serves as a director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff has served
as a director, Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. In addition, he has served as a director and
Chairman of the Board since inception in 1994, and served as Chief Executive
Officer from 1994 through August 1999, of CNL American Properties Fund, Inc., a
public, unlisted real estate investment trust. He also served as a director,
Chairman of the Board and Chief Executive Officer of CNL Fund Advisors, Inc.,
the advisor to CNL American Properties Fund, Inc., until it merged with such
company in September 1999. Mr. Seneff has also served as a director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, a registered
investment advisor for pension plans, since 1990. Mr. Seneff formerly served as
a director of First Union National Bank of Florida, N.A., and currently serves
as the Chairman of the Board of CNLBank. Mr. Seneff 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 is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne serves as a
director and President of CNL Health Care Corp., the Advisor to the Company. Mr.
Bourne is also the President and Treasurer of CNL Financial Group, Inc.; a
director, Vice Chairman of the Board and President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
director, Vice Chairman of the Board and President of CNL Hospitality Corp., its
advisor. Mr. Bourne also serves as a director of CNLBank. He has served as a
director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc., a public, real
estate investment trust listed on the New York Stock Exchange. Mr. Bourne has
served as a director since inception in 1994, President from 1994 through
February 1999, Treasurer from February 1999 through August 1999, and Vice
Chairman of the Board since February 1999, of CNL American Properties Fund,
Inc., a public, unlisted real estate investment trust. He also served as a
director and held various executive positions for CNL Fund Advisors, Inc., the
advisor to CNL American Properties Fund, Inc. prior to its merger with such
company, from 1994 through August 1999. Mr. Bourne also serves as a director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.,
including CNL Investment Company, CNL Securities Corp., the Managing Dealer for
this offering, and CNL Institutional Advisors, Inc., a registered investment
advisor for pension plans. Since joining CNL Securities Corp. in 1979, Mr.
Bourne has overseen CNL's real estate and capital markets activities including
the investment of nearly $2 billion in equity and the financing, acquisition,
construction and leasing of restaurants, office buildings, apartment complexes,
hotels and other real estate. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of tax manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
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 board of trustees of Bay Care Health
System, an alliance of ten non-profit hospitals in the Tampa Bay area, as well
as vice chairman of the board of directors of Morton Plant Mease Health Care,
Inc., an 841-bed, not-for-profit hospital and a member of the board of directors
of North Bay Hospital, a 122-bed facility. He is a former member of the board of
directors of Morton Plant Mease Hospital Foundation. 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 1981 through 1988 and 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 and currently serves on the Florida Elections
Commission. Mr. Dunbar received a B.S. 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. Mr. Smick is currently an
independent investor. 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 & 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 served as dean of the
Roy E. Crummer Graduate School of Business at Rollins College from 1994 to 2000,
and has served as a professor and Bank of America professor of finance since
1989. As dean, Dr. Moses established 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 Corp. 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 Corp., 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.
Thomas J. Hutchison III. Executive Vice President. Mr. Hutchison serves
as an Executive Vice President of CNL Health Care Corp., the Advisor of the
Company, as well as President and Chief Operating Officer of CNL Real Estate
Services, Inc., which is the parent company of CNL Health Care Corp. and CNL
Hospitality Corp. He also serves as the Chief Operating Officer of CNL Community
Development Corp. In addition, Mr. Hutchison serves as an Executive Vice
President of CNL Hospitality Properties, Inc. Mr. Hutchison joined CNL Financial
Group, Inc. in January 2000 with more than 30 years of senior management and
consulting experience in the real estate development and services industries. He
currently serves on the board of directors of Restore Orlando, a nonprofit
community volunteer organization. Prior to joining CNL, Mr. Hutchison was
president and owner of numerous real estate services and development companies.
From 1995 to 2000, he was chairman and chief executive officer of Atlantic
Realty Services, Inc. and TJH Development Corporation. Since 1990, he has
fulfilled a number of long-term consulting assignments for large corporations,
including managing a number of large international joint ventures. From 1990 to
1991, Mr. Hutchison was the court-appointed president and chief executive
officer of General Development Corporation, a real estate community development
company, where he assumed the day-to-day management of the $2.6 billion
NYSE-listed company entering re-organization. From 1986 to 1990, he was the
chairman and chief executive officer of a number of real estate-related
companies engaged in the master planning and land acquisition of forty
residential, industrial and office development projects. From 1978 to 1986, Mr.
Hutchison was the president and chief executive officer of Murdock Development
Corporation and Murdock Investment Corporation, as well as Murdock's nine
service divisions. In this capacity, he managed an average of $350 million of
new development per year for over nine years. Additionally, he expanded the
commercial real estate activities to a national basis, and established both a
new extended care division and a hotel division that grew to 14 properties. Mr.
Hutchison was educated at Purdue University and the University of Maryland
Business School.
Jeanne A. Wall. Executive Vice President. Ms. Wall serves as an
Executive Vice President of CNL Health Care Corp., the Advisor to the Company.
Ms. Wall also serves as an Executive Vice President of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust and serves as
an Executive Vice President and a director of CNL Hospitality Corp., its
advisor. She also serves as a director of CNLBank. Ms. Wall serves as an
Executive Vice President of CNL Financial Group, Inc. Ms. Wall has served as
Chief Operating Officer of CNL Investment Company and of CNL Securities Corp.
since 1994 and has served as an Executive Vice President of CNL Investment
Company since January 1991. In 1984, Ms. Wall joined CNL Securities Corp. and in
1985, became Vice President. In 1987, she became a Senior Vice President and in
July 1997, became an Executive Vice President of CNL Securities Corp. In this
capacity, Ms. Wall oversees the national marketing plan for the CNL investment
programs. In addition, Ms. Wall oversees product development, communications and
investor services for programs offered through participating brokers. Ms. Wall
also served as a Senior Vice President of CNL Institutional Advisors, Inc., a
registered investment advisor, from 1990 to 1993. Ms. Wall served as a Vice
President of Commercial Net Lease Realty, Inc., a public real estate investment
trust listed on the New York Stock Exchange, from 1992 through 1997, and served
as a Vice President of CNL Realty Advisors, Inc., from its inception in 1991
through 1997. Ms. Wall also served as an Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as an Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which time it
merged with CNL American Properties Fund, Inc. Ms. Wall currently serves as a
trustee on the Board of the Investment Program Association, is a member of the
Corporate Advisory Council for the Financial Planning Association and is a
member of the International Women's Forum. In addition, she previously served on
the Direct Participation Program Committee for the National Association of
Securities Dealers, Inc. Ms. Wall holds a B.A. in Business Administration from
Linfield College and is a registered principal of CNL Securities Corp.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose also serves as
Secretary, Treasurer and a director of CNL Health Care Corp., the Advisor to the
Company, and as Secretary of the subsidiaries of the Company. Ms. Rose is
Secretary and Treasurer of CNL Hospitality Properties, Inc., a public, unlisted
real estate investment trust, and serves as Secretary of its subsidiaries. In
addition, she serves as Secretary, Treasurer and a director of CNL Hospitality
Corp., its advisor. Ms. Rose served as Secretary of CNL American Properties
Fund, Inc., a public, unlisted real estate investment trust, from 1994 through
August 1999, and served as Treasurer from 1994 through February 1999. She also
served as Treasurer of CNL Fund Advisors, Inc., from 1994 through July 1998, and
served as Secretary and a director from 1994 through August 1999, at which time
it merged with CNL American Properties Fund, Inc. Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc., a public real estate
investment trust listed on the New York Stock Exchange, from 1992 to February
1996, and as Secretary and a director of CNL Realty Advisors, Inc., its advisor,
from its inception in 1991 through 1997. She also served as Treasurer of CNL
Realty Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified
public accountant, has served as Secretary of CNL Financial Group, Inc. since
1987, served as Controller from 1987 to 1993 and has served as Chief Financial
Officer since 1993. She also serves as Secretary of the subsidiaries of CNL
Financial Group, Inc. and holds various other offices in the subsidiaries. In
addition, she serves as Secretary for approximately 75 additional corporations
affiliated with CNL Financial Group, Inc. and its subsidiaries. Ms. Rose has
served as Chief Financial Officer and Secretary of CNL Securities Corp. since
July 1994. Ms. Rose oversees the tax and legal compliance for over 375
corporations, partnerships and joint ventures, and the accounting and financial
reporting for over 200 entities. Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of
Central Florida. She was licensed as a certified public accountant in 1979.
INDEPENDENT DIRECTORS
Under the Articles of Incorporation, a majority of the Board of
Directors must consist of Independent Directors, except for a period of 90 days
after the death, removal or resignation of an Independent Director. The
Independent Directors shall nominate replacements for vacancies in the
Independent Director positions. An Independent Director may not, directly or
indirectly (including through a member of his immediate family), own any
interest in, be employed by, have any present business or professional
relationship with, serve as an officer or director of the Advisor or its
Affiliates, or serve as a director of more than three REITs organized by the
Advisor or its Affiliates. Except to carry out the responsibilities of a
Director, an Independent Director may not perform material services for the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The Audit Committee makes
recommendations to the Board of Directors in accordance with those of the
independent accountants of the Company. The Board of Directors shall review with
such accounting firm the scope of the audit and the results of the audit upon
its completion.
At such time, as necessary, the Company will form a Compensation
Committee, the members of which will be selected by the full Board of Directors
each year.
At least a majority of the members of each committee of the Company's
Board of Directors must be Independent Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director is entitled to receive $6,000 annually for serving on the
Board of Directors, as well as fees of $750 per meeting attended ($375 for each
telephonic meeting in which the Director participates), including committee
meetings. No executive officer or Director of the Company has received a bonus
from the Company. The Company will not pay any compensation to the officers and
Directors of the Company who also serve as officers and directors of the
Advisor.
<PAGE>
MANAGEMENT COMPENSATION
For a description of the types, recipients, methods of computation, and
estimated amounts of all compensation, fees, and distributions to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see "Management Compensation."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
CNL Health Care Corp. (formerly CNL Health Care Advisors, Inc.) is a
Florida corporation organized in July 1997 to provide management, advisory and
administrative services. The Company originally entered into the Advisory
Agreement with the Advisor effective September 15, 1998. CNL Health Care Corp.,
as Advisor, has a fiduciary responsibility to the Company and the stockholders.
The directors and officers of the Advisor are as follows:
<TABLE>
<CAPTION>
<S> <C>
James M. Seneff, Jr. Chairman of the Board, Chief Executive Officer, and Director
Robert A. Bourne President and Director
Phillip M. Anderson, Jr. Chief Operating Officer
Thomas J. Hutchison III Executive Vice President
Jeanne A. Wall Executive Vice President
Lynn E. Rose Secretary, Treasurer and Director
</TABLE>
The backgrounds of these individuals are described above under
"Management -- Directors and Executive Officers."
Management anticipates that any transaction by which the Company would
become self-advised would be submitted to the stockholders for approval.
The Advisor currently owns 20,000 Shares of Common Stock. The Advisor
may not sell these Shares while the Advisory Agreement is in effect, although
the Advisor may transfer such shares to Affiliates. Neither the Advisor, a
Director, or any Affiliate may vote or consent on matters submitted to the
stockholders regarding removal of the Advisor, Directors or any of their
Affiliates, or any transaction between the Company and any of them. In
determining the requisite percentage in interest of shares of Common Stock
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any shares of Common Stock owned by any of them will
not be included.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor has
responsibility for the day-to-day operations of the Company, administers the
Company's bookkeeping and accounting functions, serves as the Company's
consultant in connection with policy decisions to be made by the Board of
Directors, manages the Company's Properties and Mortgage Loans, administers the
Company's Secured Equipment Lease program and renders other services as the
Board of Directors deems appropriate. The Advisor is subject to the supervision
of the Company's Board of Directors and has only such functions as are delegated
to it.
The Company will reimburse the Advisor for all of the costs it incurs
in connection with the services it provides to the Company, including, but not
limited to: (i) Offering Expenses, which are defined to include expenses
attributable to preparing the documents relating to this offering, qualification
of the Shares for sale in the states, escrow arrangements, filing fees and
expenses attributable to selling the Shares; (ii) selling commissions,
advertising expenses, expense reimbursements, and legal and accounting fees;
(iii) the actual cost of goods and materials used by the Company and obtained
from entities not affiliated with the Advisor, including brokerage fees paid in
connection with the purchase and sale of securities; (iv) administrative
services (including personnel costs; provided, however, that no reimbursement
shall be made for costs of personnel to the extent that such personnel perform
services in transactions for which the Advisor receives a separate fee, at the
lesser of actual cost or 90% of the competitive rate charged by unaffiliated
persons providing similar goods and services in the same geographic location);
(v) Acquisition Expenses, which are defined to include expenses related to the
selection and acquisition of Properties, for goods and services provided by the
Advisor at the lesser of actual cost or 90% of the competitive rate charged by
unaffiliated persons providing similar goods and services in the same geographic
location; and (vi) expenses related to negotiating and servicing the Mortgage
Loans and Secured Equipment Leases.
The Company shall not reimburse the Advisor at the end of any fiscal
quarter 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.
Pursuant to the Advisory Agreement, the Advisor is entitled to receive
fees and reimbursements, as listed in "Management Compensation." The
Subordinated Incentive Fee payable to the Advisor under certain circumstances if
Listing occurs may be paid, at the option of the Company, in cash, in Shares, by
delivery of a promissory note payable to the Advisor, or by any combination
thereof. The Subordinated Incentive Fee is 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 prices, 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
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. In the event the Subordinated Incentive Fee is paid to
the Advisor following Listing, no Performance Fee (defined as the fee payable
under certain circumstances if certain performance standards are met, such
circumstances and standards being described below) will be paid to the Advisor
under the Advisory Agreement nor will any additional share of Net Sales Proceeds
be paid to the Advisor.
The total of all Acquisition Fees and any Acquisition Expenses payable
to the Advisor and its Affiliates shall be reasonable and shall not exceed an
amount equal to 6% of the Real Estate Asset Value of a Property, or in the case
of a Mortgage Loan, 6% of the funds advanced, unless a majority of the Board of
Directors, including a majority of the Independent Directors not otherwise
interested in the transaction, approves fees in excess of this limit subject to
a determination that the transaction is commercially competitive, fair and
reasonable to the Company. The Acquisition Fees payable in connection with the
selection or acquisition of any Property shall be reduced to the extent that,
and if necessary to limit, the total compensation paid to all persons involved
in the acquisition of such Property to the amount customarily charged in
arm's-length transactions by other persons or entities rendering similar
services as an ongoing public activity in the same geographical location and for
comparable types of Properties, and to the extent that other acquisition fees,
finder's fees, real estate commissions, or other similar fees or commissions are
paid by any person in connection with the transaction.
If the Advisor or a CNL Affiliate performs services that are outside of
the scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed to by the Advisor and the Independent Directors of the
Company.
Further, if Listing occurs, the Company automatically will become a
perpetual life entity. At such time, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the Property, Mortgage Loan and Secured Equipment Lease
portfolio of the Company in relationship to the investments generated by the
Advisor for its own account. The Board of Directors, including a majority of the
Independent Directors, may not approve a new fee structure that, in its
judgment, is more favorable to the Advisor than the current fee structure.
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date of execution, subject to successive
one-year renewals upon mutual consent of the parties. The current Advisory
Agreement expires on September 16, 2000. In the event that a new Advisor is
retained, the previous Advisor will cooperate with the Company and the Directors
in effecting an orderly transition of the advisory functions. The Board of
Directors (including a majority of the Independent Directors) shall approve a
successor Advisor only upon a determination that the Advisor possesses
sufficient qualifications to perform the advisory functions for the Company and
that the compensation to be received by the new Advisor pursuant to the new
Advisory Agreement is justified.
The Advisory Agreement may be terminated without cause or penalty by
either party, or by the mutual consent of the parties (by a majority of the
Independent Directors of the Company or a majority of the directors of the
Advisor, as the case may be), upon 60 days' prior written notice. At that time,
the Advisor shall be entitled to receive the Performance Fee if performance
standards satisfactory to a majority of the Board of Directors, including a
majority of the Independent Directors, when compared to (a) the performance of
the Advisor in comparison with its performance for other entities, and (b) the
performance of other advisors for similar entities, have been met. If Listing
has not occurred, the Performance Fee, if any, shall equal 10% of the amount, if
any, by which (i) the appraised value of the assets of the Company on the
Termination Date, less the amount of all indebtedness secured by the assets of
the Company, plus the total Distributions made to stockholders from the
Company's inception through the Termination Date, exceeds (ii) Invested Capital
plus an amount equal to the Stockholders' 8% Return from inception through the
Termination Date. The Advisor shall be entitled to receive all accrued but
unpaid compensation and expense reimbursements in cash within 30 days of the
Termination Date. All other amounts payable to the Advisor in the event of a
termination shall be evidenced by a promissory note and shall be payable from
time to time. The Performance Fee shall be paid in 12 equal quarterly
installments without interest on the unpaid balance, provided, however, that no
payment will be made in any quarter in which such payment would jeopardize the
Company's REIT status, in which case any such payment or payments will be
delayed until the next quarter in which payment would not jeopardize REIT
status. Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Performance Fee is incurred which
relate to the appreciation of the Company's Assets shall be an amount which
provides compensation to the terminated Advisor only for that portion of the
holding period for the respective Assets during which such terminated Advisor
provided services to the Company. If Listing occurs, the Performance Fee, if
any, payable thereafter will be as negotiated between the Company and the
Advisor. The Advisor shall not be entitled to payment of the Performance Fee in
the event the Advisory Agreement is terminated because of failure of the Company
and the Advisor to establish a fee structure appropriate for a perpetual-life
entity at such time, if any, as the Shares become listed on a national
securities exchange or over-the-counter market. The Performance Fee, to the
extent payable at the time of Listing, will not be paid in the event that the
Subordinated Incentive Fee is paid.
The Advisor has the right to assign the Advisory Agreement to an
Affiliate subject to approval by the Independent Directors of the Company. The
Company has the right to assign the Advisory Agreement to any successor to all
of its assets, rights, and obligations.
The Advisor will not be liable to the Company or its stockholders or
others, except by reason of acts constituting bad faith, fraud, misconduct, or
negligence, and will not be responsible for any action of the Board of Directors
in following or declining to follow any advice or recommendation given by it.
The Company has agreed to indemnify the Advisor with respect to acts or
omissions of the Advisor undertaken in good faith, in accordance with the
foregoing standards and pursuant to the authority set forth in the Advisory
Agreement. Any indemnification made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Managing Dealer 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 may be paid as commissions to other broker-dealers. For the
period April 1, 2000 through April 20, 2000, the quarter ended March 31, 2000
and the years ended December 31, 1999 and 1998, the Company had incurred
$24,017, $88,940, $388,109 and $1,912, respectively of such fees in connection
with the Initial Offering, of which a substantial portion of such amount for the
period January 1, 2000 through April 20, 2000, and $370,690 and $1,785, for the
years ended December 31, 1999 and 1998, respectively, has been or will be paid
by CNL Securities Corp. as commissions to other broker-dealers.
In addition, the Managing Dealer 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, all or a portion of which may be
reallowed to other broker-dealers. For the period April 1, 2000 through April
20, 2000, the quarter ended March 31, 2000 and the years ended December 31, 1999
and 1998, the Company incurred $1,601, $5,929, $25,874 and $128, respectively,
of such fees in connection with the Initial Offering, the majority of which has
been or will be reallowed to other broker-dealers and from which all bona fide
due diligence expenses will be paid.
In addition, the Company has agreed to issue and sell soliciting dealer
warrants to the Managing Dealer in connection with its Initial Offering. The
price for each warrant will be $0.0008 and one warrant will be issued for every
25 Shares sold by the Managing Dealer in connection with the Initial Offering.
All or a portion of the soliciting dealer warrants may be reallowed to
Soliciting Dealers with prior written approval from, and in the sole discretion
of the Managing Dealer, except where prohibited by either federal or state
securities laws. The holder of a soliciting dealer warrant will be entitled to
purchase one Share of Common Stock from the Company at a price of $12.00 during
the five-year period commencing with the date the Initial Offering began. No
soliciting dealer warrants, however, will be exercisable until one year from the
date of issuance. During the quarter ended March 31, 2000, the Company issued
approximately 19,400 soliciting dealer warrants. As of March 31, 2000, CNL
Securities Corp. was entitled to receive approximately 5,000 additional
soliciting dealer warrants for Shares sold during the quarter then ended. No
soliciting dealer warrants will be issued in connection with this 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 Total Proceeds. During the period January 1, 2000 through April 20,
2000, the quarter ended March 31, 2000, and the years ended December 31, 1999
and 1998, the Company incurred $14,410, $53,364, $232,865 and $1,148,
respectively, of such fees.
The Advisor and its Affiliates provide various administrative services
to the Company, including services related to accounting; financial, tax and
regulatory compliance reporting; stockholder distributions and reporting; due
diligence and marketing; and investor relations (including administrative
services in connection with the offering of Shares) on a day-to-day basis. For
the quarter ended March 31, 2000, the years ended December 31, 1999 and 1998,
and the period December 22, 1997 (date of inception) through December 31, 1997,
the Company incurred $82,369, $373,480, $196,184 and $15,202, respectively, for
these services. For the quarter ended March 31, 2000 and the year ended December
31, 1999, $27,103 and $328,229, respectively, of such costs represented stock
issuance costs, $945 and $6,455, respectively, represented acquisition related
costs and $54,321 and $38,796, respectively, represented general operating and
administrative expenses. For 1998 and 1997, such amounts are included in
deferred offering costs.
The Company believes that all amounts paid or payable by the Company to
Affiliates are fair and comparable to amounts that would be paid for similar
services provided by unaffiliated third parties.
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. Prior public programs have invested only in restaurant
properties and hotel properties and have not invested in Health Care Facilities.
Investors in the Company should not assume that they will experience returns, if
any, comparable to those experienced by investors in such prior public real
estate programs. Investors who purchase Shares will not thereby acquire any
ownership interest in any partnerships or corporations to which the following
information relates.
Two Directors of the Company, Robert A. Bourne and James M. Seneff,
Jr., individually or with others have served as general partners of 88 and 89
real estate limited partnerships, respectively, including 18 publicly offered
CNL Income Fund partnerships, and as directors and/or officers of two unlisted
public REITs. None of these limited partnerships or unlisted REITs has been
audited by the IRS. Of course, there is no guarantee that the Company will not
be audited. Based on an analysis of the operating results of the prior programs,
Messrs. Bourne and Seneff believe that each of such programs has met or is
meeting its principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and in the case of
two of the partnerships, casual-dining restaurant properties. In addition,
Messrs. Bourne and Seneff currently serve as directors of CNL American
Properties Fund, Inc., an unlisted public REIT organized to invest in fast-food,
family-style and casual-dining restaurant properties, mortgage loans and secured
equipment leases; and as directors and officers of CNL Hospitality Properties
Inc., an unlisted public REIT organized to invest in hotel properties, mortgage
loans and secured equipment leases. Both of the unlisted public REITs have
investment objectives similar to those of the Company. As of December 31, 1999,
the 18 partnerships and the two unlisted REITs had raised a total of
approximately $1.7 billion from a total of approximately 91,000 investors, and
owned approximately 1,400 fast-food, family-style and casual-dining restaurant
properties, and 11 hotels. None of the 18 public partnerships or the two
unlisted public REITs has invested in Health Care Facilities. Certain additional
information relating to the offerings and investment history of the 18 public
partnerships and the two unlisted public REITs is set forth below.
<TABLE>
<CAPTION>
Number of Date 90% of Net
Limited Proceeds Fully
Maximum Partnership Invested or
Name of Offering Units or Committed to
Entity Amount (1) Date Closed Shares Sold Investment (2)
- ------ ---------- ----------- ----------- --------------
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL Income $40,000,000 April 22, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 units)
CNL Income $40,000,000 October 8, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL Income $45,000,000 April 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 units)
<PAGE>
Number of Date 90% of Net
Limited Proceeds Fully
Maximum Partnership Invested or
Name of Offering Units or Committed to
Entity Amount (1) Date Closed Shares Sold Investment (2)
- ------ ---------- ----------- ----------- --------------
CNL Income $40,000,000 September 13, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 units)
CNL Income $45,000,000 March 23, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 22, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 units)
CNL Income $45,000,000 July 18, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 units)
CNL Income $30,000,000 October 10, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 units)
CNL Income $35,000,000 February 6, 1998 3,500,000 December 1997
Fund XVIII, Ltd. (3,500,000 units)
CNL American $747,464,413 January 20, 1999 (3) 37,373,221 (3) February 1999 (3)
Properties Fund, Inc. (37,373,221 shares)
CNL Hospitality $425,072,637 (4) (4) (4)
Properties, Inc. (42,507,264 shares)
</TABLE>
- ---------------------
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd. and
CNL Income Fund XVIII, Ltd. The number of shares of common stock for CNL
American Properties Fund, Inc. ("APF") reflects a one-for-two reverse
stock split, which was effective on June 3, 1999.
(2) For a description of the property acquisitions by these programs, see the
table set forth on the following page.
(3) In April 1995, APF commenced an offering of a maximum of 16,500,000
shares of common stock ($165,000,000). On February 6, 1997, the initial
offering closed upon receipt of subscriptions totalling $150,591,765
(15,059,177 shares), including $591,765 (59,177 shares) through the
reinvestment plan. Following completion of the initial offering on
February 6, 1997, APF commenced a subsequent offering (the "1997
Offering") of up to 27,500,000 shares ($275,000,000) of common stock. On
March 2, 1998, the 1997 Offering closed upon receipt of subscriptions
totalling $251,872,648 (25,187,265 shares), including $1,872,648 (187,265
shares) through the reinvestment plan. Following completion of the 1997
Offering on March 2, 1998, APF commenced a subsequent offering (the "1998
Offering") of up to 34,500,000 shares ($345,000,000) of common stock. As
of December 31, 1998, APF had received subscriptions totalling
$345,000,000 (34,500,000 shares), including $3,107,848 (310,785 shares)
through the reinvestment plan, from the 1998 Offering. The 1998 Offering
closed in January 1999, upon receipt of the proceeds from the last
subscriptions. As of March 31, 1999, net proceeds to APF from its three
offerings totalled $670,151,200 and all of such amount had been invested
or committed for investment in properties and mortgage loans.
(4) Effective July 9, 1997, CNL Hospitality Properties, Inc. ("CHP")
commenced an offering of up to 16,500,000 shares ($165,000,000) of common
stock. On June 17, 1999, the initial offering closed upon receipt of
subscriptions totalling $150,072,637 (15,007,264 shares), including
$72,637 (7,264 shares) through the reinvestment plan. Following
completion of the initial offering on June 17, 1999, CHP commenced a
subsequent offering (the "1999 Offering") of up to 27,500,000 shares
($275,000,000) of common stock. As of December 31, 1999, CHP had received
subscriptions totalling $138,885,350 (13,888,535 shares), including
$431,182 (43,118 shares) through the reinvestment plan, from the 1999
Offering. As of such date, CHP had purchased, directly or indirectly, 11
properties.
<PAGE>
As of December 31, 1999, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 69 nonpublic
real estate limited partnerships. The offerings of all of these 69 nonpublic
limited partnerships had terminated as of December 31, 1999. These 69
partnerships raised a total of $185,927,353 from approximately 4,600 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 216 projects as of December 31, 1999. These
216 projects consist of 19 apartment projects (comprising 10% of the total
amount raised by all 69 partnerships), 11 office buildings (comprising 4% of the
total amount raised by all 69 partnerships), 169 fast-food, family-style, or
casual-dining restaurant properties and business investments (comprising 69% of
the total amount raised by all 69 partnerships), one condominium development
(comprising 0.5% of the total amount raised by all 69 partnerships), four
hotels/motels (comprising 5% of the total amount raised by all 69 partnerships),
ten commercial/retail properties (comprising 11% of the total amount raised by
all 69 partnerships), and two tracts of undeveloped land (comprising 0.5% of the
total amount raised by all 69 partnerships).
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 37 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 90 real estate limited partnerships whose offerings had closed
as of December 31, 1999 (including 18 CNL Income Fund limited partnerships) in
which Mr. Seneff and/or Mr. Bourne serve or have served as general partners in
the past, 39 invested in restaurant properties leased on a "triple-net" basis,
including eight which also invested in franchised restaurant businesses
(accounting for approximately 93% of the total amount raised by all 90 real
estate limited partnerships).
The following table sets forth summary information, as of December 31,
1999, regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs .
<TABLE>
<CAPTION>
<S> <C>
Name of Type of Method of Type of
Entity Property Location Financing Program
--------- ---------------------- ---------------------- -------------- -----------
CNL Income Fund, 22 fast-food or AL, AZ, CA, FL, GA, All cash Public
Ltd. family-style LA, MD, OK, PA, TX,
restaurants VA, WA
CNL Income Fund II, 50 fast-food or AL, AZ, CO, FL, GA, All cash Public
Ltd. family-style IL, IN, KS, LA, MI,
restaurants MN, MO, NC, NM, OH,
TN, TX, WA, WY
CNL Income Fund 40 fast-food or AL, AZ, CA, CO, FL, All cash Public
III, Ltd. family-style GA, IA, IL, IN, KS,
restaurants KY, MD, MI, MN, MO,
NC, NE, OK, TX
CNL Income Fund IV, 47 fast-food or AL, DC, FL, GA, IL, All cash Public
Ltd. family-style IN, KS, MA, MD, MI,
restaurants MS, NC, OH, PA, TN,
TX, VA
CNL Income Fund V, 36 fast-food or AZ, FL, GA, IL, IN, All cash Public
Ltd. family-style MI, NH, NY, OH, SC,
restaurants TN, TX, UT, WA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
------------------ ------------------ --------------------- --------------- -------------
<S> <C>
CNL Income Fund VI, 59 fast-food or AR, AZ, CA, FL, GA, All cash Public
Ltd. family-style IL, IN, KS, MA, MI,
restaurants MN, NC, NE, NM, NY,
OH, OK, PA, TN, TX,
VA, WA, WY
CNL Income Fund 51 fast-food or AL, AZ, CO, FL, GA, All cash Public
VII, Ltd. family-style IN, LA, MI, MN, NC,
restaurants OH, SC, TN, TX, UT, WA
CNL Income Fund 43 fast-food or AZ, FL, IN, LA, MI, All cash Public
VIII, Ltd. family-style MN, NC, NY, OH, TN,
restaurants TX, VA
CNL Income Fund IX, 46 fast-food or AL, CA, CO, FL, GA, All cash Public
Ltd. family-style IL, IN, LA, MI, MN,
restaurants MS, NC, NH, NY, OH,
SC, TN, TX
CNL Income Fund X, 55 fast-food or AL, AZ, CA, CO, FL, All cash Public
Ltd. family-style ID, IL, LA, MI, MO,
restaurants MT, NC, NE, NH, NM,
NY, OH, PA, SC, TN,
TX, WA
CNL Income Fund XI, 44 fast-food or AL, AZ, CA, CO, CT, All cash Public
Ltd. family-style FL, KS, LA, MA, MI,
restaurants MS, NC, NH, NM, OH,
OK, PA, SC, TX, VA, WA
CNL Income Fund 51 fast-food or AL, AZ, CA, FL, GA, All cash Public
XII, Ltd. family-style LA, MO, MS, NC, NM,
restaurants OH, SC, TN, TX, WA
CNL Income Fund 50 fast-food or AL, AR, AZ, CA, CO, All cash Public
XIII, Ltd. family-style FL, GA, IN, KS, LA,
restaurants MD, NC, OH, PA, SC,
TN, TX, VA
CNL Income Fund 65 fast-food or AL, AZ, CO, FL, GA, All cash Public
XIV, Ltd. family-style KS, LA, MN, MO, MS,
restaurants NC, NJ, NV, OH, SC,
TN, TX, VA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
------------------ ------------------- -------------------- ------------------ -------------
<S> <C>
CNL Income Fund XV, 56 fast-food or AL, CA, FL, GA, KS, All cash Public
Ltd. family-style KY, MN, MO, MS, NC,
restaurants NJ, NM, OH, OK, PA,
SC, TN, TX, VA
CNL Income Fund 49 fast-food or AZ, CA, CO, DC, FL, All cash Public
XVI, Ltd. family-style GA, ID, IN, KS, MN,
restaurants MO, NC, NM, NV, OH,
TN, TX, UT, WI
CNL Income Fund 31 fast-food, CA, FL, GA, IL, IN, All cash Public
XVII, Ltd. family-style or MI, NC, NV, OH, SC,
casual-dining TN, TX, WA
restaurants
CNL Income Fund 25 fast-food, AZ, CA, FL, GA, IL, All cash Public
XVIII, Ltd. family-style or KY, MD, MN, NC, NV,
casual-dining NY, OH, TN, TX, VA
restaurants
CNL American 679 fast-food, AL, AZ, CA, CO, CT, (1) Public REIT
Properties Fund, family-style or DE, FL, GA, IA, ID,
Inc. casual-dining IL, IN, KS, KY, LA,
restaurants MD, MI, MN, MO, MS,
NC, NE, NH, NJ, NM,
NV, NY, OH, OK, OR,
PA, RI, SC, TN, TX,
UT, VA, WA, WI, WV
CNL Hospitality 11 limited AZ, CA, GA, NV, PA, (2) Public REIT
Properties, Inc. service, extended TX, WA
stay or full
service hotels
</TABLE>
- ---------------------
(1) As of March 31, 1999, all of APF's net offering proceeds had been
invested or committed for investment in properties and mortgage loans.
Since April 1, 1999, APF has used proceeds from its line of credit to
acquire and develop properties and to fund mortgage loans and secured
equipment leases.
(2) In 1998, CHP used proceeds from its line of credit and net offering
proceeds to fund the acquisition of two of its properties. As of December
31, 1999, CHP had repaid amounts borrowed on its line of credit using
additional net offering proceeds. In 1999, CHP acquired an interest in
seven additional properties through CNL Hotel Investors, Inc. ("CHI"), a
real estate investment trust jointly owned by CHP and Five Arrows Realty
Securities II L.L.C. ("Five Arrows"). In connection with the acquisition
of these seven properties, CHI used proceeds from permanent financing, in
addition to net offering proceeds from CHP and cash contributions from
Five Arrows.
A more detailed description of the acquisitions by real estate limited
partnerships and the two unlisted REITs sponsored by Messrs. Bourne and Seneff
is set forth in prior performance Table VI, included in Part II of the
registration statement filed with the Securities and Exchange Commission for
this offering. A copy of Table VI is available to stockholders from the Company
upon request, free of charge. In addition, upon request to the Company, the
Company will provide, without charge, a copy of the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., CNL American
Properties Fund, Inc. and CNL Hospitality Properties, Inc. as well as a copy,
for a reasonable fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships and as
directors and officers of the two unlisted REITs, including those set forth in
the foregoing table, certain financial and other information concerning those
limited partnerships and the two unlisted REITs with investment objectives
similar to one or more of the Company's investment objectives, is provided in
the Prior Performance Tables included as Appendix C. Information about the
previous public partnerships, the offerings of which became fully subscribed
between January 1995 and December 1999, is included therein. Potential
stockholders are encouraged to examine the Prior Performance Tables attached as
Appendix C (in Table III), which include information as to the operating results
of these prior partnerships, for more detailed information concerning the
experience of Messrs. Seneff and Bourne.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making quarterly Distributions; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and Distributions) and providing protection against inflation
through automatic fixed increases in base rent or increases in base rent based
on increases in consumer price indices over the terms of the leases, and
obtaining fixed income through the receipt of payments on Mortgage Loans and
Secured Equipment Leases; (iii) continuing to qualify as a REIT for federal
income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment, either in whole or in part, within three to eight
years after commencement of this offering, through (a) Listing, or, (b) if
Listing does not occur within eight years after commencement of this offering
(December 31, 2008), 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. If the
Company is successful in achieving its investment and operating objectives, the
stockholders (other than tax-exempt entities) are likely to recognize taxable
income in each year. While there is no order of priority intended in the listing
of the Company's objectives, stockholders should realize that the ability of the
Company to meet these objectives may be severely handicapped by any lack of
diversification of the Company's investments and the terms of the leases.
The Company intends to meet its objectives through its investment
policies of (i) purchasing carefully selected, well-located Properties and
leasing them on a "triple-net" basis (which means that the tenant will be
responsible for paying the cost of all repairs, maintenance, property taxes, and
insurance) to operators of Health Care Facilities under leases generally
requiring the tenant to pay base annual rental with automatic fixed increases in
base rent or increases in base rent based on increases in consumer price indices
over the term of the lease, and (ii) offering Mortgage Loans and Secured
Equipment Leases to operators of Health Care Facilities.
In accordance with its investment policies, the Company intends to
invest in Properties whose tenants are operators of Health Care Facilities to be
selected by the Company, based upon recommendations by the Advisor. Although
there is no limit on the number of properties of a particular operator of Health
Care Facilities which the Company may acquire, the Company currently does not
expect to acquire a Property if the Board of Directors, including a majority of
the Independent Directors, determines that the acquisition would adversely
affect the Company in terms of geographic, property type or chain
diversification. Potential Mortgage Loan borrowers and Secured Equipment Lease
lessees or borrowers will similarly be operators of Health Care Facilities
selected by the Company, following the Advisor's recommendations. The Company
has undertaken, consistent with its objective of qualifying as a REIT for
federal income tax purposes, to ensure that the value of all Secured Equipment
Leases, in the aggregate, will not exceed 25% of the Company's total assets,
while Secured Equipment Leases to any single lessee or borrower, in the
aggregate, will not exceed 5% of the Company's total assets. It is intended that
investments will be made in Properties, Mortgage Loans and Secured Equipment
Leases in various locations in an attempt to achieve diversification and thereby
minimize the effect of changes in local economic conditions and certain other
risks. The extent of such diversification, however, depends in part upon the
amount raised in the offering and the purchase price of each Property. See
"Estimated Use of Proceeds" and "Risk Factors -- Real Estate and Other
Investment Risks -- Possible lack of diversification increases the risk of
investment." For a more complete description of the manner in which the
structure of the Company's business, including its investment policies, will
facilitate the Company's ability to meet its investment objectives. See
"Business."
The investment objectives of the Company may not be changed without the
approval of stockholders owning a majority of the shares of outstanding Common
Stock. The Bylaws of the Company require the Independent Directors to review the
Company's investment policies at least annually to determine that the policies
are in the best interests of the stockholders. The determination shall be set
forth in the minutes of the Board of Directors along with the basis for such
determination. The Directors (including a majority of the Independent Directors)
have the right, without a stockholder vote, to alter the Company's investment
policies but only to the extent consistent with the Company's investment
objectives and investment limitations. See "-- Certain Investment Limitations,"
below.
CERTAIN INVESTMENT LIMITATIONS
In addition to other investment restrictions imposed by the Directors
from time to time, consistent with the Company's objective of qualifying as a
REIT, the Articles of Incorporation or the Bylaws provide for the following
limitations on the Company's investments.
1. Not more than 10% of the Company's total assets shall be invested in
unimproved real property or mortgage loans on unimproved real property. For
purposes of this paragraph, "unimproved real property" does not include any
Property under construction, under contract for development or planned for
development within one year.
2. The Company shall not invest in commodities or commodity future
contracts. This limitation is not intended to apply to interest rate futures,
when used solely for hedging purposes.
3. The Company shall not invest in or make Mortgage Loans unless an
appraisal is obtained concerning the underlying property. Mortgage indebtedness
on any property shall not exceed such property's appraised value. In cases in
which a majority of Independent Directors so determine, and in all cases in
which the Mortgage Loan involves the Advisor, Directors, or Affiliates, such
appraisal must be obtained from an independent expert concerning the underlying
property. Such appraisal shall be maintained in the Company's records for at
least five years, and shall be available for inspection and duplication by any
stockholder. In addition to the appraisal, a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or condition
of the title must be obtained. The Company may not invest in real estate
contracts of sale otherwise known as land sale contracts.
4. The Company may not make or invest in Mortgage Loans, including
construction loans, on any one Property if the aggregate amount of all mortgage
loans outstanding on the Property, including the loans of the Company, would
exceed an amount equal to 85% of the appraised value of the Property as
determined by appraisal unless substantial justification exists because of the
presence of other underwriting criteria. For purposes of this subsection, the
"aggregate amount of all mortgage loans outstanding on the Property, including
the loans of the Company" shall include all interest (excluding contingent
participation in income and/or appreciation in value of the mortgaged property),
the current payment of which may be deferred pursuant to the terms of such
loans, to the extent that deferred interest on each loan exceeds 5% per annum of
the principal balance of the loan.
5. The Company may not invest in indebtedness ("Junior Debt") secured
by a mortgage on real property which is subordinate to the lien or other
indebtedness ("Senior Debt"), except where the amount of such Junior Debt, plus
the outstanding amount of the Senior Debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
investments of the Company (as shown on the books of the Company in accordance
with generally accepted accounting principles after all reasonable reserves but
before provision for depreciation) would not then exceed 25% of the Company's
Net Assets. The value of all investments in Junior Debt of the Company which
does not meet the aforementioned requirements is limited to 10% of the Company's
tangible assets (which is included within the 25% limitation).
<PAGE>
6. The Company may not engage in any short sale, or borrow, on an
unsecured basis, if such borrowing will result in an asset coverage of less than
300%, except that such borrowing limitation shall not apply to a first mortgage
trust. "Asset coverage," for the purpose of this section, means the ratio which
the value of the total assets of an issuer, less all liabilities and
indebtedness except indebtedness for unsecured borrowings, bears to the
aggregate amount of all unsecured borrowings of such issuer.
7. The Company may not incur any indebtedness which would result in an
aggregate amount of Leverage in excess of 300% of Net Assets.
8. The Company may not make or invest in any mortgage loans that are
subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Directors, or Affiliates of the Company.
9. The Company will not invest in equity securities unless a majority
of the Directors (including a majority of Independent Directors) not otherwise
interested in such transaction approve the transaction as being fair,
competitive, and commercially reasonable and determine that the transaction will
not jeopardize the Company's ability to qualify and remain qualified as a REIT.
Investments in entities affiliated with the Advisor, a Director, the Company, or
Affiliates thereof are subject to the restrictions on joint venture investments.
In addition, the Company shall not invest in any security of any entity holding
investments or engaging in activities prohibited by the Company's Articles of
Incorporation.
10. The Company will not issue (i) equity securities redeemable solely
at the option of the holder (except that stockholders may offer their Shares to
the Company as described under "Redemption of Shares,"); (ii) debt securities
unless the historical debt service coverage (in the most recently completed
fiscal year), as adjusted for known charges, is sufficient to service that
higher level of debt properly; (iii) Shares on a deferred payment basis or under
similar arrangements; (iv) non-voting or assessable securities; or (v) options,
warrants, or similar evidences of a right to buy its securities (collectively,
"Options") unless (1) issued to all of its stockholders ratably, (2) as part of
a financing arrangement, or (3) as part of a stock option plan available to
Directors, officers, or employees of the Company or the Advisor. Options may not
be issued to the Advisor, Directors or any Affiliate thereof except on 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.
11. A majority of the Directors shall authorize the consideration to be
paid for each Property, based on the fair market value of the Property. If a
majority of the Independent Directors determine, or if the Property is acquired
from the Advisor, a Director, or Affiliates thereof, such fair market value
shall be determined by an Independent Expert selected by the Independent
Directors.
12. The Company will not engage in underwriting or the agency
distribution of securities issued by others or in trading, as compared to
investment activities.
13. The Company will not invest in real estate contracts of sale unless
such contracts of sale are in recordable form and appropriately recorded in the
chain of title.
14. The Company will not invest in any foreign currency or bullion or
engage in short sales.
15. The Company will not issue senior securities except notes to banks
and other lenders and preferred shares.
16. The Company will not make loans to the Advisor or its Affiliates.
17. The Company will not operate so as to be classified as an
"investment company" under the Investment Company Act of 1940, as amended.
18. The Company will not make any investment that the Company believes
will be inconsistent with its objective of qualifying as a REIT.
The foregoing limitations may not be modified or eliminated without the
approval of a majority of the shares of outstanding Common Stock.
Except as set forth above or elsewhere in this Prospectus, the Company
does not intend to issue senior securities; borrow money; make loans to other
persons; invest in the securities of other issuers for the purpose of exercising
control; underwrite securities of other issuers; engage in the purchase and sale
(or turnover) of investments; offer securities in exchange for property,
repurchase or otherwise reacquire its shares or other securities; or make annual
or other reports to security holders. The Company evaluates investments in
Mortgage Loans on an individual basis and does not have a standard turnover
policy with respect to such investments.
DISTRIBUTION POLICY
GENERAL
In order to qualify as a REIT for federal income tax purposes, among
other things, the Company must make distributions each taxable year (not
including any return of capital for federal income tax purposes) equal to at
least 95% of its real estate investment trust taxable income (90% in 2001 and
thereafter), although the Board of Directors, in its discretion, may increase
that percentage as it deems appropriate. See "Federal Income Tax Considerations
- -- Taxation of the Company -- Distribution Requirements." The declaration of
Distributions is within the discretion of the Board of Directors and depends
upon the Company's distributable funds, current and projected cash requirements,
tax considerations and other factors.
DISTRIBUTIONS
The following table reflects total Distributions and total
Distributions per Share declared by the Company during each month since the
Company commenced operations.
Total Distributions
Month Distributions per Share
- -------------------- -------------- ---------------
August 1999 $ 7,422 $0.025
September 1999 9,038 0.025
October 1999 10,373 0.025
November 1999 11,289 0.025
December 1999 12,282 0.025
January 2000 13,501 0.025
February 2000 14,530 0.025
March 2000 15,562 0.025
April 2000 24,822 0.037
May 2000 40,595 0.058
The Company intends to continue to make regular Distributions to
stockholders. Distributions will be made to those stockholders who are
stockholders as of the record date selected by the Directors. Currently,
Distributions are declared monthly and paid quarterly during the offering
period. In addition, Distributions are expected to be declared monthly and paid
quarterly during any subsequent offering, and declared and paid quarterly
thereafter. However, in the future, the Board of Directors, in its discretion,
may determine to declare Distributions on a daily basis during the offering
period. The Company is required to distribute annually at least 95% of its real
estate investment trust taxable income (90% in 2001 and thereafter) to maintain
its objective of qualifying as a REIT. Generally, income distributed will not be
taxable to the Company under federal income tax laws if the Company complies
with the provisions relating to qualification as a REIT. If the cash available
to the Company is insufficient to pay such Distributions, the Company may obtain
the necessary funds by borrowing, issuing new securities, or selling Assets.
These methods of obtaining funds could affect future Distributions by increasing
operating costs. To the extent that Distributions to stockholders exceed
earnings and profits, such amounts constitute a return capital for federal
income tax purposes, although such Distributions might not reduce stockholders'
aggregate Invested Capital. Distributions in kind shall not be permitted, except
for distributions of readily marketable securities; distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles
of Incorporation; or distributions of in-kind property as long as the Directors
(i) advise each stockholder of the risks associated with direct ownership of the
property; (ii) offer each stockholder the election of receiving in-kind property
distributions; and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
For the period July 13, 1999 (the date operations of the Company
commenced) through December 31, 1999, 100% of the Distributions declared and
paid were considered to be ordinary income for federal income tax purposes. Due
to the fact that the Company had not yet acquired any Properties and was still
in the offering stage as of December 31, 1999, the characterization of
Distributions for federal income tax purposes is not necessarily considered by
management to be representative of the characterization of Distributions in
future periods.
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of Equipment
and borrowers under Mortgage Loans, less expenses paid) and the general
financial condition of the Company, subject to the obligation of the Directors
to cause the Company to qualify and remain qualified as a REIT for federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
The Company is organized as a corporation under the laws of the State
of Maryland. As a Maryland corporation, the Company is governed by the Maryland
General Corporation Law. Maryland corporate law deals with a variety of matters
regarding Maryland corporations, including liabilities of the Company,
stockholders, directors, and officers, the amendment of the Articles of
Incorporation, and mergers of a Maryland corporation with other entities. Since
many matters are not addressed by Maryland corporate law, it is customary for a
Maryland corporation to address these matters through provisions in its Articles
of Incorporation.
The Articles of Incorporation and the Bylaws of the Company contain
certain provisions that could make it more difficult to acquire control of the
Company by means of a tender offer, a proxy contest, or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with its Board of Directors.
The Company believes that these provisions increase the likelihood that
proposals initially will be on more attractive terms than would be the case in
their absence and facilitate negotiations which may result in improvement of the
terms of an initial offer.
The Articles of Incorporation also permit Listing by the Board of
Directors after completion or termination of this offering.
The discussion below sets forth material provisions of governing laws,
instruments and guidelines applicable to the Company. For more complete
provisions, reference is made to the Maryland General Corporation Law, the
guidelines for REITs published by the North American Securities Administrators
Association and the Company's Articles of Incorporation and Bylaws.
DESCRIPTION OF CAPITAL STOCK
General. The Company has authorized a total of 206,000,000 shares of
capital stock, consisting of 100,000,000 shares of Common Stock, $0.01 par value
per share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and
103,000,000 additional shares of excess stock ("Excess Shares"), $0.01 par value
per share. Of the 103,000,000 Excess Shares, 100,000,000 are issuable in
exchange for Common Stock and 3,000,000 are issuable in exchange for Preferred
Stock as described below at "Restriction of Ownership." As of April 20, 2000,
the Company had 690,638 Shares of Common Stock outstanding including 20,000
Shares issued to the Advisor prior to the commencement of the Initial Offering
and 2,319 Shares issued pursuant to the Reinvestment Plan) and no Preferred
Stock or Excess Shares outstanding. The Board of Directors may determine to
engage in future offerings of Common Stock of up to the number of unissued
authorized shares of Common Stock available.
The Company will not issue share certificates except to stockholders
who make a written request to the Company. Each stockholder's investment will be
recorded on the books of the Company, and information concerning the
restrictions and rights attributable to Shares (whether in connection with an
initial issuance or a transfer) will be sent to the stockholder receiving Shares
in connection with an issuance or transfer. A stockholder wishing to transfer
his or her Shares will be required to send only an executed form to the Company,
and the Company will provide the required form upon a stockholder's request. The
executed form and any other required documentation must be received by the
Company at least one calendar month prior to the last day of the current
quarter. Subject to restrictions in the Articles of Incorporation, transfers of
Shares shall be effective, and the transferee of the Shares will be recognized
as the holder of such Shares as of the first day of the following quarter on
which the Company receives properly executed documentation. Stockholders who are
residents of New York may not transfer fewer than 250 shares at any time.
Stockholders have no preemptive rights to purchase or subscribe for
securities that the Company may issue subsequently. Each Share is entitled to
one vote per Share, and Shares do not have cumulative voting rights. The
stockholders are entitled to Distributions in such amounts as may be declared by
the Board of Directors from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of the
Company remaining after payment in full of all creditors.
All of the Shares offered hereby will be fully paid and nonassessable
when issued.
The Articles of Incorporation authorize the Board of Directors to
designate and issue from time to time one or more classes or series of Preferred
Shares without stockholder approval. The Board of Directors may determine the
relative rights, preferences, and privileges of each class or series of
Preferred Stock so issued. The issuance of Preferred Shares shall be approved by
a majority of the Independent Directors who do not have any interest in the
transactions and who have access, at the expense of the Company, to the
Company's or independent legal counsel. Because the Board of Directors has the
power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders of any series or class of Preferred
Stock preferences, powers, and rights senior to the rights of holders of Common
Stock; however, the voting rights for each share of Preferred Stock shall not
exceed voting rights which bear the same relationship to the voting rights of
the Shares as the consideration paid to the Company for each share of Preferred
Stock bears to the book value of the Shares on the date that such Preferred
Stock is issued. The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of the Company. The Board of
Directors has no present plans to issue any Preferred Stock.
Similarly, the voting rights per share of equity securities of the
Company (other than the publicly held equity securities of the Company) sold in
a private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of the publicly held equity securities as the
consideration paid to the Company for each privately offered Company share bears
to the book value of each outstanding publicly held equity security. The Board
of Directors currently has no plans to offer equity securities of the Company in
a private offering.
For a description of the characteristics of the Excess Shares, which
differ from Common Stock and Preferred Stock in a number of respects, including
voting and economic rights, see "--Restriction of Ownership," below.
BOARD OF DIRECTORS
The Articles of Incorporation provide that the number of Directors of
the Company cannot be less than three nor more than 15. A majority of the Board
of Directors will be Independent Directors. See "Management -- Independent
Directors." Each Director, other than a Director elected to fill the unexpired
term of another Director, will be elected at each annual meeting or at any
special meeting of the stockholders called for that purpose, by a majority of
the shares of Common Stock present in person or by proxy and entitled to vote.
Independent Directors will nominate replacements for vacancies among the
Independent Directors. Under the Articles of Incorporation, the term of office
for each Director will be one year, expiring each annual meeting of
stockholders; however, nothing in the Articles of Incorporation prohibits a
director from being reelected by the stockholders. The Directors may not (a)
amend the Articles of Incorporation, except for amendments which do not
adversely affect the rights, preferences and privileges of stockholders; (b)
sell all or substantially all of the Company's assets other than in the ordinary
course of business or in connection with liquidation and dissolution; (c) cause
the merger or other
<PAGE>
reorganization of the Company; or (d) dissolve or liquidate the Company, other
than before the initial investment in property. The Directors may establish such
committees as they deem appropriate (provided that the majority of the members
of each committee are Independent Directors).
STOCKHOLDER MEETINGS
An annual meeting will be held for the purpose of electing Directors
and for the transaction of such other business as may come before the meeting,
and will be held not less than 30 days after delivery of the annual report.
Under the Company's Bylaws, a special meeting of stockholders may be called by
the chief executive officer, a majority of the Directors, or a majority of the
Independent Directors. Special meetings of the stockholders also shall be called
by an officer of the Company upon the written request of stockholders holding in
the aggregate not less than 10% of the outstanding Common Stock entitled to vote
at such meeting. Upon receipt of such a written request, either in person or by
mail, stating the purpose or purposes of the meeting, the Company shall provide
all stockholders, within ten days of receipt of the written request, written
notice, either in person or by mail, of a meeting and its purpose. Such meeting
will be held not less than fifteen nor more than sixty days after distribution
of the notice, at a time and place specified in the request, or if none is
specified, at a time and place convenient to stockholders.
At any meeting of stockholders, each stockholder is entitled to one
vote per share of Common Stock owned of record on the applicable record date. In
general, the presence in person or by proxy of 50% of the shares of Common Stock
then outstanding shall constitute a quorum, and the majority vote of the shares
of Common Stock present in person or by proxy will be binding on all the
stockholders of the Company.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS FOR
DIRECTORS AND PROPOSALS OF NEW BUSINESS
The Bylaws of the Company require notice at least 60 days and not more
than 90 days before the anniversary of the prior annual meeting of stockholders
in order for a stockholder to (a) nominate a Director, or (b) propose new
business other than pursuant to the notice of the meeting or by, or on behalf
of, the Directors. The Bylaws contain a similar notice requirement in connection
with nominations for Directors at a special meeting of stockholders called for
the purpose of electing one or more Directors. Accordingly, failure to comply
with the notice provisions will make stockholders unable to nominate Directors
or propose new business.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
Pursuant to the Company's Articles of Incorporation, the Directors can
amend the Articles of Incorporation by a two-thirds majority from time to time
if necessary in order to qualify initially or in order to continue to qualify as
a REIT. Except as set forth above, the Articles of Incorporation may be amended
only by the affirmative vote of a majority, and, in some cases a two-thirds
majority, of the shares of Common Stock outstanding and entitled to vote. The
stockholders may vote to amend the Articles of Incorporation, terminate or
dissolve the Company or remove one or more Directors without necessity for
concurrence by the Board of Directors.
MERGERS, COMBINATIONS AND SALE OF ASSETS
A merger, combination, sale, or other disposition of all or
substantially all of the Company's assets other than in the ordinary course of
business must be approved by the Directors and a majority of the shares of
Common Stock outstanding and entitled to vote. In addition, any such transaction
involving an Affiliate of the Company or the Advisor also must be approved by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties.
The Maryland Business Combinations Statute provides that certain
business combinations (including mergers, consolidations, share exchanges or, in
certain circumstances, asset transfers or issuances or reclassifications of
equity securities) between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of such corporation's shares
or an affiliate of such corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting shares of such corporation (an
"Interested Stockholder") or an affiliate thereof, are prohibited for five years
after the most recent date on which the Interested Stockholder became an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and (ii) two-thirds of
the votes entitled to be cast by holders of voting shares of such corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
determined by statute) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares.
Section 2.8 of the Articles of Incorporation provides that the
prohibitions and restrictions set forth in the Maryland Business Combinations
Statute are inapplicable to any business combination between the Company and any
person. Consequently, business combinations between the Company and Interested
Stockholders can be effected upon the affirmative vote of a majority of the
outstanding Shares entitled to vote thereon and do not require the approval of a
supermajority of the outstanding Shares held by disinterested stockholders.
CONTROL SHARE ACQUISITIONS
The Maryland Control Share Acquisition Statute provides that control
shares of a Maryland corporation acquired in a control share acquisition have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror,
officers or directors who are employees of the corporation. Control Shares are
shares which, if aggregated with all other shares of the corporation previously
acquired by the acquiror, or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors of such corporation within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more of all voting power.
Control Shares do not include shares the acquiring person is entitled to vote as
a result of having previously obtained stockholder approval. A control share
acquisition means the acquisition of control shares, subject to certain
exceptions.
Section 2.9 of the Articles of Incorporation provides that the Maryland
Control Share Acquisition Statute is inapplicable to any acquisition of
securities of the Company by any person. Consequently, in instances where the
Board of Directors otherwise waives or modifies restrictions relating to the
ownership and transfer of securities of the Company or such restrictions are
otherwise removed, control shares of the Company will have voting rights,
without having to obtain the approval of a supermajority of the outstanding
Shares eligible to vote thereon.
TERMINATION OF THE COMPANY AND REIT STATUS
The Articles of Incorporation provide for the voluntary termination and
dissolution of the Company by the affirmative vote of a majority of the shares
of Common Stock outstanding and entitled to vote at a meeting called for that
purpose. In addition, the Articles of Incorporation permit the stockholders to
terminate the status of the Company as a REIT under the Code only by the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding and entitled to vote.
Under the Articles of Incorporation, the Company automatically will
terminate and dissolve on December 31, 2008, unless Listing occurs, in which
event the Company automatically will become a perpetual life entity.
RESTRICTION OF OWNERSHIP
To qualify as a REIT under the Code (i) not more than 50% of the value
of the REIT's outstanding stock may be owned, directly or indirectly (applying
certain attribution rules), by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year, (ii) the
REIT's stock must be beneficially owned (without reference to any attribution
rules) by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year; and (iii)
certain other requirements must be satisfied. See "Federal Income Tax
Considerations -- Taxation of the Company."
To ensure that the Company satisfies these requirements, the Articles
of Incorporation restrict the direct or indirect ownership (applying certain
attribution rules) of shares of Common Stock and Preferred Stock by any Person
(as defined in the Articles of Incorporation) to no more than 9.8% of the
outstanding shares of such Common Stock or 9.8% of any series of Preferred
Shares (the "Ownership Limit"). However, the Articles of Incorporation provide
that this Ownership Limit may be modified, either entirely or with respect to
one or more Persons, by a vote of a majority of the Directors, if such
modification does not jeopardize the Company's status as a REIT. As a condition
of such modification, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the status of the Company as a REIT.
It is the responsibility of each Person (as defined in the Articles of
Incorporation) owning (or deemed to own) more than 5% of the outstanding shares
of Common Stock or any series of outstanding Preferred Stock to give the Company
written notice of such ownership. In addition, to the extent deemed necessary by
the Directors, the Company can demand that each stockholder disclose to the
Company in writing all information regarding the Beneficial and Constructive
Ownership (as such terms are defined in the Articles of Incorporation) of the
Common Stock and Preferred Stock.
If the ownership, transfer or acquisition of shares of Common or
Preferred Stock, or change in capital structure of the Company or other event or
transaction would result in (i) any Person owning (applying certain attribution
rules) Common Stock or Preferred Stock in excess of the Ownership Limit, (ii)
fewer than 100 Persons owning the Common Stock and Preferred Stock, (iii) the
Company being "closely held" within the meaning of section 856(h) of the Code,
or (iv) the Company failing any of the gross income requirements of section
856(c) of the Code or otherwise failing to qualify as a REIT, then the
ownership, transfer, or acquisition, or change in capital structure or other
event or transaction that would have such effect will be void as to the
purported transferee or owner, and the purported transferee or owner will not
have or acquire any rights to the Common Stock and/or Preferred Stock, as the
case may be, to the extent required to avoid such a result. Common Stock or
Preferred Stock owned, transferred or proposed to be transferred in excess of
the Ownership Limit or which would otherwise jeopardize the Company's status as
a REIT will automatically be converted to Excess Shares. A holder of Excess
Shares is not entitled to Distributions, voting rights, and other benefits with
respect to such shares except for the right to payment of the purchase price for
the shares (or, in the case of a devise or gift or similar event which results
in the issuance of Excess Shares, the fair market value at the time of such
devise or gift or event) and the right to certain distributions upon
liquidation. Any Distribution paid to a proposed transferee or holder of Excess
Shares shall be repaid to the Company upon demand. Excess Shares shall be
subject to repurchase by the Company at its election. The purchase price of any
Excess Shares shall be equal to the lesser of (a) the price paid in such
purported transaction (or, in the case of a devise or gift or similar event
resulting in the issuance of Excess Shares, the fair market value at the time of
such devise or gift or event), or (b) the fair market value of such Shares on
the date on which the Company or its designee determines to exercise its
repurchase right. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the purported transferee of any Excess Shares may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
such Excess Shares and to hold such Excess Shares on behalf of the Company.
For purposes of the Articles of Incorporation, the term "Person" shall
mean an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation within the meaning
of Section 509(a) of the Code, joint stock company or other entity, or a group
as that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended; but does not include (i) CNL Health Care Corp., during
the period ending on December 31, 1998, or (ii) an underwriter which
participated in a public offering of Shares for a period of sixty (60) days
following the purchase by such underwriter of Shares therein, provided that the
foregoing exclusions shall apply only if the ownership of such Shares by CNL
Health Care Corp. or an underwriter would not cause the Company to fail to
qualify as a REIT by reason of being "closely held" within the meaning of
Section 856(a) of the Code or otherwise cause the Company to fail to qualify as
a REIT.
RESPONSIBILITY OF DIRECTORS
Directors serve in a fiduciary capacity and shall have a fiduciary duty
to the stockholders of the Company, which duty shall include a duty to supervise
the relationship of the Company with the Advisor. See "Management -- Fiduciary
Responsibilities of the Board of Directors."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities reasonably incurred by the Indemnitee
in connection with or by reason of any act or omission performed or omitted to
be performed on behalf of the Company while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) the act or omission was material to the loss or liability and
was committed in bad faith or was the result of active or deliberate dishonesty,
(iii) the Indemnitee actually received an improper personal benefit in money,
property, or services, (iv) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful, or (v) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company. In addition,
the Company will not provide indemnification for any loss or liability arising
from an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee and finds that
indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities regulatory authority in which securities of the Company
were offered or sold as to indemnification for violations of securities laws.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer, Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) the Indemnitee provides the Company with
a written agreement to repay the amount paid or reimbursed by the Company,
together with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee did not comply with the requisite standard of
conduct, and (iv) the legal proceeding was initiated by a third party who is not
a stockholder or, if by a stockholder of the Company acting in his or her
capacity as such, a court of competent jurisdiction approves such advancement.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the Company,
and no portion may be recoverable from the stockholders.
There are certain defenses under Maryland law available to the
Directors, officers and the Advisor in the event of a stockholder action against
them. One such defense is the "business judgment rule." A Director, officer or
the Advisor can argue that he or she performed the action giving rise to the
stockholder's action in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company, and with such care as an ordinarily
prudent person in a like position would have used under similar circumstances.
The Directors, officers and the Advisor are also entitled to rely on
information, opinions, reports or records prepared by experts (including
accountants, consultants, counsel, etc.) who were selected with reasonable care.
However, the Directors, officers and the Advisor may not invoke the business
judgment rule to further limit the rights of the stockholders to access records
as provided in the Articles of Incorporation.
The Company has entered into indemnification agreements with each of
the Company's officers and Directors. The indemnification agreements require,
among other things, that the Company indemnify its officers and Directors to the
fullest extent permitted by law, and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. In accordance with these agreements, the
Company must indemnify and advance all expenses reasonably incurred by officers
and Directors seeking to enforce their rights under the indemnification
agreements. The Company also must cover officers and Directors under the
Company's directors' and officers' liability insurance. Although these
indemnification agreements offer substantially the same scope of coverage
afforded by the indemnification provisions in the Articles of Incorporation and
the Bylaws, it provides greater assurance to Directors and officers that
indemnification will be available because these contracts cannot be modified
unilaterally by the Board of Directors or by the stockholders.
<PAGE>
REMOVAL OF DIRECTORS
Under the Articles of Incorporation, a Director may resign or be
removed with or without cause by the affirmative vote of a majority of the
capital stock of the Company outstanding and entitled to vote.
INSPECTION OF BOOKS AND RECORDS
The Advisor will keep, or cause to be kept, on behalf of the Company,
full and true books of account on an accrual basis of accounting, in accordance
with generally accepted accounting principles. All of such books of account,
together with all other records of the Company, including a copy of the Articles
of Incorporation and any amendments thereto, will at all times be maintained at
the principal office of the Company, and will be open to inspection,
examination, and, for a reasonable charge, duplication upon reasonable notice
and during normal business hours by a stockholder or his agent. Stockholders
will also have access to the books of account and records of CNL Health Care
Partners, LP to the same extent that they have access to the books of account
and records of the Company.
As a part of its books and records, the Company will maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses and telephone numbers and the number of Shares held by each
stockholder. Such list shall be updated at least quarterly and shall be
available for inspection at the Company's home office by a stockholder or his or
her designated agent upon such stockholder's request. Such list also shall be
mailed to any stockholder requesting the list within 10 days of a request. The
copy of the stockholder list shall be printed in alphabetical order, on white
paper, and in readily readable type size that is not smaller than 10-point type.
The Company may impose a reasonable charge for expenses incurred in reproducing
such list. The list may not be sold or used for commercial purposes.
If the Advisor or Directors neglect or refuse to exhibit, produce or
mail a copy of the stockholder list as requested, the Advisor and the Directors
shall be liable to any stockholder requesting the list for the costs, including
attorneys' fees, incurred by that stockholder for compelling the production of
the stockholder list. It shall be a defense that the actual purpose and reason
for the requests for inspection or for a copy of the stockholder list is to
secure such list of stockholders or other information for the purpose of selling
such list or copies thereof, or of using the same for a commercial purpose other
than in the interest of the applicant as a stockholder relative to the affairs
of the Company. The Company may require the stockholder requesting the
stockholder list to represent that the list is not requested for a commercial
purpose unrelated to the stockholder's interest in the Company. The remedies
provided by the Articles of Incorporation to stockholders requesting copies of
the stockholder list are in addition to, and do not in any way limit, other
remedies available to stockholders under federal law, or the law of any state.
RESTRICTIONS ON "ROLL-UP" TRANSACTIONS
In connection with a proposed Roll-Up Transaction, which, in general
terms, is any transaction involving the acquisition, merger, conversion, or
consolidation, directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity that would be created or would survive after the
successful completion of the Roll-Up Transaction, an appraisal of all Properties
shall be obtained from an Independent Expert. In order to qualify as an
Independent Expert for this purpose(s), the person or entity shall have no
material current or prior business or personal relationship with the Advisor or
Directors and shall be engaged to a substantial extent in the business of
rendering opinions regarding the value of assets of the type held by the
Company. The Properties shall be appraised on a consistent basis, and the
appraisal shall be based on the evaluation of all relevant information and shall
indicate the value of the Properties as of a date immediately prior to the
announcement of the proposed Roll-Up Transaction. The appraisal shall assume an
orderly liquidation of Properties over a 12-month period. The terms of the
engagement of such Independent Expert shall clearly state that the engagement is
for the benefit of the Company and the stockholders. A summary of the
independent appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to stockholders in connection with a
proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction,
the person sponsoring the Roll-Up Transaction shall offer to stockholders who
vote against the proposal the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
(ii) one of the following:
(A) remaining stockholders of the Company and preserving their
interests therein on the same terms and conditions as existed
previously; or
(B) receiving cash in an amount equal to the stockholder's pro
rata share of the appraised value of the net assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(i) which would result in the stockholders having democracy rights in
the Roll-Up Entity that are less than those provided in the Company's Articles
of Incorporation, Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 and described
elsewhere in this Prospectus, including rights with respect to the election and
removal of Directors, annual reports, annual and special meetings, amendment of
the Articles of Incorporation, and dissolution of the Company. (See
"-- Description of Capital Stock" and "-- Stockholder Meetings," above);
(ii) which includes provisions that would operate as a material
impediment to, or frustration of, the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity), or which would limit the ability
of an investor to exercise the voting rights of its securities of the Roll-Up
Entity on the basis of the number of shares held by that investor;
(iii) in which investor's rights to access of records of the Roll-Up
Entity will be less than those provided in Sections 8.5 and 8.6 of the Company's
Articles of Incorporation and described in "-- Inspection of Books and Records,"
above; or
(iv) in which any of the costs of the Roll-Up Transaction would be
borne by the Company if the Roll-Up Transaction is not approved by the
stockholders.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax
consequences of the ownership of Shares of the Company, prepared by Shaw
Pittman, as Counsel. This discussion is based upon the laws, regulations, and
reported judicial and administrative rulings and decisions in effect as of the
date of this Prospectus, all of which are subject to change, retroactively or
prospectively, and to possibly differing interpretations. This discussion does
not purport to deal with the federal income or other tax consequences applicable
to all investors in light of their particular investment or other circumstances,
or to all categories of investors, some of whom may be subject to special rules
(including, for example, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States). No ruling on the federal, state
or local tax considerations relevant to the operation of the Company, or to the
purchase, ownership or disposition of the Shares, has been requested from the
Internal Revenue Service (the "IRS" or the "Service") or other tax authority.
Counsel has rendered certain opinions discussed herein and believes that if the
Service were to challenge the conclusions of Counsel, such conclusions should
prevail in court. However, opinions of counsel are not binding on the Service or
on the courts, and no assurance can be given that the conclusions reached by
Counsel would be sustained in court. Prospective investors should consult their
own tax advisors in determining the federal, state, local, foreign and other tax
consequences to them of the purchase, ownership and disposition of the Shares of
the Company, the tax treatment of a REIT and the effect of potential changes in
applicable tax laws.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT for federal
income tax purposes, as defined in Sections 856 through 860 of the Code,
commencing with its taxable year ending December 31, 1999. The Company believes
that it is organized and will operate in such a manner as to qualify as a REIT,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT. The provisions of the Code pertaining to REITs are
highly technical and complex. Accordingly, this summary is qualified in its
entirety by the applicable Code sections, rules and regulations issued
thereunder, and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on its net income that is currently
distributed to holders of Shares. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from an investment in a corporation. However, the Company will be
subject to federal income tax in the following circumstances. First, the Company
will be taxed at regular corporate rates on any undistributed real estate
investment trust taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
alternative minimum tax on its items of tax preference. Third, if the Company
has net income from foreclosure property, it will be subject to tax on such
income at the highest corporate rate. Foreclosure property generally means real
property (and any personal property incident to such real property) which is
acquired as a result of a default either on a lease of such property or on
indebtedness which such property secured and with respect to which an
appropriate election is made. Fourth, if the Company has net income derived from
prohibited transactions, such income will be subject to a 100% tax. A prohibited
transaction generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to customers in the
ordinary course of business. Fifth, if the Company should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test. Sixth, if, during each calendar year, the Company fails to distribute
at least the sum of (i) 85% of its real estate investment trust ordinary income
for such year; (ii) 95% of its real estate investment trust capital gain net
income for such year; and (iii) any undistributed taxable income from prior
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if the
Company acquires any asset from a C corporation (i.e. a corporation generally
subject to full corporate level tax) in a transaction in which the basis of the
asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by the Company, then, to
the extent of such property's "built-in gain" (the excess of the fair market
value of such property at the time of acquisition by the Company over the
adjusted basis in the property at such time), such gain will be subject to tax
at the highest regular corporate rate applicable (as provided in temporary
regulations issued by the United States Department of Treasury under the Code
("Temporary Regulations")). (The results described above with respect to the
recognition of "built-in gain" assume that the Company will make an election
pursuant to the Temporary Regulations or IRS Notice 88-19.)
If the Company fails to qualify as a REIT for any taxable year and
certain relief provisions do not apply, the Company will be subject to federal
income tax (including alternative minimum tax) as an ordinary corporation on its
taxable income at regular corporate rates without any deduction or adjustment
for distributions to holders of Shares. To the extent that the Company would, as
a consequence, be subject to tax liability for any such taxable year, the amount
of cash available for satisfaction of its liabilities and for distribution to
holders of Shares would be reduced. Distributions made to holders of Shares
generally would be taxable as ordinary income to the extent of current and
accumulated earnings and profits and, subject to certain limitations, would be
eligible for the corporate dividends received deduction, but there can be no
assurance that any such Distributions would be made. The Company would not be
eligible to elect REIT status for the four taxable years after the taxable year
during which it failed to qualify as a REIT, unless its failure to qualify was
due to reasonable cause and not willful neglect and certain other requirements
were satisfied.
Opinion of Counsel. Based upon representations made by officers of the
Company with respect to relevant factual matters, upon the existing Code
provisions, rules and regulations promulgated thereunder (including proposed
regulations) and reported administrative and judicial interpretations thereof,
upon Counsel's independent review of such documents as Counsel deemed relevant
in the circumstances and upon the assumption that the Company will operate in
the manner described in this Prospectus, Counsel has advised the Company that,
in its opinion, the Company qualified as a REIT under the Code for the taxable
year ending December 31, 1999, the Company is organized in conformity with the
requirements for qualification as a REIT, and the Company's proposed method of
operation will enable it to continue to meet the requirements for qualification
as a REIT. It must be emphasized, however, that the Company's ability to qualify
and remain qualified as a REIT is dependent upon actual operating results and
future actions by and events involving the Company and others, and no assurance
can be given that the actual results of the Company's operations and future
actions and events will enable the Company to satisfy in any given year the
requirements for qualification and taxation as a REIT.
Requirements for Qualification as a REIT. As discussed more fully
below, the Code defines a REIT as a corporation, trust or association (i) which
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which, but for Sections 856 through 860 of the Code,
would be taxable as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company; (v) the beneficial ownership of which is
held (without reference to any rules of attribution) by 100 or more persons;
(vi) which is not closely held as defined in section 856(h) of the Code; and
(vii) which meets certain other tests regarding the nature of its assets and
income and the amount of its distributions.
In the case of a REIT which is a partner in a partnership, regulations
promulgated by the United States Department of Treasury under the Code
("Treasury Regulations") provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income (as defined in the Code) of the
partnership attributed to the REIT shall retain the same character as in the
hands of the partnership for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests described below. Thus, the
Company's proportionate share of the assets, liabilities and items of income of
Health Care Partners and of any Joint Venture, as described in "Business --
Joint Venture Arrangements," will be treated as assets, liabilities and items of
income of the Company for purposes of applying the asset and gross income tests
described herein.
Ownership Tests. The ownership requirements for qualification as a REIT
are that (i) during the last half of each taxable year not more than 50% in
value of the REIT's outstanding shares may be owned, directly or indirectly
(applying certain attribution rules), by five or fewer individuals (or certain
entities as defined in the Code) and (ii) there must be at least 100
stockholders (without reference to any attribution rules) on at least 335 days
of such 12-month taxable year (or a proportionate number of days of a short
taxable year). These two requirements do not apply to the first taxable year for
which an election is made to be treated as a REIT. In order to meet these
requirements for subsequent taxable years, or to otherwise obtain, maintain, or
reestablish REIT status, the Articles of Incorporation generally prohibit any
person or entity from actually, constructively or beneficially acquiring or
owning (applying certain attribution rules) more than 9.8% of the outstanding
Common Stock or 9.8% of any series of outstanding Preferred Stock. Among other
provisions, the Articles of Incorporation empower the Board of Directors to
redeem, at its option, a sufficient number of Shares to bring the ownership of
Shares of the Company in conformity with these requirements or to assure
continued conformity with such requirements.
Under the Articles of Incorporation, each holder of Shares is required,
upon demand, to disclose to the Board of Directors in writing such information
with respect to actual, constructive or beneficial ownership of Shares of the
Company as the Board of Directors deems necessary to comply with provisions of
the Code applicable to the Company or the provisions of the Articles of
Incorporation, or the requirements of any other appropriate taxing authority.
Certain Treasury regulations govern the method by which the Company is required
to demonstrate compliance with these stock ownership requirements and the
failure to satisfy such regulations could cause the Company to fail to qualify
as a REIT. The Company has represented that it expects to meet these stock
ownership requirements for each taxable year and it will be able to demonstrate
its compliance with these requirements.
Asset Tests. At the end of each quarter of a REIT's taxable year, at
least 75% of the value of its total assets must consist of "real estate assets,"
cash and cash items (including receivables) and certain government securities.
The balance of a REIT's assets generally may be invested without restriction,
except that holdings of securities not within the 75% class of assets generally
must not, with respect to any issuer, exceed 5% of the value of the REIT's
assets or 10% of the issuer's outstanding voting securities. The term "real
estate assets" includes real property, interests in real property, leaseholds of
land or improvements thereon, and mortgages on the foregoing and any property
attributable to the temporary investment of new capital (but only if such
property is stock or a debt instrument and only for the one-year period
beginning on the date the REIT receives such capital). When a mortgage is
secured by both real property and other property, it is considered to constitute
a mortgage on real property to the extent of the fair market value of the real
property when the REIT is committed to make the loan (or, in the case of a
construction loan, the reasonably estimated cost of construction).
Initially, the bulk of the Company's assets will be real property.
However, the Company will also hold the Secured Equipment Leases. Counsel is of
the opinion, based on certain assumptions, that the Secured Equipment Leases
will be treated as loans secured by personal property for federal income tax
purposes. See "Federal Income Tax Considerations -- Characterization of Secured
Equipment Leases." Therefore, the Secured Equipment Leases will not qualify as
"real estate assets." However, the Company has represented that at the end of
each quarter the value of the Secured Equipment Leases, together with any
personal property owned by the Company, will in the aggregate represent less
than 25% of the Company's total assets and that the value of the Secured
Equipment Leases entered into with any particular tenant will represent less
than 5% of the Company's total assets. No independent appraisals will be
acquired to support this representation, and Counsel, in rendering its opinion
as to the qualification of the Company as a REIT, is relying on the conclusions
of the Company and its senior management as to the relative values of its
assets. There can be no assurance however, that the IRS may not contend that
either (i) the value of the Secured Equipment Leases entered into with any
particular tenant represents more than 5% of the Company's total assets, or (ii)
the value of the Secured Equipment Leases, together with any personal property
owned by the Company, exceeds 25% of the Company's total assets.
As indicated in "Business -- Joint Venture Arrangements," the Company
may participate in Joint Ventures. If a Joint Venture were classified, for
federal income tax purposes, as an association taxable as a corporation rather
than as a partnership, the Company's ownership of a 10% or greater interest in
the Joint Venture would cause the Company to fail to meet the requirement that
it not own 10% or more of an issuer's voting securities. However, Counsel is of
the opinion, based on certain assumptions, that any Joint Ventures will
constitute partnerships for federal income tax purposes. See "Federal Income Tax
Considerations -- Investment in Joint Ventures."
Income Tests. A REIT also must meet two separate tests with respect to
its sources of gross income for each taxable year.
(a) The 75 Percent and 95 Percent Tests. In general, at least 75% of a
REIT's gross income for each taxable year must be from "rents from real
property," interest on obligations secured by mortgages on real property, gains
from the sale or other disposition of real property and certain other sources,
including "qualified temporary investment income." For these purposes,
"qualified temporary investment income" means any income (i) attributable to a
stock or debt instrument purchased with the proceeds received by the REIT in
exchange for stock (or certificates of beneficial interest) in such REIT (other
than amounts received pursuant to a distribution reinvestment plan) or in a
public offering of debt obligations with a maturity of at least five years and
(ii) received or accrued during the one-year period beginning on the date the
REIT receives such capital. In addition, a REIT must derive at least 95% of its
gross income for each taxable year from any combination of the items of income
which qualify under the 75% test, from dividends and interest, and from gains
from the sale, exchange or other disposition of certain stock and securities.
Initially, the bulk of the Company's income will be derived from rents
with respect to the Properties. Rents from Properties received by the Company
qualify as "rents from real property" in satisfying these two tests only if
several conditions are met. First, the rent must not be based in whole or in
part, directly or indirectly, on the income or profits of any person. However,
an amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed percentage
or percentages of receipts or sales. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" if the
REIT, or a direct or indirect owner of 10% or more of the REIT owns, directly or
constructively, 10% or more of such tenant (a "Related Party Tenant"). Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, for rents to qualify as "rents from real
property," a REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue, except that a REIT
may directly perform services which are "usually or customarily rendered" in
connection with the rental of space for occupancy, other than services which are
considered to be rendered to the occupant of the property. However, a REIT is
currently permitted to earn up to one percent of its gross income from tenants,
determined on a property-by-property basis, by furnishing services that are
noncustomary or provided directly to the tenants, without causing the rental
income to fail to qualify as rents from real property.
The Company has represented with respect to its leasing of the
Properties that it will not (i) charge rent for any Property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage or percentages of receipts or sales, as described
above); (ii) charge rent that will be attributable to personal property in an
amount greater than 15% of the total rent received under the applicable lease;
(iii) directly perform services considered to be rendered to the occupant of a
Property or which are not usually or customarily furnished or rendered in
connection with the rental of real property; or (iv) enter into any lease with a
Related Party Tenant. Specifically, the Company expects that virtually all of
its income will be derived from leases of the type described in "Business --
Description of Property Leases," and it does not expect such leases to generate
income that would not qualify as rents from real property for purposes of the
75% and 95% income tests.
In addition, the Company will be paid interest on the Mortgage Loans.
All interest income qualifies under the 95% gross income test. If a Mortgage
Loan is secured by both real property and other property, all the interest on it
will nevertheless qualify under the 75% gross income test if the amount of the
loan did not exceed the fair market value of the real property at the time of
the loan commitment. The Company has represented that this will always be the
case. Therefore, in the opinion of Counsel, income generated through the
Company's investments in Mortgage Loans will be treated as qualifying income
under the 75% gross income test.
The Company will also receive payments under the terms of the Secured
Equipment Leases. Although the Secured Equipment Leases will be structured as
leases or loans, Counsel is of the opinion that, subject to certain assumptions,
they will be treated as loans secured by personal property for federal income
tax purposes. See "Federal Income Tax Considerations -- Characterization of
Secured Equipment Leases." If the Secured Equipment Leases are treated as loans
secured by personal property for federal income tax purposes, then the portion
of the payments under the terms of the Secured Equipment Leases that represent
interest, rather than a return of capital for federal income tax purposes, will
not satisfy the 75% gross income test (although it will satisfy the 95% gross
income test). The Company believes, however, that the aggregate amount of such
non-qualifying income will not cause the Company to exceed the limits on
non-qualifying income under the 75% gross income test.
If, contrary to the opinion of Counsel, the Secured Equipment Leases
are treated as true leases, rather than as loans secured by personal property
for federal income tax purposes, the payments under the terms of the Secured
Equipment Leases would be treated as rents from personal property. Rents from
personal property will satisfy either the 75% or 95% gross income tests if they
are received in connection with a lease of real property and the rent
attributable to the personal property does not exceed 15% of the total rent
received from the tenant in connection with the lease. However, if rents
attributable to personal property exceed 15% of the total rent received from a
particular tenant, then the portion of the total rent attributable to personal
property will not satisfy either the 75% or 95% gross income tests.
If, notwithstanding the above, the Company fails to satisfy one or both
of the 75% or 95% tests for any taxable year, it may still qualify as a REIT if
(i) such failure is due to reasonable cause and not willful neglect; (ii) it
reports the nature and amount of each item of its income on a schedule attached
to its tax return for such year; and (iii) the reporting of any incorrect
information is not due to fraud with intent to evade tax. However, even if these
three requirements are met and the Company is not disqualified as a REIT, a
penalty tax would be imposed by reference to the amount by which the Company
failed the 75% or 95% test (whichever amount is greater).
(b) The Impact of Default Under the Secured Equipment Leases. In
applying the gross income tests to the Company, it is necessary to consider the
impact that a default under one or more of the Secured Equipment Leases would
have on the Company's ability to satisfy such tests. A default under one or more
of the Secured Equipment Leases would result in the Company directly holding the
Equipment securing such leases for federal income tax purposes. In the event of
a default, the Company may choose either to lease or sell such Equipment.
However, any income resulting from a rental or sale of Equipment not
incidental to the rental or sale of real property would not qualify under the
75% and 95% gross income tests. In addition, in certain circumstances, income
derived from a sale or other disposition of Equipment could be considered "net
income from prohibited transactions," subject to a 100% tax. The Company does
not, however, anticipate that its income from the rental or sale of Equipment
would be material in any taxable year.
Distribution Requirements. A REIT must distribute to its stockholders
for each taxable year ordinary income dividends in an amount equal to at least
(a) 95% (90% in 2001 and thereafter) of the sum of (i) its "real estate
investment trust taxable income" (before deduction of dividends paid and
excluding any net capital gains) and (ii) the excess of net income from
foreclosure property over the tax on such income, minus (b) certain excess
non-cash income. Real estate investment trust taxable income generally is the
taxable income of a REIT computed as if it were an ordinary corporation, with
certain adjustments. Distributions must be made in the taxable year to which
they relate or, if declared before the timely filing of the REIT's tax return
for such year and paid not later than the first regular dividend payment after
such declaration, in the following taxable year.
The Company has represented that it intends to make Distributions to
stockholders that will be sufficient to meet the 95% distribution requirement
(90% in 2001 and thereafter). Under some circumstances, however, it is possible
that the Company may not have sufficient funds from its operations to make cash
Distributions to satisfy the 95% distribution requirement. For example, in the
event of the default or financial failure of one or more tenants or lessees, the
Company might be required to continue to accrue rent for some period of time
under federal income tax principles even though the Company would not currently
be receiving the corresponding amounts of cash. Similarly, under federal income
tax principles, the Company might not be entitled to deduct certain expenses at
the time those expenses are incurred. In either case, the Company's cash
available for making Distributions might not be sufficient to satisfy the 95%
distribution requirement. If the cash available to the Company is insufficient,
the Company might raise cash in order to make the Distributions by borrowing
funds, issuing new securities or selling assets. If the Company ultimately were
unable to satisfy the 95% distribution requirement, it would fail to qualify as
a REIT and, as a result, would be subject to federal income tax as an ordinary
corporation without any deduction or adjustment for dividends paid to holders of
the Shares. If the Company fails to satisfy the 95% distribution requirement, as
a result of an adjustment to its tax returns by the Service, under certain
circumstances, it may be able to rectify its failure by paying a "deficiency
dividend" (plus a penalty and interest) within 90 days after such adjustment.
This deficiency dividend will be included in the Company's deductions for
Distributions paid for the taxable year affected by such adjustment. However,
the deduction for a deficiency dividend will be denied if any part of the
adjustment resulting in the deficiency is attributable to fraud with intent to
evade tax or to willful failure to timely file an income tax return.
New Tax Legislation. On December 17, 1999, President Clinton signed the
Work Incentives Improvement Act of 1999. This law includes several provisions
that pertain to REITs, two of which will affect the Company. First, the
distribution requirement, discussed in "-- Distribution Requirements" above,
will be reduced so that the Company will be required to distribute dividends
equal to 90% (rather than 95%) of its net taxable income. Second, another
provision will change the method for measuring whether a lease violates the
restriction that rent attributable to personal property leased in connection
with a lease of real property is no more than 15 percent of the total rent
received under the lease. Under current law, the percentage is determined by
reference to the adjusted tax bases of the real property and the personal
property; under the recently passed law, the percentage will be determined by
reference to their respective fair market values. These provisions will be
effective beginning in 2001.
TAXATION OF STOCKHOLDERS
Taxable Domestic Stockholders. For any taxable year in which the
Company qualifies as a REIT for federal income tax purposes, Distributions made
by the Company to its stockholders that are United States persons (generally,
any person other than a nonresident alien individual, a foreign trust or estate
or a foreign partnership or corporation) generally will be taxed as ordinary
income. Amounts received by such United States persons that are properly
designated as capital gain dividends by the Company generally will be taxed as
long-term capital gain, without regard to the period for which such person has
held its Shares, to the extent that they do not exceed the Company's actual net
capital gain for the taxable year. Corporate stockholders may be required to
treat up to 20% of certain capital gains dividends as ordinary income. Such
ordinary income and capital gain are not eligible for the dividends received
deduction allowed to corporations. In addition, the Company may elect to retain
and pay income tax on its long-term capital gains. If the Company so elects,
each stockholder will take into income the stockholder's share of the retained
capital gain as long-term capital gain and will receive a credit or refund for
that stockholder's share of the tax paid by the Company. The stockholder will
increase the basis of such stockholder's share by an amount equal to the excess
of the retained capital gain included in the stockholder's income over the tax
deemed paid by such stockholder. Distributions to such United States persons in
excess of the Company's current or accumulated earnings and profits will be
considered first a tax-free return of capital for federal income tax purposes,
reducing the tax basis of each stockholder's Shares, and then, to the extent the
Distribution exceeds each stockholder's basis, a gain realized from the sale of
Shares. The Company will notify each stockholder as to the portions of each
Distribution which, in its judgment, constitute ordinary income, capital gain or
return of capital for federal income tax purposes. Any Distribution that is (i)
declared by the Company in October, November or December of any calendar year
and payable to stockholders of record on a specified date in such months and
(ii) actually paid by the Company in January of the following year, shall be
deemed to have been received by each stockholder on December 31 of such calendar
year and, as a result, will be includable in gross income of the stockholder for
the taxable year which includes such December 31. Stockholders who elect to
participate in the Reinvestment Plan will be treated as if they received a cash
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. Stockholders may not deduct on their income tax
returns any net operating or net capital losses of the Company.
Upon the sale or other disposition of the Company's Shares, a
stockholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale or other disposition and the
adjusted basis of the Shares involved in the transaction. Such gain or loss will
be a long-term capital gain or loss if, at the time of sale or other
disposition, the Shares involved have been held for more than one year. In
addition, if a stockholder receives a capital gain dividend with respect to
Shares which he has held for six months or less at the time of sale or other
disposition, any loss recognized by the stockholder will be treated as long-term
capital loss to the extent of the amount of the capital gain dividend that was
treated as long-term capital gain.
Generally, the redemption of Shares by the Company will result in
recognition of ordinary income by the stockholder unless the stockholder
completely terminates or substantially reduces his or her interest in the
Company. A redemption of Shares for cash will be treated as a distribution that
is taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits at the time of the redemption under Section 302 of the Code
unless the redemption (a) results in a "complete termination" of the
stockholder's interest in the Company under Section 302(b)(3) of the Code, (b)
is "substantially disproportionate" with respect to the stockholder under
Section 302(b)(2) of the Code, or (c) is "not essentially equivalent to a
dividend" with respect to the stockholder under Section 302(b)(1) of the Code.
Under Code Section 302(b)(2) a redemption is considered "substantially
disproportionate" if the percentage of the voting stock of the corporation owned
by a stockholder immediately after the redemption is less than eighty percent of
the percentage of the voting stock of the corporation owned by such stockholder
immediately before the redemption. In determining whether the redemption is not
treated as a dividend, Shares considered to be owned by a stockholder by reason
of certain constructive ownership rules set forth in Section 318 of the Code, as
well as Shares actually owned, must generally be taken into account. A
distribution to a stockholder will be "not essentially equivalent to a dividend"
if it results in a "meaningful reduction" in the stockholder's interest in the
Company. The Service has published a ruling indicating that a redemption which
results in a reduction in the proportionate interest in a corporation (taking
into account Section 318 constructive ownership rules) of a stockholder whose
relative stock interest is minimal (an interest of less than 1% should satisfy
this requirement) and who exercises no control over the corporation's affairs
should be treated as being "not essentially equivalent to a dividend."
If the redemption is not treated as a dividend, the redemption of the
Shares for cash will result in taxable gain or loss equal to the difference
between the amount of cash received and the stockholder's tax basis in the
Shares redeemed. Such gain or loss would be capital gain or loss if the Shares
were held as a capital asset and would be long-term capital gain or loss if the
holding period for the Shares exceeds one year.
The Company will report to its U.S. stockholders and the Service the
amount of dividends paid or treated as paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with a correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid to the Service as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain dividends to any stockholders who fail to certify their non-foreign
status to the Company. See "-- Foreign Stockholders" below.
The state and local income tax treatment of the Company and its
stockholders may not conform to the federal income tax treatment described
above. As a result, stockholders should consult their own tax advisors for an
explanation of how other state and local tax laws would affect their investment
in Shares.
Tax-Exempt Stockholders. Dividends paid by the Company to a stockholder
that is a tax-exempt entity generally will not constitute "unrelated business
taxable income" ("UBTI") as defined in Section 512(a) of the Code, provided that
the tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of Section 514(c) of the Code and
the Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
Notwithstanding the foregoing, qualified trusts that hold more than 10%
(by value) of the shares of certain REITs may be required to treat a certain
percentage of such REIT's distributions as UBTI. This requirement will apply
only if (i) treating qualified trusts holding REIT shares as individuals would
result in a determination that the REIT is "closely held" within the meaning of
Section 856(h)(1) of the Code and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is predominantly held if either (i) a single qualified
trust holds more than 25% by value of the REIT interests or (ii) one or more
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The restrictions on ownership of Shares in the
Articles of Incorporation will prevent application
<PAGE>
of the provisions treating a portion of REIT distributions as UBTI to tax-exempt
entities purchasing Shares in the Company, absent a waiver of the restrictions
by the Board of Directors. See "Summary of the Articles of Incorporation and
Bylaws -- Restriction of Ownership."
Assuming that there is no waiver of the restrictions on ownership of
Shares in the Articles of Incorporation and that a tax-exempt stockholder does
not finance the acquisition of its Shares with "acquisition indebtedness" within
the meaning of Section 514(c) of the Code or otherwise use its Shares in an
unrelated trade or business, in the opinion of Counsel, the distributions of the
Company with respect to such tax-exempt stockholder will not constitute UBTI.
The tax discussion of distributions by qualified retirement plans,
IRAs, Keogh plans and other tax-exempt entities is beyond the scope of this
discussion, and such entities should consult their own tax advisors regarding
such questions.
Foreign Stockholders. The rules governing United States federal income
taxation of nonresident alien individuals, foreign corporations, foreign
participants and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. The following discussion assumes that the income
from investment in the Shares will not be effectively connected with the
Non-U.S. Stockholders' conduct of a United States trade or business. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local laws with regard to an investment in
Shares, including any reporting requirements. Non-U.S. Stockholders will be
admitted as stockholders with the approval of the Advisor.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current and accumulated earnings
and profits of the Company. Such dividends ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the dividend, unless an
applicable tax treaty reduces or eliminates that tax. A number of U.S. tax
treaties that reduce the rate of withholding tax on corporate dividends do not
reduce, or reduce to a lesser extent, the rate of withholding applied to
distributions from a REIT. The Company expects to withhold U.S. income tax at
the rate of 30% on the gross amount of any such distributions paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies (and, with regard to payments
on or after January 1, 1999, the Non-U.S. Stockholder files IRS Form W-8 with
the Company and, if the Shares are not traded on an established securities
market, acquires a taxpayer identification number from the IRS) or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 (or, with respect to payments on or
after January 1, 1999, files IRS Form W-8 with the Company) with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of the Company's current and accumulated earnings and profits will not be
taxable to a stockholder to the extent that such distributions paid do not
exceed the adjusted basis of the stockholder's Shares, but rather will reduce
the adjusted basis of such Shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Stockholders' Shares, such distributions will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of the Shares, as described below. If it
cannot be determined at the time a distribution is paid whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distributions will be subject to withholding at the rate of 30%. However, a
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of the
Company's current and accumulated earnings and profits. Beginning with payments
made on or after January 1, 1999, the Company will be permitted, but not
required, to make reasonable estimates of the extent to which distributions
exceed current or accumulated earnings and profits. Such distributions will
generally be subject to a 10% withholding tax, which may be refunded to the
extent they exceed the stockholder's actual U.S. tax liability, provided the
required information is furnished to the IRS.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales
of United States real property interests are taxed to a Non-U.S. Stockholder as
if such gain were effectively connected with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not
<PAGE>
entitled to treaty exemption or rate reduction. The Company is required by
applicable Treasury Regulations to withhold 35% of any distribution that could
be designated by the Company as a capital gain dividend. This amount is
creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and in such case the sale of Shares
would not be subject to taxation under FIRPTA. However, gain not subject to
FIRPTA nonetheless will be taxable to a Non-U.S. Stockholder if (i) investment
in the Shares is treated as "effectively connected" with the Non-U.S.
Stockholders' U.S. trade or business, or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and certain other conditions are met.
Effectively connected gain realized by a foreign corporate shareholder may be
subject to an additional 30% branch profits tax, subject to possible exemption
or rate reduction under an applicable tax treaty. If the gain on the sale of
Shares were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as U.S. Stockholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and the purchaser of
the Shares would be required to withhold and remit to the Service 10% of the
purchase price.
STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state and local
taxes in various states and localities in which it or they transact business,
own property, or reside. The tax treatment of the Company and the stockholders
in such jurisdictions may differ from the federal income tax treatment described
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws upon an investment in
the Common Stock of the Company.
CHARACTERIZATION OF PROPERTY LEASES
The Company will purchase both new and existing Properties and lease
them to operators of Health Care Facilities pursuant to leases of the type
described in "Business -- Description of Property Leases." The ability of the
Company to claim certain tax benefits associated with ownership of the
Properties, such as depreciation, depends on a determination that the lease
transactions engaged in by the Company are true leases, under which the Company
is the owner of the leased Property for federal income tax purposes, rather than
a conditional sale of the Property or a financing transaction. A determination
by the Service that the Company is not the owner of the Properties for federal
income tax purposes may have adverse consequences to the Company, such as the
denying of the Company's depreciation deductions. Moreover, a denial of the
Company's depreciation deductions could result in a determination that the
Company's Distributions to stockholders were insufficient to satisfy the 95%
distribution requirement (90% in 2001 and thereafter) for qualification as a
REIT. However, as discussed above, if the Company has sufficient cash, it may be
able to remedy any past failure to satisfy the distribution requirements by
paying a "deficiency dividend" (plus a penalty and interest). See "-- Taxation
of the Company -- Distribution Requirements," above. Furthermore, in the event
that the Company was determined not to be the owner of a particular Property, in
the opinion of Counsel the income that the Company would receive pursuant to the
recharacterized lease would constitute interest qualifying under the 95% and 75%
gross income tests by reason of being interest on an obligation secured by a
mortgage on an interest in real property, because the legal ownership structure
of such Property will have the effect of making the building serve as collateral
for the debt obligation.
The characterization of transactions as leases, conditional sales, or
financings has been addressed in numerous cases. The courts have not identified
any one factor as being determinative of whether the lessor or the lessee of the
property is to be treated as the owner. Judicial decisions and pronouncements of
the Service with respect to the characterization of transactions as either
leases, conditional sales, or financing transactions have made it clear that the
characterization of leases for tax purposes is a question which must be decided
on the basis of a weighing of many factors, and courts have reached different
conclusions even where characteristics of two lease transactions were
substantially similar.
While certain characteristics of the leases anticipated to be entered
into by the Company suggest the Company might not be the owner of the
Properties, such as the fact that such leases are "triple-net" leases, a
substantial number of other characteristics indicate the bona fide nature of
such leases and that the Company will be the owner of the Properties. For
example, under the types of leases described in "Business -- Description of
Property Leases," the Company will bear the risk of substantial loss in the
value of the Properties, since the Company will acquire its interests in the
Properties with an equity investment, rather than with nonrecourse indebtedness.
Further, the Company, rather than the tenant, will benefit from any appreciation
in the Properties, since the Company will have the right at any time to sell or
transfer its Properties, subject to the tenant's right to purchase the property
at a price not less than the Property's fair market value (determined by
appraisal or otherwise).
Other factors that are consistent with the ownership of the Properties
by the Company are (i) the tenants are liable for repairs and to return the
Properties in reasonably good condition; (ii) insurance proceeds generally are
to be used to restore the Properties and, to the extent not so used, belong to
the Company; (iii) the tenants agree to subordinate their interests in the
Properties to the lien of any first mortgage upon delivery of a nondisturbance
agreement and agree to attorn to the purchaser upon any foreclosure sale; and
(iv) based on the Company's representation that the Properties can reasonably be
expected to have at the end of their lease terms (generally a maximum of 30 to
40 years) a fair market value of at least 20% of the Company's cost and a
remaining useful life of at least 20% of their useful lives at the beginning of
the leases, the Company has not relinquished the Properties to the tenants for
their entire useful lives, but has retained a significant residual interest in
them. Moreover, the Company will not be primarily dependent upon tax benefits in
order to realize a reasonable return on its investments.
Concerning the Properties for which the Company owns the buildings and
the underlying land, on the basis of the foregoing, assuming (i) the Company
leases the Properties on substantially the same terms and conditions described
in "Business -- Description of Property Leases," and (ii) as is represented by
the Company, the residual value of the Properties remaining after the end of
their lease terms (including all renewal periods) may reasonably be expected to
be at least 20% of the Company's cost of such Properties, and the remaining
useful lives of the Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the
Properties' useful lives at the beginning of their lease terms, it is the
opinion of Counsel that the Company will be treated as the owner of the
Properties for federal income tax purposes and will be entitled to claim
depreciation and other tax benefits associated with such ownership. In the case
of Properties for which the Company does not own the underlying land, Counsel
cannot opine that such transactions will be characterized as leases.
CHARACTERIZATION OF SECURED EQUIPMENT LEASES
The Company will purchase Equipment and lease it to operators of Health
Care Facilities pursuant to leases of the type described in "Business --
General." The ability of the Company to qualify as a REIT depends on a
determination that the Secured Equipment Leases are financing arrangements,
under which the lessees acquire ownership of the Equipment for federal income
tax purposes. If the Secured Equipment Leases are instead treated as true
leases, the Company may be unable to satisfy the income tests for REIT
qualification. See "-- Taxation of the Company -- Income Tests."
While certain characteristics of the Secured Equipment Leases to be
entered into by the Company suggest that the Company retains ownership of the
Equipment, such as the fact that certain of the Secured Equipment Leases are
structured as leases, with the Company retaining title to the Equipment, a
substantial number of other characteristics indicate that the Secured Equipment
Leases are financing arrangements and that the lessees are the owners of the
Equipment for federal income tax purposes. For example, under the types of
Secured Equipment Leases described in "Business -- General," the lease term will
equal or exceed the useful life of the Equipment, and the lessee will have the
option to purchase the Equipment at the end of the lease term for a nominal sum.
Moreover, under the terms of the Secured Equipment Leases, the Company and the
lessees will each agree to treat the Secured Equipment Leases as loans secured
by personal property, rather than leases, for tax purposes.
On the basis of the foregoing, assuming (i) the Secured Equipment
Leases are made on substantially the same terms and conditions described in
"Business -- General," and (ii) as represented by the Company, each of the
Secured Equipment Leases will have a term that equals or exceeds the useful life
of the Equipment subject to the lease, it is the opinion of Counsel that the
Company will not be treated as the owner of the Equipment that is subject to the
Secured Equipment Leases for federal income tax purposes and that the Company
will be able to treat the Secured Equipment Leases as loans secured by personal
property. Counsel's opinion that the Company will be organized in conformity
with the requirements for qualification as a REIT is based, in part, on the
assumption that each of the Secured Equipment Leases will conform to the
conditions outlined in clauses (i) and (ii) of the preceding sentence.
<PAGE>
INVESTMENT IN JOINT VENTURES
As indicated in "Business -- Joint Venture Arrangements," the Company
may participate in Joint Ventures which own and lease Properties. Assuming that
the Joint Ventures have the characteristics described in "Business -- Joint
Venture Arrangements," and are operated in the same manner that the Company
operates with respect to Properties that it owns directly, it is the opinion of
Counsel that (i) the Joint Ventures will be treated as partnerships, as defined
in Sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Company will be subject to tax as a partner pursuant
to Sections 701-761 of the Code and (ii) all material allocations to the Company
of income, gain, loss and deduction as provided in the Joint Venture agreements
and as discussed in the Prospectus will be respected under Section 704(b) of the
Code. The Company has represented that it will not become a participant in any
Joint Venture unless the Company has first obtained advice of Counsel that the
Joint Venture will constitute a partnership for federal income tax purposes and
that the allocations to the Company contained in the Joint Venture agreement
will be respected.
If, contrary to the opinion of Counsel, a Joint Venture were to be
treated as an association taxable as a corporation, the Company would be treated
as a stockholder for tax purposes and would not be treated as owning a pro rata
share of the Joint Venture's assets. In addition, the items of income and
deduction of the Joint Venture would not pass through to the Company. Instead,
the Joint Venture would be required to pay income tax at regular corporate tax
rates on its net income, and distributions to partners would constitute
dividends that would not be deductible in computing the Joint Venture's taxable
income. Moreover, a determination that a Joint Venture is taxable as a
corporation could cause the Company to fail to satisfy the asset tests for
qualification as a REIT. See "-- Taxation of the Company -- Asset Tests" and "--
Taxation of the Company -- Income Tests," above.
REPORTS TO STOCKHOLDERS
The Company will furnish each stockholder with its audited annual
report within 120 days following the close of each fiscal year. These annual
reports will contain the following: (i) financial statements, including a
balance sheet, statement of operations, statement of stockholders' equity, and
statement of cash flows, prepared in accordance with generally accepted
accounting 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 charges paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company; (iv)
the Operating Expenses of the Company, stated as a percentage of the Average
Invested Assets (the average of the aggregate book value of the assets of the
Company, for a specified period, invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, computed by taking the average
of such values at the end of each month during such period) and as a percentage
of its Net Income; (v) a report from the Independent Directors that the policies
being followed by the Company are in the best interest of its stockholders and
the basis for such determination; (vi) separately stated, full disclosure of all
material terms, factors and circumstances surrounding any and all transactions
involving the Company, Directors, Advisor and any Affiliate thereof occurring in
the year for which the annual report is made, and the Independent Directors
shall be specifically charged with a duty to examine and comment in the report
on the fairness of such transactions; and (vii) Distributions to the
stockholders for the period, identifying the source of such Distributions and if
such information is not available at the time of the distribution, a written
explanation of the relevant circumstances will accompany the Distributions (with
the statement as to the source of Distributions to be sent to stockholders not
later than 60 days after the end of the fiscal year in which the distribution
was made).
Within 75 days following the close of each Company fiscal year, each
stockholder that is a Qualified Plan will be furnished with an annual statement
of Share valuation to enable it to file annual reports required by ERISA as they
relate to its investment in the Company. For any period during which the Company
is making a public offering of Shares, the statement will report an estimated
value of each Share at the public offering price per Share, which during the
term of this offering is $10.00 per Share. If no public offering is ongoing, and
until Listing, the statement will report an estimated value of each Share, based
on (i) appraisal updates performed by the Company based on a review of the
existing appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from that
Property; and (ii) a review of the outstanding Mortgage Loans and Secured
Equipment Leases focusing on a determination of present value by a
re-examination of the capitalization rate applied to the stream of payments due
under the terms of each Mortgage Loan and Secured Equipment Leases. The Company
may elect to deliver such reports to all stockholders. Stockholders will not be
forwarded copies of appraisals or updates. In providing such reports to
stockholders, neither the Company nor its Affiliates thereby make any warranty,
guarantee, or representation that (i) the stockholders or the Company, upon
liquidation, will actually realize the estimated value per Share, or (ii) the
stockholders will realize the estimated net asset value if they attempt to sell
their Shares.
If the Company is required by the Securities Exchange Act of 1934, as
amended, to file quarterly reports with the Securities and Exchange Commission
on Form 10-Q, stockholders will be furnished with a summary of the information
contained in each such report within 60 days after the end of each fiscal
quarter. Such summary information generally will include a balance sheet, a
quarterly statement of income, and a statement of cash flows, and any other
pertinent information regarding the Company and its activities during the
quarter. Stockholders also may receive a copy of any Form 10-Q upon request to
the Company. If the Company is not subject to this filing requirement,
stockholders will be furnished with a semi-annual report within 60 days after
each six-month period containing information similar to that contained in the
quarterly report but applicable to such six-month period.
Stockholders and their duly authorized representatives are entitled to
inspect and copy, at their expense, the books and records of the Company at all
times during regular business hours, upon reasonable prior notice to the
Company, at the location where such reports are kept by the Company.
Stockholders, upon request and at their expense, may obtain full information
regarding the financial condition of the Company, a copy of the Company's
federal, state, and local income tax returns for each fiscal year of the
Company, and, subject to certain confidentiality requirements, a list containing
the name, address, and Shares held by each stockholder.
The fiscal year of the Company will be the calendar year.
The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the stockholders within 30 days
following the end of each fiscal year of the Company. A specific reconciliation
between GAAP and income tax information will not be provided to the
stockholders; however, such reconciling information will be available in the
office of the Company for inspection and review by any interested stockholder.
THE OFFERING
GENERAL
A maximum of 15,500,000 Shares ($155,000,000) are being offered at a
purchase price of $10.00 per Share. Included in the 15,500,000 Shares offered,
the Company has registered 500,000 Shares ($5,000,000) available only to
stockholders purchasing Shares in this offering who receive a copy of this
Prospectus or to stockholders who purchased Shares in the Initial Offering and
who received a copy of the related prospectus and who elect to participate in
the Reinvestment Plan. Prior to the conclusion of this offering, if any of the
500,000 Shares remain after meeting anticipated obligations under the
Reinvestment Plan, the Company may decide to sell a portion of these Shares in
this offering. Any participation in such plan by a person who becomes a
stockholder otherwise than by participating in this offering will require
solicitation under a separate prospectus. See "Summary of Reinvestment Plan."
The Board of Directors may determine to engage in future offerings of Common
Stock of up to the number of unissued authorized shares of Common Stock
available following termination of this offering.
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000). For Minnesota investors, IRAs and qualified plans must make a minimum
investment of 200 Shares ($2,000) and, for Iowa investors, IRAs and qualified
plans must make a minimum investment of 250 Shares ($2,500). Any investor who
makes the required minimum investment may purchase additional Shares in
increments of one Share. See " -- General," " -- Subscription Procedures" and
"Summary of Reinvestment Plan."
Pursuant to the requirements of the Commissioner of Securities of the
State of Pennsylvania, subscriptions from Pennsylvania residents may not be
released from escrow until subscriptions for Shares totalling at least
$7,775,000 have been received from all sources. Until subscription funds for the
Company total $7,775,000, the Pennsylvania funds will be held in escrow by
SouthTrust Bank, N.A., and interest earned on such funds will accrue to the
benefit of subscribers.
PLAN OF DISTRIBUTION
The Shares are being offered to the public on a "best efforts" basis
(which means that no one is guaranteeing that any minimum amount will be sold)
through the Soliciting Dealers, who will be members of the National Association
of Securities Dealers, Inc. (the "NASD") or other persons or entities exempt
from broker-dealer registration, and the Managing Dealer. The Soliciting Dealers
will use their best efforts during the offering period to find eligible persons
who desire to subscribe for the purchase of Shares from the Company. Both James
M. Seneff, Jr. and Robert A. Bourne are Affiliates and licensed principals of
the Managing Dealer, and the Advisor is an Affiliate of the Managing Dealer.
Prior to a subscriber's admission to the Company as a stockholder,
funds paid by such subscriber will be deposited in an interest-bearing escrow
account with SouthTrust Bank, N.A. The Company, within 30 days after the date a
subscriber is admitted to the Company, will pay to such subscriber the interest
(generally calculated on a daily basis) actually earned on the funds of those
subscribers whose funds have been held in escrow by such bank for at least 20
days. Stockholders otherwise are not entitled to interest earned on Company
funds or to receive interest on their Invested Capital. See "Escrow
Arrangements" below.
Subject to the provisions for reduced Selling Commissions described
below, the Company will pay the Managing Dealer an aggregate of 7.5% of the
Gross Proceeds as Selling Commissions. The Managing Dealer shall reallow fees of
up to 7% to the Soliciting Dealers with respect to Shares sold by them. In
addition, the Company will pay the Managing Dealer, as an expense allowance, a
marketing support and due diligence expense reimbursement fee equal to 0.5% of
Gross Proceeds. All or any portion of this fee may be reallowed to any
Soliciting Dealer with the prior written approval from, and in the sole
discretion of, the Managing Dealer, based on such factors as the number of
Shares sold by such Soliciting Dealer, the assistance, if any, of such
Soliciting Dealer in marketing this offering, and bona fide due diligence
expenses incurred.
Stockholders who elect to participate in the Reinvestment Plan will be
charged Selling Commissions and the marketing support and due diligence fee on
Shares purchased for their accounts on the same basis as investors who purchase
Shares in this offering. See "Summary of Reinvestment Plan." In connection with
this offering, the Company will pay a Soliciting Dealer Servicing Fee of 0.2% of
Invested Capital (calculated, for purposes of this provision, using only Shares
sold pursuant to this offering) commencing on December 31 of the year following
the year in which this offering terminates, and every December 31 thereafter, to
the Managing Dealer, which, in its sole discretion may reallow all or a portion
of such fee to the Soliciting Dealers who sold Shares pursuant to this offering
and whose clients who purchased Shares in this offering hold Shares on such
date. The Soliciting Dealer Servicing Fee will terminate as of the beginning of
any year in which the Company is liquidated or in which Listing occurs,
provided, however, that any previously accrued but unpaid portion of the
Soliciting Dealer Servicing Fee may be paid in such year or any subsequent year.
In connection with the Initial Offering, the Company will issue to the
Managing Dealer, a soliciting dealer warrant to purchase one share of Common
Stock for every 25 Shares sold in such offering, to be exercised, if at all,
during the five-year period commencing with the date the Initial Offering began
(the "Exercise Period"), at a price of $12.00 per share. The Managing Dealer
may, in its sole discretion, reallow all or any part of such soliciting dealer
warrant to certain Soliciting Dealers, unless prohibited by federal or state
securities laws. Soliciting dealer warrants will not be exercisable until one
year from date of issuance. Soliciting dealer warrants are not transferable or
assignable except by the Managing Dealer, the Soliciting Dealers, their
successors in interest, or individuals who are officers or partners of such a
person.
A registered principal or representative of the Managing Dealer or a
Soliciting Dealer, employees, officers, and Directors of the Company, or
employees, officers and directors of the Advisor, any of their Affiliates and
any Plan established exclusively for the benefit of such persons or entities may
purchase Shares net of 7% commissions, at a per Share purchase price of $9.30.
Clients of an investment adviser registered under the Investment Advisers Act of
1940, as amended, who have been advised by such adviser on an ongoing basis
regarding investments other than in the Company, and who are not being charged
by such adviser or its Affiliates, through the payment of commissions or
otherwise, for the advice rendered by such adviser in connection with the
purchase of the Shares, may purchase the Shares net of 7% commissions. In
addition, Soliciting Dealers that have a contractual arrangement with their
clients for the payment of fees which is consistent with accepting Selling
Commissions, in their sole discretion, may elect not to accept any Selling
Commissions offered by the Company for Shares that they sell. In that event,
such Shares shall be sold to the investor net of all Selling Commissions, at a
per Share purchase
<PAGE>
price of $9.30. In connection with the purchases of certain minimum numbers of
Shares, the amount of Selling Commissions otherwise payable to the Managing
Dealer or a Soliciting Dealer shall be reduced in accordance with the following
schedule:
<TABLE>
<CAPTION>
Purchase Price per Reallowed Commissions on Sales
Incremental Share in per Incremental Share in Volume
Number Volume Discount Discount Range
of Shares Purchased Range Percent Dollar Amount
- -------------------------------- ---------------------- ----------- ------------------
<S> <C>
1 -- 25,000 $10.00 7.0% $0.70
25,001 -- 50,000 9.85 5.5% 0.55
50,001 -- 75,000 9.70 4.0% 0.40
75,001 -- 100,000 9.60 3.0% 0.30
100,001 -- 500,000 9.50 2.0% 0.20
</TABLE>
Selling Commissions for purchases of 500,001 Shares or more will, in
the sole discretion of the Managing Dealer, be reduced to $0.15 per Share ($0.10
of which may be reallowed to a Soliciting Dealer) or less but in no event will
the proceeds to the Company be less than $9.25 per Share.
For example, if an investor purchases 100,000 Shares, the investor
could pay as little as $978,750 rather than $1,000,000 for the Shares, in which
event the Selling Commissions on the sale of such Shares would be $53,750 ($0.54
per Share). The net proceeds to the Company will not be affected by such
discounts.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," provided all
such Shares are purchased through the same Soliciting Dealer or through the
Managing Dealer. The volume discount will be prorated among the separate
subscribers considered to be a single "purchaser." Shares purchased pursuant to
the Reinvestment Plan on behalf of a Participant in the Reinvestment Plan will
not be combined with other subscriptions for Shares by the investor in
determining the volume discount to which such investor may be entitled. See
"Summary of Reinvestment Plan." Further subscriptions for Shares will not be
combined for purposes of the volume discount in the case of subscriptions by any
"purchaser" who subscribes for additional Shares subsequent to the purchaser's
initial purchase of Shares.
Any request to combine more than one subscription must be made in
writing in a form satisfactory to the Company and must set forth the basis for
such request. Any such request will be subject to verification by the Managing
Dealer that all of such subscriptions were made by a single "purchaser." If a
"purchaser" does not reduce the per Share purchase price, the excess purchase
price over the discounted purchase price will be returned to the actual separate
subscribers for Shares.
For purposes of such volume discounts, "purchaser" includes (i) an
individual, his or her spouse, and their children under the age of 21, who
purchase the Shares for his or her or their own accounts, and all pension or
trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Shares and must have formed such group for a
purpose other than to purchase the Shares at a discount); (iii) an employee's
trust, pension, profit-sharing, or other employee benefit plan qualified under
Section 401 of the Code; and (iv) all pension, trust, or other funds maintained
by a given bank. In addition, the Company, in its sole discretion, may aggregate
and combine separate subscriptions for Shares received during the offering
period from (i) the Managing Dealer or the same Soliciting Dealer, (ii)
investors whose accounts are managed by a single investment adviser registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other entity exercises
discretionary investment responsibility, or (iv) a single corporation,
partnership, trust association, or other organized group of persons, whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group. Except as provided
in this paragraph, subscriptions will not be cumulated, combined, or aggregated.
Any reduction in commissions will reduce the effective purchase price
per Share to the investor involved but will not alter the net proceeds payable
to the Company as a result of such sale. All investors will be deemed to have
contributed the same amount per Share to the Company whether or not the investor
receives a discount. Accordingly, for purposes of Distributions, investors who
pay reduced commissions will receive higher returns on their investments in the
Company as compared to investors who do not pay reduced commissions.
In connection with the sale of Shares, certain registered principals or
representatives of the Managing Dealer may perform wholesaling functions for
which they will receive compensation payable by the Managing Dealer in an
aggregate amount not in excess of one percent of Gross Proceeds. The first 0.5%
of Gross Proceeds of any such fee will be paid from the 7.5% of Gross Proceeds
payable to the Managing Dealer as Selling Commissions. In addition, the Advisor
and its Affiliates, including the Managing Dealer and its registered principals
or representatives, may incur due diligence fees and other expenses, including
expenses related to sales seminars and wholesaling activities, a portion of
which may be paid by the Company.
In addition, stockholders may agree with their participating Soliciting
Dealer and the Managing Dealer to have Selling Commissions relating to their
Shares paid over a seven-year period pursuant to a deferred commission
arrangement (the "Deferred Commission Option"). Stockholders electing the
Deferred Commission Option will be required to pay a total of $9.40 per Share
purchased upon subscription, rather than $10.00 per Share, with respect to which
$0.15 per Share will be payable as Selling Commissions due upon subscription,
$0.10 of which may be reallowed to the Soliciting Dealer by the Managing Dealer.
For each of the six years following such subscription on a date to be determined
by the Managing Dealer, $0.10 per Share will be paid by the Company as deferred
Selling Commissions with respect to Shares sold pursuant to the Deferred
Commission Option, which amounts will be deducted from and paid out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting Dealer by the Managing Dealer. The net proceeds
to the Company will not be affected by the election of the Deferred Commission
Option. Under this arrangement, a stockholder electing the Deferred Commission
Option will pay a 1% Selling Commission per year thereafter for the next six
years which will be deducted from and paid by the Company out of distributions
otherwise payable to such stockholder. All such Selling Commissions will be paid
to the Managing Dealer, whereby a total of up to 7% of such Selling Commissions
may be reallowed to the Soliciting Dealer. However, in the event the Company's
Shares are Listed or a stockholder electing the Deferred Commission Option sells
or otherwise transfers his or her Shares, prior to such time as the full amount
otherwise payable under the Deferred Commission Option has been paid, the
obligation of the Company and the stockholder to make any further payments of
the deferred commissions shall terminate. In such event, the Managing Dealer
(and any Soliciting Dealer if the deferred commissions are reallowed by the
Managing Dealer) will not be entitled to receive any further portion of the
unpaid deferred commissions following Listing or the sale or transfer of the
applicable Shares to which the deferred commissions relate.
The Company or its Affiliates also may provide incentive items for
registered representatives of the Managing Dealer and the Soliciting Dealers,
which in no event shall exceed an aggregate of $100 per annum per participating
salesperson. In the event other incentives are provided to registered
representatives of the Managing Dealer or the Soliciting Dealers, they will be
paid only in cash, and such payments will be made only to the Managing Dealer or
the Soliciting Dealers rather than to their registered representatives. Any such
sales incentive program must first have been submitted for review by the NASD,
and must comply with Rule 2710(c)(6)(B)(xii). Costs incurred in connection with
such sales incentive programs, if any, will be considered underwriting
compensation. See "Estimated Use of Proceeds."
The Company will also reimburse the Managing Dealer and the Soliciting
Dealers for bona fide due diligence expenses and certain expenses as incurred in
connection with the offering.
The total amount of underwriting compensation, including commissions
and reimbursement of expenses, paid in connection with the offering will not
exceed 10.5% of Gross Proceeds.
The Managing Dealer and the Soliciting Dealers severally will indemnify
the Company and its officers and Directors, the Advisor and its officers and
directors and their Affiliates, against certain liabilities, including
liabilities under the Securities Act of 1933.
SUBSCRIPTION PROCEDURES
Procedures Applicable to All Subscriptions. In order to purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription for Shares must be accompanied by cash or check payable to
"SouthTrust Bank, N.A., Escrow Agent" or to the Company, in the amount of $10.00
per Share. See "Escrow Arrangements" below. Certain Soliciting Dealers who have
"net capital," as defined in the applicable federal securities regulations, of
$250,000 or more may instruct their customers to make their checks for Shares
for which they have subscribed payable directly to the Soliciting Dealer. In
such case, the Soliciting Dealer will issue a check made payable to the order of
the Escrow Agent for the aggregate amount of the subscription proceeds.
Each subscription will be accepted or rejected by the Company within 30
days after its receipt, and no sale of Shares shall be completed until at least
five business days after the date on which the subscriber receives a copy of
this Prospectus. If a subscription is rejected, the funds will be returned to
the subscriber within ten business days after the date of such rejection,
without interest and without deduction. A form of the Subscription Agreement is
set forth as Appendix D to this Prospectus. The subscription price of each Share
is payable in full upon execution of the Subscription Agreement. A subscriber
whose subscription is accepted shall be sent a confirmation of his or her
purchase.
The Advisor and each Soliciting Dealer who sells Shares on behalf of
the Company have the responsibility to make every reasonable effort to determine
that the purchase of Shares is appropriate for an investor and that the
requisite suitability standards are met. See "Suitability Standards and How to
Subscribe -- Suitability Standards." In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
The Advisor and each Soliciting Dealer shall maintain records of the
information used to determine that an investment in the Shares is suitable and
appropriate for an investor. The Advisor and each Soliciting Dealer shall
maintain these records for at least six years.
Subscriptions of Pennsylvania investors whose subscriptions are
accepted prior to the release of such payments from escrow will be admitted as
stockholders within 15 days after such release of payments. All other
subscribers will be admitted as stockholders not later than the last day of the
calendar month following acceptance of their subscriptions.
Procedures Applicable to Non-Telephonic Orders. Each Soliciting Dealer
receiving a subscriber's check made payable solely to the bank escrow agent
(where, pursuant to such Soliciting Dealer's internal supervisory procedures,
internal supervisory review must be conducted at the same location at which
subscription documents and checks are received from subscribers), will deliver
such checks to the Managing Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Soliciting
Dealer except that, in any case in which the Soliciting Dealer maintains a
branch office, and, pursuant to a Soliciting Dealer's internal supervisory
procedures, final internal supervisory review is conducted at a different
location, the branch office shall transmit the subscription documents and check
to the Soliciting Dealer conducting such internal supervisory review by the
close of business on the first business day following their receipt by the
branch office and the Soliciting Dealer shall review the subscription documents
and subscriber's check to ensure their proper execution and form and, if they
are acceptable, transmit the check to the Managing Dealer by the close of
business on the first business day after the check is received by the Soliciting
Dealer. The Managing Dealer will transmit the check to the Escrow Agent by no
later than the close of business on the first business day after the check is
received from the Soliciting Dealer.
Procedures Applicable to Telephonic Orders. Certain Soliciting Dealers
may permit investors to subscribe for Shares by telephonic order to the
Soliciting Dealer. There are no additional fees associated with telephonic
orders. Subscribers who wish to subscribe for Shares by telephonic order to the
Soliciting Dealer may complete the telephonic order either by delivering a check
in the amount necessary to purchase the Shares to be covered by the subscription
agreement to the Soliciting Dealer or by authorizing the Soliciting Dealer to
pay the purchase price for the Shares to be covered by the subscription
agreement from funds available in an account maintained by the Soliciting Dealer
on behalf of the subscriber. A subscriber must specifically authorize the
registered representative and branch manager to execute the subscription
agreement on behalf of the subscriber and must already have made or have agreed
to make payment for the Shares covered by the subscription agreement.
To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms, then
such firms shall, subject to Rule 15c2-4 promulgated under the Securities
Exchange Act of 1934, either (i) upon receipt of an executed subscription
agreement or direction to execute a subscription agreement on behalf of a
customer, to forward the offering price for the Shares covered by the
subscription agreement on or before the close of business of the first business
day following receipt or execution of a subscription agreement by such firms to
the Managing Dealer (except that, in any case in which the Soliciting Dealer
maintains a branch office, and, pursuant to a Soliciting Dealer's internal
supervisory procedures, final internal supervisory review is conducted at a
different location, the branch office shall transmit the subscription documents
and subscriber's check to the Soliciting Dealer conducting such internal
supervisory review by the close of business on the first business day following
their receipt by the branch office and the Soliciting Dealer shall review the
subscription documents and subscriber's check to ensure their proper execution
and form and, if they are acceptable, transmit the check to the Managing Dealer
by the close of business on the first business day after the check is received
by the Soliciting Dealer), or (ii) to solicit indications of interest in which
event (a) such Soliciting Dealers must subsequently contact the customer
indicating interest to confirm the interest and give instructions to execute and
return a subscription agreement or to receive authorization to execute the
subscription agreement on the customer's behalf, (b) such Soliciting Dealers
must mail acknowledgments of receipt of orders to each customer confirming
interest on the business day following such confirmation, (c) such Soliciting
Dealers must debit accounts of such customers on the fifth business day (the
"debit date") following receipt of the confirmation referred to in (a), and (d)
such Soliciting Dealers must forward funds to the Managing Dealer in accordance
with the procedures and on the schedule set forth in clause (i) of this
sentence. If the procedure in (ii) is adopted, subscribers' funds are not
required to be in their accounts until the debit date. The Managing Dealer will
transmit the check to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Soliciting Dealer.
Investors, however, who are residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico,
North Carolina, Ohio, Oregon, South Dakota, Tennessee, or Washington must
complete and sign the Subscription Agreement in order to subscribe for Shares
and, therefore, may not subscribe for Shares by telephone. Representatives of
Soliciting Dealers who accept telephonic orders will execute the Subscription
Agreement on behalf of investors who place such orders. All investors who
telephonically subscribe for Shares will receive, with confirmation of their
subscription, a second copy of the Prospectus.
Residents of California, Oklahoma, and Texas who telephonically
subscribe for Shares will have the right to rescind such subscriptions within
ten days from receipt of the confirmation. Such investors who do not rescind
their subscriptions within such ten-day period shall be deemed to have assented
to all of the terms and conditions of the Subscription Agreement.
Additional Subscription Procedures. Investors who have questions or who
wish to place orders for Shares by telephone or to participate in the
Reinvestment Plan should contact their Soliciting Dealer. Certain Soliciting
Dealers do not permit telephonic subscriptions or participation in the
Reinvestment Plan. See "Summary of Reinvestment Plan." The form of Subscription
Agreement for certain Soliciting Dealers who do not permit telephonic
subscriptions or participation in the Reinvestment Plan differs slightly from
the form attached hereto as Appendix D, primarily in that it will eliminate one
or both of these options.
ESCROW ARRANGEMENTS
The Escrow Agreement between the Company and SouthTrust Bank, N.A. (the
"Bank") provides that escrowed funds will be invested by the Bank in an
interest-bearing account with the power of investment in short-term, highly
liquid securities issued or guaranteed by the U.S. Government, other investments
permitted under Rule 15c2-4 of the Securities Exchange Act of 1934, as amended,
or in other short-term, highly liquid investments with appropriate safety of
principal. Such subscription funds will be released periodically (at least once
per month) upon admission of stockholders to the Company.
The interest, if any, earned on subscription proceeds will be payable
only to those subscribers whose funds have been held in escrow by the Bank for
at least 20 days. Stockholders will not otherwise be entitled to interest earned
on Company funds or to receive interest on their Invested Capital.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances.
A prospective investor that is an employee benefit plan subject to
ERISA, a tax-qualified retirement plan, an IRA, or a governmental, church, or
other Plan that is exempt from ERISA is advised to consult its own legal advisor
regarding the specific considerations arising under applicable provisions of
ERISA, the Code, and state law with respect to the purchase, ownership, or sale
of the Shares by such Plan or IRA.
Fiduciary Duties and Prohibited Transactions. A fiduciary of a pension,
profit-sharing, retirement or other employee benefit plan subject to ERISA (an
"ERISA Plan") should consider the fiduciary standards under ERISA in the context
of the ERISA Plan's particular circumstances before authorizing an investment of
any portion of the ERISA Plan's assets in the Common Stock. Accordingly, such
fiduciary should consider (i) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the
investment is in accordance with the documents and instruments governing the
ERISA Plan as required by Section 404(a)(1)(D) of ERISA; (iii) whether the
investment is prudent under Section 404(a)(1)(B) of ERISA; and (iv) whether the
investment is solely in the interests of the ERISA Plan participants and
beneficiaries and for the exclusive purpose of providing benefits to the ERISA
Plan participants and beneficiaries and defraying reasonable administrative
expenses of the ERISA Plan as required by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA, or certain other plans (collectively, a "Plan") and persons who have
certain specified relationships to the Plan ("parties in interest" within the
meaning of ERISA and "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary or person making an investment decision for a Plan also
should consider whether the acquisition or the continued holding of the Shares
might constitute or give rise to a direct or indirect prohibited transaction.
Plan Assets. The prohibited transaction rules of ERISA and the Code
apply to transactions with a Plan and also to transactions with the "plan
assets" of the Plan. The "plan assets" of a Plan include the Plan's interest in
an entity in which the Plan invests and, in certain circumstances, the assets of
the entity in which the Plan holds such interest. The term "plan assets" is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the "DOL
Regulation") setting out the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute "plan assets." The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a "publicly-offered security," the Plan's
assets generally would include both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The DOL Regulation defines a publicly-offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the offering occurred). The Shares
are being sold in an offering registered under the Securities Act of 1933, as
amended, and will be registered within the relevant time period under Section
12(b) of the Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it
is part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. However, a class of securities
will not fail to be "widely held" solely because the number of independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control. The Company expects the Shares to be
"widely held" upon completion of the offering.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not affect, alone or in combination, the finding that such securities are freely
transferable. The Company believes that the restrictions imposed under the
Articles of Incorporation on the transfer of the Common Stock are limited to
restrictions on transfer generally permitted under the DOL Regulation and are
not likely to result in the failure of the Common Stock to be "freely
transferable." See "Summary of the Articles of Incorporation and Bylaws --
Restriction of Ownership." The DOL Regulation only establishes a presumption in
favor of a finding of free transferability and, therefore, no assurance can be
given that the Department of Labor and the U.S. Treasury Department would not
reach a contrary conclusion with respect to the Common Stock.
Assuming that the Shares will be "widely held" and "freely
transferable," the Company believes that the Shares will be publicly-offered
securities for purposes of the DOL Regulation and that the assets of the Company
will not be deemed to be "plan assets" of any Plan that invests in the Shares.
DETERMINATION OF OFFERING PRICE
The offering price per Share was determined by the Company based upon
the estimated costs of investing in the Properties and the Mortgage Loans, the
fees to be paid to the Advisor and its Affiliates, as well as fees to third
parties, and the expenses of this offering.
SUPPLEMENTAL SALES MATERIAL
Shares are being offered only through this Prospectus. In addition to
this Prospectus, the Company may use certain sales materials in connection with
this offering, although only when accompanied or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been approved
in writing by the Company. As of the date of this Prospectus, it is anticipated
that the following sales material will be authorized for use by the Company in
connection with this offering: (i) a brochure entitled CNL Health Care
Properties, Inc.; (ii) a fact sheet describing the general features of the
Company; (iii) a cover letter transmitting the Prospectus; (iv) a summary
description of the offering; (v) a slide presentation; (vi) broker updates;
(vii) an audio cassette presentation; (viii) a video presentation; (ix) an
electronic media presentation; (x) a cd-rom presentation; (xi) a script for
telephonic marketing; (xii) seminar advertisements and invitations; and (xiii)
certain third-party articles. All such materials will be used only by registered
broker-dealers that are members of the NASD. The Company also may respond to
specific questions from Soliciting Dealers and prospective investors. Additional
materials relating to the offering may be made available to Soliciting Dealers
for their internal use.
LEGAL OPINIONS
The legality of the Shares being offered hereby has been passed upon
for the Company by Shaw Pittman. Statements made under "Risk Factors -- Tax
Risks" and "Federal Income Tax Considerations" have been reviewed by Shaw
Pittman, who have given their opinion that such statements as to matters of law
are correct in all material respects. Shaw Pittman serves as securities and tax
counsel to the Company and to the Advisor and certain of their Affiliates.
Certain members of the firm have invested in prior programs sponsored by the
Affiliates of the Company in aggregate amounts which do not exceed one percent
of the amounts sold by any such program, and members of the firm also may invest
in the Company.
EXPERTS
The audited consolidated balance sheets of the Company as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998 and for the period December 22, 1997 (date of inception) through December
31, 1997, included in this Prospectus, have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
The audited statement of assets and liabilities of Brighton Gardens by
Marriott, Orland Park, Illinois (an unincorporated division of Marriott Senior
Living Services, Inc.) at December 31, 1999, and the related statements of
revenues and operating expenses and of excess of assets over liabilities and of
cash flows for the period October 11, 1999 (date of opening) through December
31, 1999, included in this Prospectus, have been included herein in reliance on
the report of PricewaterhouseCoopers LLP, independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and
Exchange Commission with respect to the securities offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any document are necessarily summaries of such documents, and in
each instance reference is made to the copy of such documents filed with the
Commission, each such statement being qualified in all respects by such
reference. For further information regarding the Company and the Shares,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed or incorporated as a part thereof which may be obtained from the
principal office of the Commission in Washington, D.C., upon payment of the fee
prescribed by the Commission, or examined at the principal office of the
Commission without charge. The Commission maintains a web site located at
http://www.sec.gov. that contains information regarding registrants that file
electronically with the Commission.
DEFINITIONS
"Acquisition Expenses" means any and all expenses incurred by the
Company, the Advisor, or any Affiliate of either in connection with the
selection or acquisition of any Property or the making of any Mortgage Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, and title
insurance.
"Acquisition Fees" means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any person or entity to any other person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in connection with making or investing in Mortgage Loans or the
purchase, development or construction of a Property, including, without
limitation, real estate commissions, acquisition fees, finder's fees, selection
fees, Development Fees, Construction Fees, nonrecurring management fees,
consulting fees, loan fees, points, or any other fees or commissions of a
similar nature. Excluded shall be development fees and construction fees paid to
any person or entity not affiliated with the Advisor in connection with the
actual development and construction of any Property.
"ADLs" means activities of daily living, such as eating, dressing,
walking, bathing and bathroom use.
"Advisor" means CNL Health Care Corp. (formerly CNL Health Care
Advisors, Inc.), a Florida corporation, any successor advisor to the Company, or
any person or entity to which CNL Health Care Corp. or any successor advisors
subcontracts substantially all of its functions.
"Advisory Agreement" means the Advisory Agreement between the Company
and the Advisor, pursuant to which the Advisor will act as the advisor to the
Company and provide specified services to the Company.
"Affiliate" means (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (ii) any person or entity directly or
indirectly owning, controlling, or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of another person or entity; (iii)
any officer, director, partner, or trustee of such person or entity; (iv) any
person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other person; and (v) if such other person or entity is an officer, director,
partner, or trustee of a person or entity, the person or entity for which such
person or entity acts in any such capacity.
"Articles of Incorporation" means the Articles of Incorporation, as the
same may be amended from time to time, of the Company.
"Asset Management Fee" means the fee payable to the Advisor for
day-to-day professional management services in connection with the Company and
its investments in Properties and Mortgage Loans pursuant to the Advisory
Agreement.
"Assets" means Properties, Mortgage Loans and Secured Equipment Leases,
collectively.
"Average Invested Assets" means, for a specified period, the average of
the aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"Bank" means SouthTrust Bank, N.A., escrow agent for the offering.
"Board of Directors" means the Directors of the Company.
"Bylaws" means the bylaws of the Company.
"Certificate of Need Laws" means laws enacted by certain states
requiring a health care corporation to apply and to be approved prior to
establishing or modifying a health care facility.
"CNL" means CNL Holdings, Inc., the parent company either directly or
indirectly of the Advisor and the Managing Dealer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"Competitive Real Estate Commission" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the Company to all persons and
entities (including the subordinated real estate disposition fee payable to the
Advisor) in connection with any Sale of one or more of the Company's Properties
shall not exceed the lesser of (i) a Competitive Real Estate Commission or (ii)
six percent of the gross sales price of the Property or Properties.
"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.
"Counsel" means tax counsel to the Company.
"Deferred Commission Option" means an agreement between a stockholder,
the participating Soliciting Dealer and the Managing Dealer to have Selling
Commissions paid over a seven year period as described in "The Offering -- Plan
of Distribution."
"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.
"Director" means a member of the Board of Directors of the Company.
"Distributions" means any distributions of money or other property by
the Company to owners of Shares including distributions that may constitute a
return of capital for federal income tax purposes.
"Equipment" means the furniture, fixtures and equipment used at Health
Care Facilities by operators of Health Care Facilities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA.
"Excess Shares" means the excess shares exchanged for shares of Common
Stock or Preferred Stock, as the case may be, transferred or proposed to be
transferred in excess of the Ownership Limit or which would otherwise jeopardize
the Company's status as a REIT under the Code.
"Front-End Fees" means fees and expenses paid by any person or entity
to any person or entity for any services rendered in connection with the
organization of the Company and investing in Properties and Mortgage Loans,
including Selling Commissions, marketing support and due diligence expense
reimbursement fees, Offering Expenses, Acquisition Expenses and Acquisition Fees
paid out of Gross Proceeds, and any other similar fees, however designated.
During the term of the Company, Front-End Fees shall not exceed 20% of Gross
Proceeds.
<PAGE>
"Gross Proceeds" means the aggregate purchase price of all Shares sold
for the account of the Company through the offering, without deduction for
Selling Commissions, volume discounts, the marketing support and due diligence
expense reimbursement fee or Offering Expenses. For the purpose of computing
Gross Proceeds, the purchase price of any Share for which reduced Selling
Commissions are paid to the Managing Dealer or a Soliciting Dealer (where net
proceeds to the Company are not reduced) shall be deemed to be the full offering
price, currently $10.00.
"Health Care Facilities" means facilities at which health care services
are provided, including, but not limited to, congregate living, assisted living,
and skilled nursing facilities, continuing care retirement communities and life
care communities, and medical office buildings and walk-in clinics.
"IADLs" means instrumental activities of daily living, such as
shopping, telephone use and money management.
"Independent Director" means a Director who is not and within the last
two years has not been directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) the performance of services,
other than as a Director, for the Company, (v) service as a director or trustee
of more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the Advisor
or any of its Affiliates. An indirect relationship shall include circumstances
in which a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law or sons- or daughters-in-law, or brothers- or sisters-in-law is
or has been associated with the Advisor, any of its affiliates, or the Company.
A business or professional relationship is considered material if the gross
revenue derived by the Director from the Advisor and Affiliates exceeds 5% of
either the Director's annual gross revenue during either of the last two years
or the Director's net worth on a fair market value basis.
"Independent Expert" means a person or entity with no material current
or prior business or personal relationship with the Advisor or the Directors and
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company.
"Initial Offering" means the initial offering of the Company which
commenced on September 18, 1998 and is expected to terminate in September 2000,
at which time this offering will commence.
"Invested Capital" means the amount calculated by multiplying the total
number of shares of Common Stock purchased by stockholders by the issue price,
reduced by the portion of any Distribution that is attributable to Net Sales
Proceeds and by any amounts paid by the Company to repurchase Shares pursuant to
the plan for redemption of Shares.
"IRA" means an Individual Retirement Account.
"IRS" means the Internal Revenue Service.
"Joint Ventures" means the joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"Leverage" means the aggregate amount of indebtedness of the Company
for money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"Line of Credit" means one or more lines of credit initially in an
aggregate amount up to $45,000,000, the proceeds of which will be used to
acquire Properties and make Mortgage Loans and Secured Equipment Leases and to
pay the Secured Equipment Lease Servicing Fee. The Line of Credit may be in
addition to any Permanent Financing.
"Listing" means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
"Managing Dealer" means CNL Securities Corp., an Affiliate of the
Advisor, or such other person or entity selected by the Board of Directors to
act as the managing dealer for the offering. CNL Securities Corp.
is a member of the National Association of Securities Dealers, Inc.
"Mortgage Loans" means, in connection with mortgage financing provided
by the Company, notes or other evidences of indebtedness or obligations which
are secured or collateralized by real estate owned by the borrower.
"Net Assets" means the total assets of the Company (other than
intangibles) at cost before deducting depreciation or other non-cash reserves
less total liabilities, calculated quarterly by the Company, on a basis
consistently applied.
"Net Income" means for any period, the total revenues applicable to
such period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts, or other similar non-cash
reserves; provided, however, Net Income for purposes of calculating total
allowable Operating Expenses (as defined herein) shall exclude the gain from the
sale of the Company's Assets.
"Net Offering Proceeds" means Gross Proceeds less (i) Selling
Commissions, (ii) Offering Expenses, and (iii) the marketing support and due
diligence expense reimbursement fee.
"Net Sales Proceeds" means, in the case of a transaction described in
clause (i)(A) of the definition of Sale, the proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Company. In the case of a transaction described in clause (i)(B) of such
definition, Net Sales Proceeds means the proceeds of any such transaction less
the amount of any legal and other selling expenses incurred in connection with
such transaction. In the case of a transaction described in clause (i)(C) of
such definition, Net Sales Proceeds means the proceeds of any such transaction
actually distributed to the Company from the Joint Venture. In the case of a
transaction or series of transactions described in clause (i)(D) of the
definition of Sale, Net Sales Proceeds means the proceeds of any such
transaction less the amount of all commissions and closing costs paid by the
Company. In the case of a transaction described in clause (ii) of the definition
of Sale, Net Sales Proceeds means the proceeds of such transaction or series of
transactions less all amounts generated thereby and reinvested in one or more
Properties within 180 days thereafter and less the amount of any real estate
commissions, closing costs, and legal and other selling expenses incurred by or
allocated to the Company in connection with such transaction or series of
transactions. Net Sales Proceeds shall also include, in the case of any lease of
a Property consisting of a building only, any Mortgage Loan or any Secured
Equipment Lease, any amounts from tenants, borrowers or lessees that the Company
determines, in its discretion, to be economically equivalent to proceeds of a
Sale. Net Sales Proceeds shall not include, as determined by the Company in its
sole discretion, any amounts reinvested in one or more Properties, Mortgage
Loans or Secured Equipment Leases, to repay outstanding indebtedness, or to
establish reserves.
"Offering Expenses" means any and all costs and expenses, other than
Selling Commissions, the 0.5% marketing support and due diligence expense
reimbursement fee, and the Soliciting Dealer Servicing Fee incurred by the
Company, the Advisor or any Affiliate of either in connection with the
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 Offering Expenses paid by the
Company in connection with the offering, together with the 7.5% Selling
Commissions, the 0.5% marketing support and due diligence expense reimbursement
fee, and the Soliciting Dealer Servicing Fee incurred by the Company will not
exceed 13% of the proceeds raised in connection with this offering.
"Operating Expenses" includes all costs and expenses incurred by the
Company, as determined under generally accepted accounting principles, which in
any way are related to the operation of the Company or to Company business,
including (a) advisory fees, (b) the Soliciting Dealer Servicing Fee, (c) the
Asset Management Fee, (d) the Performance Fee, and (e) the Subordinated
Incentive Fee, but excluding (i) the expenses of raising capital such as
Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration, and other fees, printing and other such expenses, and tax incurred
in connection with the issuance, distribution, transfer, registration, and
Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization, and bad debt reserves, (v) the
Advisor's subordinated 10% share of Net Sales Proceeds, (vi) the Secured
Equipment Lease Servicing Fee, and (vii) Acquisition Fees and Acquisition
Expenses, real estate commissions on the sale of property and other expenses
connected with the acquisition and ownership of real estate interests, mortgage
loans, or other property (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair, and improvement of property).
<PAGE>
"Ownership Limit" means, with respect to shares of Common Stock and
Preferred Stock, the percent limitation placed on the ownership of Common Stock
and Preferred Stock by any one Person (as defined in the Articles of
Incorporation). As of the initial date of this Prospectus, the Ownership Limit
is 9.8% of the outstanding Common Stock and 9.8% of the outstanding Preferred
Stock.
"Participants" means those stockholders who elect to participate in the
Reinvestment Plan.
"Performance Fee" means the fee payable to the Advisor under certain
circumstances if certain performance standards have been met and the
Subordinated Incentive Fee has not been paid.
"Permanent Financing" means financing (i) to acquire Assets, (ii) to
pay the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent Financing, excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, and (iv) refinance outstanding amounts on the Line of Credit.
Permanent Financing may be in addition to any borrowing under the Line of
Credit.
"Plan" means ERISA Plans, IRAs, Keogh plans, stock bonus plans, and
certain other plans.
"Preferred Stock" means any class or series of preferred stock of the
Company that may be issued in accordance with the terms of the Articles of
Incorporation and applicable law.
"Properties" means (i) the real properties, including the buildings
located thereon and including Equipment, (ii) the real properties only, or (iii)
the buildings only, including Equipment, which are acquired by the Company,
either directly or through joint venture arrangements or other partnerships.
"Prospectus" means the final prospectus included in the Company's
Registration Statement filed with the Securities and Exchange Commission,
pursuant to which the Company will offer Shares to the public, as the same may
be amended or supplemented from time to time after the effective date of such
Registration Statement.
"Qualified Plans" means qualified pension, profit-sharing, and stock
bonus plans, including Keogh plans and IRAs.
"Real Estate Asset Value" means the amount actually paid or allocated
to the purchase, development, construction or improvement of a Property,
exclusive of Acquisition Fees and Acquisition Expenses.
"Reinvestment Agent" or "Agent" means the independent agent, which
currently is MMS Securities, Inc., for Participants in the Reinvestment Plan.
"Reinvestment Plan" means the Reinvestment Plan, in the form attached
hereto as Appendix A.
"Reinvestment Proceeds" means net proceeds available from the sale of
Shares under the Reinvestment Plan to redeem Shares or, under certain
circumstances, to invest in additional Properties or Mortgage Loans.
"REIT" means real estate investment trust, as defined pursuant to
Sections 856 through 860 of the Code.
"Related Party Tenant" means a related party tenant, as defined
pursuant to Section 856(d)(2)(B) of the Code.
"Roll-Up Entity" means a partnership, real estate investment trust,
corporation, trust, or similar entity that would be created or would survive
after the successful completion of a proposed Roll-Up Transaction.
"Roll-Up Transaction" means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been listed on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation National Market System for at least 12 months; or (ii) a
transaction involving the conversion to corporate, trust, or association form of
only the Company if, as a consequence of the transaction, there will be no
significant adverse change in stockholder voting rights, the term of existence
of the Company, compensation to the Advisor, or the investment objectives of the
Company.
"Sale" (i) means any transaction or series of transactions whereby: (A)
the Company sells, grants, transfers, conveys, or relinquishes its ownership of
any Property or portion thereof, including the lease of any Property consisting
of the building only, and including any event with respect to any Property which
gives rise to a significant amount of insurance proceeds or condemnation awards;
(B) the Company sells, grants, transfers, conveys, or relinquishes its ownership
of all or substantially all of the interest of the Company in any Joint Venture
in which it is a co-venturer or partner; (C) any Joint Venture in which the
Company as a co-venturer or partner sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including any
event with respect to any Property which gives rise to insurance claims or
condemnation awards or, (D) the Company sells, grants, conveys or relinquishes
its interest in any Mortgage Loan or Secured Equipment Lease or portion thereof,
including any event with respect to any Mortgage Loan or Secured Equipment Lease
which gives rise to a significant amount of insurance proceeds or similar
awards, but (ii) shall not include any transaction or series of transactions
specified in clause (i)(A), (i)(B) or (i)(C) above in which the proceeds of such
transaction or series of transactions are reinvested in one or more Properties
within 180 days thereafter.
"Secured Equipment Leases" means the Equipment financing made available
by the Company to operators of Health Care Facilities pursuant to which the
Company will finance, through loans or direct financing leases, the Equipment.
"Secured Equipment Lease Servicing Fee" means the fee payable to the
Advisor by the Company out of the proceeds of the Line of Credit or Permanent
Financing for negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program equal to 2% of the purchase price of the Equipment
subject to each Secured Equipment Lease and paid upon entering into such lease
or loan. No other fees will be payable in connection with the Secured Equipment
Lease program.
"Selling Commissions" means any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Shares as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
"Shares" means the shares of Common Stock of the Company, including the
up to 15,500,000 shares to be sold in this offering.
"Soliciting Dealers" means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.
"Soliciting Dealer Servicing Fee" means an annual fee of .20% of the
aggregate investment of stockholders who purchase Shares in this offering,
payable to the Managing Dealer on December 31 of each year following the year in
which the offering terminates. The Managing Dealer, in its sole discretion, in
turn may reallow all or a portion of such fee to the Soliciting Dealers whose
clients hold Shares on such date.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include independent third parties such
as attorneys, accountants, and underwriters whose only compensation is for
professional services. A Person may also be deemed a Sponsor of the Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in
connection with the founding or organizing of the business of
the Company, in consideration of services or property, or both
services and property;
c. having a substantial number of relationships and contacts with
the Company;
d. possessing significant rights to control Company Properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which
was not negotiated at arm's-length with the Company.
"Stockholders' 8% Return" as of each date, shall mean an aggregate
amount equal to an 8% cumulative, noncompounded, annual return on Invested
Capital.
"Subscription Agreement" means the Subscription Agreement, in the form
attached hereto as Appendix D.
"Subordinated Incentive Fee" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.
"Termination Date" means the date of termination of the Advisory
Agreement.
"Total Proceeds" means Gross Proceeds, loan proceeds from Permanent
Financing and amounts outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.
"Triple-Net Lease" generally means a Property lease pursuant to which
the tenant is responsible for property costs associated with ongoing operations,
including repairs, maintenance, property taxes, utilities and insurance.
"Unimproved Real Property" means Property in which the Company has an
equity interest that is not acquired for the purpose of producing rental or
other operating income, that has no development or construction in process and
for which no development or construction is planned, in good faith, to commence
within one year.
<PAGE>
APPENDIX A
FORM OF
REINVESTMENT PLAN
<PAGE>
FORM OF REINVESTMENT PLAN
<PAGE>
CNL HEALTH CARE PROPERTIES, INC., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, adopted a Reinvestment
Plan (the "Reinvestment Plan") on the terms and conditions set forth below.
1. Reinvestment of Distributions. MMS Securities, Inc., the agent (the
"Reinvestment Agent") for participants (the "Participants") in the Reinvestment
Plan, will receive all cash distributions made by the Company with respect to
shares of common stock of the Company (the "Shares") owned by each Participant
(collectively, the "Distributions"). The Reinvestment Agent will apply such
Distributions as follows:
(a) At any period during which the Company is making a public
offering of Shares, the Reinvestment Agent will invest Distributions in
Shares acquired from the managing dealer or participating brokers for
the offering at the public offering price per Share. During such
period, commissions and the marketing support and due diligence fee
equal to 0.5% of the total amount raised from sale of the Shares may be
reallowed to the broker who made the initial sale of Shares to the
Participant at the same rate as for initial purchases.
(b) If no public offering of Shares is ongoing, the Reinvestment
Agent will purchase Shares from any additional shares which the Company
elects to register with the Securities and Exchange Commission (the
"SEC") for the Reinvestment Plan, at a per Share price equal to the
fair market value of the Shares determined by (i) quarterly appraisal
updates performed by the Company based on a review of the existing
appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from
that Property; and (ii) a review of the outstanding Mortgage Loans and
Secured Equipment Leases focusing on a determination of present value
by a re-examination of the capitalization rate applied to the stream of
payments due under the terms of each Mortgage Loan and Secured
Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by Participants in the Reinvestment
Plan prior to Listing will be determined by CNL Health Care Corp. (the
"Advisor") in its sole discretion. The factors that the Advisor will
use to determine the capitalization rate include (i) its experience in
selecting, acquiring and managing properties similar to the Properties;
(ii) an examination of the conditions in the market; and (iii)
capitalization rates in use by private appraisers, to the extent that
the Advisor deems such factors appropriate, as well as any other
factors that the Advisor deems relevant or appropriate in making its
determination. The Company's internal accountants will then convert the
most recent quarterly balance sheet of the Company from a "GAAP"
balance sheet to a "fair market value" balance sheet. Based on the
"fair market value" balance sheet, the internal accountants will then
assume a sale of the Company's assets and the liquidation of the
Company in accordance with its constitutive documents and applicable
law and compute the appropriate method of distributing the cash
available after payment of reasonable liquidation expenses, including
closing costs typically associated with the sale of assets and shared
by the buyer and seller, and the creation of reasonable reserves to
provide for the payment of any contingent liabilities. Upon listing of
the Shares on a national securities exchange or over-the-counter
market, the Reinvestment Agent may purchase Shares either through such
market or directly from the Company pursuant to a registration
statement relating to the Reinvestment Plan, in either case at a per
Share price equal to the then-prevailing market price on the national
securities exchange or over-the-counter market on which the Shares are
listed at the date of purchase by the Reinvestment Agent. In the event
that, after Listing occurs, the Reinvestment Agent purchases Shares on
a national securities exchange or over-the-counter market through a
registered broker-dealer, the amount to be reinvested shall be reduced
by any brokerage commissions charged by such registered broker-dealer.
In the event that such registered broker-dealer charges reduced
brokerage commissions, additional funds in the amount of any such
reduction shall be left available for the purchase of Shares.
(c) For each Participant, the Reinvestment Agent will maintain a
record which shall reflect for each fiscal quarter the Distributions
received by the Reinvestment Agent on behalf of such Participant. The
Reinvestment Agent will use the aggregate amount of Distributions to
all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants
exceeds the amount required to purchase all Shares then available for
purchase, the Reinvestment Agent will purchase all available Shares and
will return all remaining Distributions to the Participants within 30
days after the date such Distributions are made. The purchased Shares
will be allocated among the Participants based on the portion of the
aggregate Distributions received by the Reinvestment Agent on behalf of
each Participant, as reflected in the records maintained by the
Reinvestment Agent. The ownership of the Shares purchased pursuant to
the Reinvestment Plan shall be reflected on the books of the Company.
(d) Distributions shall be invested by the Reinvestment Agent in
Shares promptly following the payment date with respect to such
Distributions to the extent Shares are available. If sufficient Shares
are not available, Distributions shall be invested on behalf of the
Participants in one or more interest-bearing accounts in a commercial
bank approved by the Company which is located in the continental United
States and has assets of at least $100,000,000, until Shares are
available for purchase, provided that any Distributions that have not
been invested in Shares within 30 days after such Distributions are
made by the Company shall be returned to Participants.
(e) The allocation of Shares among Participants may result in the
ownership of fractional Shares, computed to four decimal places.
(f) Distributions attributable to Shares purchased on behalf of
the Participants pursuant to the Reinvestment Plan will be reinvested
in additional Shares in accordance with the terms hereof.
(g) No certificates will be issued to a Participant for Shares
purchased on behalf of the Participant pursuant to the Reinvestment
Plan except to Participants who make a written request to the
Reinvestment Agent. Participants in the Reinvestment Plan will receive
statements of account in accordance with Paragraph 7 below.
2. Election to Participate. Any stockholder who participates in a
public offering of Shares and who has received a copy of the related final
prospectus included in the Company's registration statement filed with the SEC
may elect to participate in and purchase Shares through the Reinvestment Plan at
any time by written notice to the Company and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in a public offering of
Shares may purchase Shares through the Reinvestment Plan only after receipt of a
separate prospectus relating solely to the Reinvestment Plan. Participation in
the Reinvestment Plan will commence with the next Distribution made after
receipt of the Participant's notice, provided it is received more than ten days
prior to the last day of the fiscal month or quarter, as the case may be, to
which such Distribution relates. Subject to the preceding sentence, regardless
of the date of such election, a shareholder will become a Participant in the
Reinvestment Plan effective on the first day of the fiscal month (prior to
termination of the offering of Shares) or fiscal quarter (after termination of
the offering of Shares) following such election, and the election will apply to
all Distributions attributable to the fiscal quarter or month (as the case may
be) in which the shareholder makes such written election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter. A Participant
who has terminated his participation in the Reinvestment Plan pursuant to
Paragraph 11 will be allowed to participate in the Reinvestment Plan again upon
receipt of a current version of a final prospectus relating to participation in
the Reinvestment Plan which contains, at a minimum, the following: (i) the
minimum investment amount; (ii) the type or source of proceeds which may be
invested; and (iii) the tax consequences of the reinvestment to the Participant,
by notifying the Reinvestment Agent and completing any required forms.
3. Distribution of Funds. In making purchases for Participants'
accounts, the Reinvestment Agent may commingle Distributions attributable to
Shares owned by Participants in the Reinvestment Plan.
4. Proxy Solicitation. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s) representing the Company covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Reinvestment Agent to vote the full Shares in the Participant's account in like
manner. If a Participant does not direct the Reinvestment Agent as to how the
Shares should be voted and does not give a proxy to person(s) representing the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.
5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any responsibility or liability as to the value of the Company's
Shares, any change in the value of the Shares acquired for the Participant's
account, or the rate of return earned on, or the value of, the interest-bearing
accounts, in which Distributions are invested. Neither the Company nor the
Reinvestment Agent shall be liable for any act done in good faith, or for any
good faith omission to act, including, without limitation, any claims of
liability (a) arising out of the failure to terminate a Participant's
participation in the Reinvestment Plan upon such Participant's death prior to
receipt of notice in writing of such death and the expiration of 15 days from
the date of receipt of such notice and (b) with respect to the time and the
prices at which Shares are purchased for a Participant. Notwithstanding the
foregoing, liability under the federal securities laws cannot be waived.
Similarly, the Company and the Reinvestment Agent have been advised that in the
opinion of certain state securities commissioners, indemnification is also
considered contrary to public policy and therefore unenforceable.
6. Suitability.
(a) Within 60 days prior to the end of each fiscal year, CNL
Securities Corp. ("CSC"), will mail to each Participant a participation
agreement (the "Participation Agreement"), in which the Participant
will be required to represent that there has been no material change in
the Participant's financial condition and confirm that the
representations made by the Participant in the Subscription Agreement
(a form of which shall be attached to the Participation Agreement) are
true and correct as of the date of the Participation Agreement, except
as noted in the Participation Agreement or the attached form of
Subscription Agreement.
(b) Each Participant will be required to return the executed
Participation Agreement to CSC within 30 days after receipt. In the
event that a Participant fails to respond to CSC or return the
completed Participation Agreement on or before the fifteenth (15th) day
after the beginning of the fiscal year following receipt of the
Participation Agreement, the Participant's Distribution for the first
fiscal quarter of that year will be sent directly to the Participant
and no Shares will be purchased on behalf of the Participant for that
fiscal quarter and, subject to (c) below, any fiscal quarters
thereafter, until CSC receives an executed Participation Agreement from
the Participant.
(c) If a Participant fails to return the executed Participation
Agreement to CSC prior to the end of the second fiscal quarter for any
year of the Participant's participation in the Reinvestment Plan, the
Participant's participation in the Reinvestment Plan shall be
terminated in accordance with Paragraph 11 below.
(d) Each Participant shall notify CSC in the event that, at any
time during his participation in the Reinvestment Plan, there is any
material change in the Participant's financial condition or inaccuracy
of any representation under the Subscription Agreement.
(e) For purposes of this Paragraph 6, a material change shall
include any anticipated or actual decrease in net worth or annual gross
income or any other change in circumstances that would cause the
Participant to fail to meet the suitability standards set forth in the
Company's Prospectus.
7. Reports to Participants. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Shares purchased during the quarter, the per Share
purchase price for such Shares, the total administrative charge to such
Participant, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that, in accordance with Paragraph 6(d) hereof, he is required to
notify CSC in the event that there is any material change in his financial
condition or if any representation under the Subscription Agreement becomes
inaccurate. Tax information for income earned on Shares under the Reinvestment
Plan will be sent to each participant by the Company or the Reinvestment Agent
at least annually.
8. Administrative Charges, Commissions, and Plan Expenses. The Company
shall be responsible for all administrative charges and expenses charged by the
Reinvestment Agent. The administrative charge for each Participant for each
fiscal quarter shall be the lesser of 5% of the amount reinvested for the
Participant or $2.50, with a minimum charge of $.50. Any interest earned on
Distributions will be paid to the Company to defray costs relating to the
Reinvestment Plan. Additionally, in connection with any Shares purchased from
the Company both prior to and after the termination of a public offering of the
Shares, the Company will pay to CSC selling commissions of 7.5%, a marketing
support and due diligence expense reimbursement fee of .5%, and, in the event
that proceeds of the sale of Shares pursuant to the Reinvestment Plan are used
to acquire Properties or to invest in Mortgage Loans, will pay to CNL Health
Care Corp. acquisition fees of 4.5% of the purchase price of the Shares sold
pursuant to the Reinvestment Plan.
9. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
11. Termination.
(a) A Participant may terminate his participation in the
Reinvestment Plan at any time by written notice to the Company. To be
effective for any Distribution, such notice must be received by the
Company at least ten business days prior to the last day of the fiscal
month or quarter to which such Distribution relates.
(b) The Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and
the Company may terminate the Reinvestment Plan itself at any time by
ten days' prior written notice mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish
to the Company in writing.
(c) After termination of the Reinvestment Plan or termination of a
Participant's participation in the Reinvestment Plan, the Reinvestment
Agent will send to each Participant (i) a statement of account in
accordance with Paragraph 7 hereof, and (ii) a check for (a) the amount
of any Distributions in the Participant's account that have not been
reinvested in Shares, and (b) the value of any fractional Shares
standing to the credit of a Participant's account based on the market
price of the Shares. The record books of the Company will be revised to
reflect the ownership of record of the Participant's full Shares and
any future Distributions made after the effective date of the
termination will be sent directly to the former Participant.
12. Notice. Any notice or other communication required or permitted to
be given by any provision of this Reinvestment Plan shall be in writing and
addressed to Investor Services Department, CNL Securities Corp., CNL Center at
City Commons, 450 South Orange Avenue, Orlando, Florida 32801, if to the
Company, or to MMS Securities, Inc., 1845 Maxwell, Suite 101, Troy, Michigan
48084-4510, if to the Reinvestment Agent, or such other addresses as may be
specified by written notice to all Participants. Notices to a Participant may be
given by letter addressed to the Participant at the Participant's last address
of record with the Company. Each Participant shall notify the Company promptly
in writing of any change of address.
13. Amendment. The terms and conditions of this Reinvestment Plan may
be amended or supplemented by an agreement between the Reinvestment Agent and
the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his last address of record; provided, that any such amendment
must be approved by a majority of the Independent Directors of the Company. Such
amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the Company receives written
notice of termination prior to the effective date thereof.
14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S ELECTION
TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF FLORIDA; PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR VIOLATIONS OF
FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 14.
<PAGE>
APPENDIX B
FINANCIAL INFORMATION
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CNL HEALTH CARE PROPERTIES, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 2000 B-2
Pro Forma Consolidated Statement of Operations for the quarter ended March 31, 2000 B-3
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1999 B-4
Notes to Pro Forma Consolidated Financial Statements for the quarter ended
March 31, 2000 and the year ended December 31, 1999 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 B-7
Condensed Consolidated Statements of Operations for the quarters ended
March 31, 2000 and 1999 B-8
Condensed Consolidated Statements of Stockholders' Equity for the quarter ended
March 31, 2000 and the year ended December 31, 1999 B-9
Condensed Consolidated Statements of Cash Flows for the quarters ended
March 31, 2000 and 1999 B-10
Notes to Condensed Consolidated Financial Statements for the quarters ended
March 31, 2000 and 1999 B-12
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants B-19
Consolidated Balance Sheets as of December 31, 1999 and 1998 B-20
Consolidated Statements of Operations for the years ended December 31, 1999
and 1998 and the period December 22, 1997 (date of inception) through
December 31, 1997 B-21
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999
and 1998 and the period December 22, 1997 (date of inception) through
December 31, 1997 B-22
Consolidated Statements of Cash Flows for the years ended December 31, 1999
and 1998 and the period December 22, 1997 (date of inception) through
December 31, 1997 B-23
Notes to Consolidated Financial Statements for the years ended December 31, 1999
and 1998 and the period December 22, 1997 (date of inception) through
December 31, 1997 B-25
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of CNL
Health Care Properties, Inc. and subsidiaries (the "Company") gives effect to
(i) the receipt of an initial capital contribution of $200,000 from the Advisor,
$6,386,154 in gross offering proceeds from the sale of 638,615 shares of common
stock for the period from inception through March 31, 2000, and the application
of such funds to pay offering expenses and miscellaneous acquisition expenses,
(ii) the receipt of $320,230 in gross offering proceeds from the sale of 32,023
additional shares for the period April 1, 2000 through April 20, 2000 and the
receipt of $8,100,000 from borrowings on a line of credit, (iii) the application
of such funds to purchase a property and to pay offering expenses, acquisition
fees and miscellaneous acquisition expenses, all as reflected in the pro forma
adjustments described in the related notes. The Unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 2000, includes the transactions described in (i)
above, from its historical balance sheet, adjusted to give effect to the
transactions in (ii) and (iii) above as if they had occurred on March 31, 2000.
The Unaudited Pro Forma Consolidated Statements of Operations for the
quarter ended March 31, 2000 and the year ended December 31, 1999, includes the
operating results of the property described in (iii) above from the date the
property became operational through the end of the pro forma period presented.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should not
be viewed as indicative of the Company's financial results or conditions in the
future.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
-------------- -------------- ---------------
<S> <C>
Land, buildings and equipment on operating
leases $ -- $ 14,610,170 (a) $ 14,610,170
Cash and cash equivalents 5,812,893 (5,334,613) (a) 478,280
Loan costs -- 55,917 (a) 55,917
Other assets 423,602 (382,360) (a) 41,242
--------------- -------------- ---------------
$ 6,236,495 $ 8,949,114 $ 15,185,609
=============== ============== ===============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Line of credit $ -- $ 8,100,000 (a) $ 8,100,000
Accounts payable and accrued expenses 28,100 -- 28,100
Due to related parties 1,938,627 546 (a) 1,939,173
Security deposits -- 553,956 (a) 553,956
--------------- --------------- ---------------
Total liabilities 1,966,727 8,654,502 10,621,229
--------------- --------------- ---------------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000 shares -- -- --
Excess shares, $0.01 par value per share.
Authorized and unissued 103,000,000
shares -- -- --
Common stock, $.01 par value per share.
Authorized 100,000,000 shares; issued and
outstanding 658,615 shares; issued and
outstanding, as adjusted, 690,638 shares 6,586 320 (a) 6,906
Capital in excess of par value 4,410,747 294,292 (a) 4,705,039
Accumulated deficit (147,565) -- (147,565)
--------------- --------------- ---------------
Total stockholders' equity 4,269,768 294,612 4,564,380
--------------- --------------- ---------------
$ 6,236,495 $ 8,949,114 $ 15,185,609
=============== =============== ===============
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ -- $ 345,068 (1) $ 345,068
FF&E reserve income -- 8,119 (2) 8,119
Interest and other income 72,962 (66,702 ) (3) 6,260
--------------- -------------- -------------
72,962 286,485 359,447
--------------- -------------- -------------
Expenses:
Interest -- 176,702 (4) 176,702
General operating and administrative 98,140 -- 98,140
Asset management fees to related party -- 20,773 (5) 20,773
Depreciation and amortization -- 111,262 (6) 111,262
--------------- -------------- -------------
98,140 308,737 --
--------------- -------------- -------------
Net Loss $ (25,178 ) $ (22,252 ) $ (47,430)
=============== ============== =============
Loss Per Share of Common Stock (Basic and
Diluted) (7) $ (.04 ) $ (.07 )
=============== =============
Weighted Average Number of Shares of Common
Stock Outstanding 601,758 690,638
=============== =============
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ -- $ 307,964 (1) $ 307,964
FF&E reserve income -- 7,296 (2) 7,296
Interest and other income 86,231 (43,169 ) (3) 43,062
--------------- -------------- -------------
86,231 272,091 358,322
--------------- -------------- -------------
Expenses:
Interest -- 159,750 (4) 159,750
General operating and administrative 79,621 -- 79,621
Asset management fees to related party -- 13,849 (5) 13,849
Organizational costs 35,000 -- 35,000
Depreciation and amortization -- 99,983 (6) 99,983
--------------- -------------- -------------
114,621 273,582 388,203
--------------- -------------- -------------
Net Loss $ (28,390 ) $ (1,491 ) $ (29,881)
=============== ============== =============
Loss Per Share of Common Stock (Basic and
Diluted) (7) $ (.07 ) $ (.06)
=============== =============
Weighted Average Number of Shares of Common
Stock Outstanding 412,713 514,035
=============== =============
See accompanying notes to unaudited pro forma consolidated financial statements.
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $320,230 from the sale of 32,023 shares
during the period April 1, 2000 through April 20, 2000, the receipt of
$8,100,000 on borrowings from the line of credit, the receipt of
$553,956 from the lessee as a security deposit and $5,334,613 of cash
and cash equivalents used (i) to acquire a property for $13,848,900,
(ii) to pay acquisition fees and costs of $301,787 ($287,377 of which
was accrued as due to related parties at March 31, 2000), (iii) to pay
selling commissions and offering expenses (syndication costs) of
$102,195 which have been netted against stockholders' equity ($76,577
of which was accrued and due to related parties at March 31, 2000) and
(iv) to pay loan costs of $55,917 related to the assumed borrowings
from the line of credit. Also represents the accrual of $378,910 of
acquisition fees and miscellaneous acquisition costs.
Unaudited Pro Forma Consolidated Statements of Operations:
(1) Represents adjustment to rental income from operating leases for the
property acquired by the Company as of April 20, 2000 (the "Pro Forma
Property"), for the period commencing the date the Pro Forma Property
became operational by the previous owner through the end of the pro
forma period presented. The date the Pro Forma Property is treated as
becoming operational as a rental property for purposes of the Pro Forma
Consolidated Statements of Operations was October 11, 1999.
The lease provides for the payment of percentage rent in addition to
base rental income; however, no percentage rent was due under the lease
for the Pro Forma Property during the period the Company was assumed to
have held the property.
(2) Represents reserve funds which will be used for the replacement and
renewal of furniture, fixtures and equipment relating to the Pro Forma
Property (the "FF&E Reserve"). The funds in the FF&E Reserve and all
property purchased with funds from the FF&E Reserve will be paid,
granted and assigned to the Company. In connection therewith, FF&E
Reserve income was earned at approximately $2,700 per month.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the period commencing the date the Pro Forma Property became
operational by the previous owner through the end of the pro forma
period presented, as described in Note (1). The estimated pro forma
adjustment is based upon the fact that interest income from interest
bearing accounts was earned at a rate of approximately five percent per
annum by the Company during the year ended December 31, 1999 and the
quarter ended March 31, 2000.
(4) Represents adjustment to interest expense incurred at a rate of 8.75%
per annum in connection with the assumed borrowings from the line of
credit of $8,100,000 on October 11, 1999.
(5) Represents increase in asset management fees relating to the Pro Forma
Property for the period commencing the date the Pro Forma Property
became operational by the previous owners through the end of the pro
forma period presented, as described in Note (1). Asset management fees
are equal to 0.60% per year of the Company's Real Estate Asset Value as
defined in the Company's prospectus.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
FOR THE QUARTER ENDED MARCH 31, 2000 AND
THE YEAR ENDED DECEMBER 31, 1999
Unaudited Pro Forma Consolidated Statements of Operations - Continued:
(6) Represents increase in depreciation expense of the building and the
furniture, fixture and equipment ("FF&E") portions of the Pro Forma
Property accounted for as operating leases using the straight-line
method. The building and FF&E are depreciated over useful lives of 40
and seven years, respectively. Also represents amortization of the loan
costs of $55,917 (.5% origination fee on the $8,100,000 from borrowings
on the line of credit, associated legal fees and closing costs)
amortized under the straight-line method over a period of five years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the quarter
ended March 31, 2000 and the year ended December 31, 1999.
As a result of the Pro Forma Property being treated in the Pro Forma
Consolidated Statements of Operations as operational since October 11,
1999, the Company assumed approximately 670,638 shares of common stock
were sold, and the net offering proceeds were available for the
purchase of this property. Due to the fact that approximately 270,400
of these shares of common stock were actually sold subsequently, during
the period October 11, 1999 through April 20, 2000, the weighted
average number of shares outstanding for the pro forma periods were
adjusted. Pro forma earnings per share were calculated based upon the
weighted average number of shares of common stock outstanding, as
adjusted, during the quarter ended March 31, 2000 and the year ended
December 31, 1999.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- -------------
<S> <C>
ASSETS
Cash $5,812,893 $4,744,222
Other assets 423,602 344,338
--------------- --------------
$6,236,495 $5,088,560
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to related parties $1,938,627 $1,775,256
Accounts payable and accrued expenses 28,100 21,167
--------------- --------------
Total liabilities 1,966,727 1,796,423
--------------- --------------
Commitment (Note 8)
Stockholders' equity:
Preferred stock, without par value.
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 shares, issued and
outstanding 658,615 and 540,028 shares, respectively 6,586 5,400
Capital in excess of par value 4,410,747 3,365,531
Accumulated deficit (147,565 ) (78,794 )
--------------- --------------
Total stockholders' equity 4,269,768 3,292,137
--------------- --------------
$6,236,495 $5,088,560
=============== ==============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter
Ended March 31,
2000 1999
----------- ------------
<S> <C>
Revenues:
Interest income $72,962 $ --
Expenses:
General operating and administrative 98,140 --
------------ ------------
Net Loss $ (25,178 ) $ --
============ ============
Net Loss Per Share of Common Stock
(Basic and Diluted) $ (0.04 ) $ --
============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 601,758 --
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 2000 and Year Ended December 31, 1999
<TABLE>
<CAPTION>
Common stock
------------------------------- Capital in
Number Par excess of Accumulated
of Shares Value par value deficit Total
-------------- ------------ ------------- ----------------- -------------
<S> <C>
Balance at December 31, 1998 20,000 $ 200 $ 199,800 $ -- $ 200,000
Subscriptions received for common
stock through public offering
and distribution reinvestment plan 543,528 5,435 5,429,848 -- 5,435,283
Subscriptions held in escrow (23,500 ) (235 ) (234,765 ) -- (235,000 )
Stock issuance costs -- -- (2,029,352 ) -- (2,029,352 )
Net loss -- -- -- (28,390 ) (28,390 )
Distributions declared and paid
($.125 per share) -- -- -- (50,404 ) (50,404 )
--------------- ------------- -------------- --------------- --------------
Balance at December 31, 1999 540,028 5,400 3,365,531 (78,794 ) 3,292,137
Subscriptions received for common
stock through public offering and
distribution reinvestment plan 133,387 1,334 1,332,553 -- 1,333,887
Subscriptions held in escrow (14,800 ) (148 ) (147,852 ) -- (148,000 )
Stock issuance costs -- -- (139,485 ) -- (139,485 )
Net loss -- -- -- (25,178 ) (25,178 )
Distributions declared and paid
($.075 per share) -- -- -- (43,593 ) (43,593 )
--------------- ------------- -------------- --------------- --------------
Balance at March 31, 2000 658,615 $ 6,586 $4,410,747 $ (147,565 ) $ 4,269,768
=============== ============= ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
-------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Net Cash Provided by Operating Activities $ 10,409 $ --
--------------- ----------------
Financing Activities:
Subscriptions received from stockholders 1,185,887 --
Distributions to stockholders (43,593 ) --
Payment of stock issuance costs (84,032 ) --
--------------- ----------------
Net cash provided by financing activities 1,058,262 --
--------------- ----------------
Net Increase in Cash and Cash
Equivalents 1,068,671 --
Cash and Cash Equivalents at Beginning
of Quarter 4,744,222 92
--------------- ----------------
Cash and Cash Equivalents at End of
Quarter $ 5,812,893 $ 92
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarter Ended
March 31,
2000 1999
-------------- ----------------
<S> <C>
Reconciliation of Net Loss to Net Cash Provided
by Operating Activities:
Net loss $ (25,178 ) $ --
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Changes in operating assets and liabilities:
Other assets (2,671 ) --
Accounts payable and
other accrued expenses 5,607 --
Due to related parties 32,651 --
--------------- ----------------
Net cash provided by operating
activities $ 10,409 $ --
=============== ================
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Amounts paid by related parties
on behalf of the Company and
its subsidiaries:
Acquisition costs $ 22,283 $ 10,057
Deferred offering costs -- 118,784
Stock issuance costs 18,641 --
--------------- ----------------
$ 40,924 $ 128,841
=============== ================
Costs incurred by the Company and unpaid
at quarter end:
Acquisition costs $ 54,310 $ --
Deferred offering costs -- 9,799
Stock issuance costs 36,812 --
--------------- ----------------
$ 91,122 $ 9,799
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 2000 and 1999
1. Organization and Nature of Business:
CNL Health Care Properties, Inc. was organized pursuant to the laws of
the state of Maryland on December 22, 1997. CNL Health Care GP Corp.
and CNL Health Care LP Corp. are wholly owned subsidiaries of CNL
Health Care Properties, Inc., each of which were organized pursuant to
the laws of the state of Delaware in December 1999. CNL Health Care
Partners, LP is a Delaware limited partnership formed in December 1999.
CNL Health Care GP Corp. and CNL Health Care LP Corp. are the general
and limited partners, respectively, of CNL Health Care Partners, LP.
The term "Company" includes, unless the context otherwise requires, CNL
Health Care Properties, Inc., CNL Health Care Partners, LP, CNL Health
Care GP Corp. and CNL Health Care LP Corp.
The Company intends to use the proceeds from its public offering (the
"Offering"), after deducting offering expenses, primarily to acquire
real estate properties (the "Properties") related to health care and
seniors' housing facilities (the "Health Care Facilities") located
across the United States. The Health Care Facilities may include
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
percent 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.
The Company was a development stage enterprise from December 22, 1997
through July 13, 1999. Since operations had not begun, activities
through July 13, 1999 were devoted to organization of the Company.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The condensed consolidated
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of the management,
necessary to a fair statement of the results for the interim periods
presented. Operating results for the quarter ended March 31, 2000 may
not be indicative of the results that may be expected for the year
ending December 31, 2000. Amounts included in the financial statements
as of December 31, 1999 have been derived from audited financial
statements as of that date.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
2. Basis of Presentation - Continued:
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Form 10-K of
CNL Health Care Properties, Inc. for the year ended December 31, 1999.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company, CNL Health Care Properties, Inc.,
and its wholly owned subsidiaries, CNL Health Care GP Corp. and CNL
Health Care LP Corp., as well as the accounts of CNL Health Care
Partners, LP. All significant intercompany balances and transactions
have been eliminated.
3. Public Offering:
The Company has a currently effective registration statement on Form
S-11 with the Securities 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 March
31, 2000, the Company had received subscription proceeds of $6,769,154
(676,915 shares), including $23,190 (2,319 shares) through the
distribution reinvestment plan and $383,000 (38,300 shares) from
Pennsylvania investors which will be held in escrow until the Company
receives aggregate subscriptions of at least $7,775,000.
4. Other Assets:
Other assets as of March 31, 2000 and December 31, 1999 were $423,602
and $344,338, respectively, which consisted of acquisition fees and
miscellaneous acquisition expenses which will be allocated to future
Properties and miscellaneous prepaid expenses.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
5. Stock Issuance Costs:
The Company has incurred certain expenses of its Offering, including
commissions, marketing support and due diligence expense reimbursement
fees, filing fees, legal, accounting, printing and escrow fees, which
have been deducted from the gross proceeds of the Offering. Preliminary
costs incurred prior to raising capital were advanced by an affiliate
of the Company, CNL Health Care Corp. (the "Advisor") and its
affiliates. The Advisor has agreed to pay all 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 in connection
with the Offering.
During the quarters ended March 31, 2000 and 1999, the Company incurred
$139,485 and $128,583, respectively, in stock issuance costs, including
$94,869 and $17,180, respectively, in commissions and marketing support
and due diligence expense reimbursement fees (see Note 7). These
amounts have been charged to stockholders' equity subject to the three
percent cap described above.
6. Distributions:
For the quarter ended March 31, 2000, 100 percent of the distributions
paid to stockholders were considered ordinary income for federal income
tax purposes. No amounts distributed to the stockholders for the
quarter ended March 31, 2000 are required to be or have been treated by
the Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital. The characterization
for tax purposes of distributions declared for the quarter ended March
31, 2000 may not be indicative of the results that may be expected for
the year ending December 31, 2000.
7. Related Party Arrangements:
Certain affiliates of the Company receive fees and compensation in
connection with the offering, and the acquisition, management and sale
of the assets of the Company.
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, a substantial portion of which has been
or will be paid as commissions to other broker-dealers. During the
quarter ended March 31, 2000, the Company incurred $88,940 of such
fees. A substantial portion of these amounts was or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
7. Related Party Arrangements - Continued:
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, all or a portion of
which may be reallowed to other broker-dealers. During the quarter
ended March 31, 2000, the Company incurred $5,929 of such fees, the
majority of which was reallowed to other broker-dealers and from which
all bona fide due diligence expenses were or will be paid.
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 is $0.0008 and one warrant is issued for every
25 shares sold by the managing dealer except where prohibited by
federal or state securities laws. 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. During the
quarter ended March 31, 2000, the Company issued approximately 19,400
Soliciting Dealer Warrants. As of March 31, 2000, CNL Securities Corp.
was entitled to receive approximately 5,000 additional Soliciting
Dealer Warrants for shares sold during the quarter then ended.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5% of gross proceeds of the
Offering, loan proceeds from permanent financing and amounts
outstanding on the line of credit, if any, at the time of listing of
the shares on a national securities exchange or over-the-counter
market, but excluding that portion of the permanent financing used to
finance Secured Equipment Leases. During the quarter ended March 31,
2000, the Company incurred $53,364 of such fees. These fees are
included in other assets at March 31, 2000.
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the advisory agreement, the Advisor is required to
reimburse the Company the amount by which the total operating expenses
paid or incurred by the Company exceed in any four consecutive fiscal
quarters (the "Expense Year"), the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). Due to
the fact that the Company commenced operations in July 1999, the
Advisor will be required to reimburse the Company any amounts in excess
of the Expense Cap commencing with the Expense Year ending June 30,
2000.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
7. Related Party Arrangements - Continued:
The Advisor and its affiliates provide various administrative services
to the Company, including services related to accounting; financial,
tax and regulatory compliance reporting; stockholder distributions and
reporting; due diligence and marketing; and investor relations
(including administrative services in connection with the Offering), on
a day-to-day basis.
The expenses incurred for these services were classified as follows for
the quarters ended March 31:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C>
Deferred offering costs $ -- $ 70,291
Stock issuance costs 27,103 --
Other assets 945 --
General operating and administrative expenses 54,321 --
-------------- --------------
$ 82,369 $ 70,291
============== ==============
Amounts due to related parties consisted of the following at:
March 31, December 31,
2000 1999
-------------- --------------
Due to the Advisor:
Expenditures incurred for organizational and offering
expenses on behalf of the Company $ 1,479,354 $ 1,432,291
Accounting and administrative services 35,729 6,739
Acquisition fees and expenses 412,820 336,226
-------------- --------------
1,927,903 1,775,256
-------------- --------------
Due to CNL Securities Corp.:
Commissions 10,054 --
Marketing support and due diligence
expense reimbursement fee 670 --
-------------- --------------
10,724 --
-------------- --------------
$ 1,938,627 $ 1,775,256
============== ==============
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
8. Commitment:
In March 2000, the Company entered into an initial commitment to
acquire a private-pay assisted living community for $13,848,900. The
Property is a Brighton Gardens(R) by Marriot(R) in Orland Park,
Illinois (see note 9).
9. Subsequent Events:
During the period April 1 through May 1, 2000, the Company received
subscription proceeds for an additional 41,292 shares ($412,916) of
common stock. As of May 1, 2000, the Company had received total
subscription proceeds of $7,182,070, including $383,000 from
Pennsylvania investors whose funds will be held in escrow until
aggregate subscription proceeds total at least $7,775,000.
On April 1, April 20 and May 1, 2000, the Company declared
distributions of $0.025, $0.012 and $0.058, respectively, per share of
common stock. These distributions are payable in June 2000.
On April 20, 2000, the Company entered into a revolving line of credit
and security agreement with a bank to be used by the Company to acquire
and construct health care Properties. The line of credit provides that
the Company may receive advances of up to $25,000,000 until April 19,
2005, with an annual review to be performed by the bank to indicate
that there has been no substantial deterioration, in the bank's
reasonable discretion, of the credit quality. Interest expense on each
advance shall be payable monthly, with all unpaid interest and
principal due no later than five years from the date of the advance.
Generally, advances under the line of credit will bear interest at
either (i) a rate per annum equal to London Interbank Offered Rate
(LIBOR) plus the difference between LIBOR and the bank's base rate at
the time of the advance or (ii) a rate equal to the bank's base rate,
whichever the Company selects at the time advances are made. The
interest rate will be adjusted daily in accordance with fluctuations
with the bank's rate or the LIBOR rate, as applicable. Notwithstanding
the above, the interest rate on the first $9.7 million drawn will be
8.75%. In addition, a fee of .5 percent per advance will be due and
payable to the bank on funds as advanced. Each advance made under the
line of credit will be collateralized by the assignment of rents and
leases. In addition, the line of credit provides that the Company will
not be able to further encumber the applicable Property during the term
of the advance without the bank's consent. The Company will be
required, at each closing, to pay all costs, fees and expenses arising
in connection with the line of credit. The Company must also pay the
bank's attorneys fees, subject to a maximum cap, incurred in connection
with the line of credit and each advance.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 2000 and 1999
9. Subsequent Events - Continued:
On April 20, 2000, the Company used offering proceeds of $5,748,000 and
obtained an advance under the line of credit of $8,100,000 to acquire a
Property for a total cost of $13,848,900. In connection with the line
of credit, the Company incurred an origination fee, legal fees and
closing costs of $55,917. In connection with the purchase of the
Property, the Company, as lessor, entered into a long-term lease,
triple-net agreement.
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
CNL Health Care Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly in all material respects, the financial position of CNL Health
Care Properties, Inc. (a Maryland corporation) and its subsidiaries at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the two years ended December 31, 1999 and 1998, and the period December
22, 1997 (date of inception) through December 31, 1997, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 14, 2000
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ -----------
<S> <C>
ASSETS
Cash $4,744,222 $ 92
Deferred offering and organizational costs -- 975,339
Other assets 344,338 1,148
------------- ------------
$5,088,560 $976,579
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to related parties $1,775,256 $685,372
Accounts payable and accrued expenses 21,167 91,207
------------- ------------
Total liabilities 1,796,423 776,579
------------- ------------
Stockholders' 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 shares, issued and
outstanding 540,028 and 20,000 shares,
respectively 5,400 200
Capital in excess of par value 3,365,531 199,800
Accumulated deficit (78,794 ) --
------------- ------------
Total stockholders' equity 3,292,137 200,000
------------- ------------
$5,088,560 $976,579
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------ ------------ -------------
<S> <C>
Revenues:
Interest income $ 86,231 $ -- $ --
------------- ------------- --------------
Expenses:
General operating and
administrative 79,621 -- --
Organizational costs 35,000 -- --
------------- ------------- --------------
114,621 -- --
------------- ------------- --------------
Net Loss $ (28,390 ) $ -- $ --
============= ============= ==============
Net Loss Per Share of Common
Stock (Basic and Diluted) $ (.07 ) $ -- $ --
============= ============= ==============
Weighted Average Number of
Shares of Common Stock
Outstanding 412,713 -- --
============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
<TABLE>
<CAPTION>
Common stock
---------------------- Capital in
Number Par excess of Accumulated
of Shares value par value deficit Total
---------- ---------- ------------ ----------------- ------------
<S> <C>
Balance at December 22, 1997 -- $ -- $ -- $ -- $ --
Sale of common stock to related
party 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
Subscriptions received for common
stock through public offering
and distribution reinvestment
plan 543,528 5,435 5,429,848 -- 5,435,283
Subscriptions held in escrow at
December 31, 1999 (23,500 ) (235 ) (234,765 ) -- (235,000 )
Stock issuance costs -- -- (2,029,352 ) -- (2,029,352 )
Net loss -- -- -- (28,390 ) (28,390 )
Distributions declared and paid
($.125 per share) -- -- -- (50,404 ) (50,404 )
---------- ---------- ------------ ----------------- ------------
Balance at December 31, 1999 540,028 $ 5,400 $3,365,531 $ (78,794 ) $3,292,137
========== ========== ============ ================= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Operating Activities:
Interest received $ 86,231 $ -- $ --
Cash paid for expenses (73,380 ) -- --
-------------- -------------- -------------
Net cash provided by operating
activities 12,851 -- --
-------------- -------------- -------------
Financing Activities:
Reimbursement of amounts paid by related
parties on behalf of the Company (2,447 ) (135,339 ) --
Sale of common stock to related party -- -- 200,000
Subscriptions received from stockholders 5,200,283 -- --
Distributions to stockholders (50,404 ) -- --
Payment of stock issuance costs (416,153 ) (64,569 ) --
-------------- -------------- -------------
Net cash provided by (used in)
financing activities 4,731,279 (199,908 ) 200,000
-------------- -------------- -------------
Net Increase (Decrease) in Cash and Cash 4,744,130 (199,908 ) 200,000
Equivalents
Cash and Cash Equivalents at Beginning
of Period 92 200,000 --
-------------- -------------- -------------
Cash and Cash Equivalents at End of
Period $ 4,744,222 $ 92 $ 200,000
============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
December 22,
1997
(Date of
Inception)
Year Ended through
December 31, December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C>
Reconciliation of Net Loss to Net Cash Provided
by Operating Activities:
Net loss $ (28,390 ) $ -- $ --
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Organizational costs 20,000 -- --
Changes in operating assets and
liabilities:
Other assets (5,535 ) -- --
Accounts payable and -- --
other accrued expenses 20,037
Due to related parties 6,739 -- --
-------------- -------------- -------------
Net cash provided by operating
activities $ 12,851 $ -- $ --
============== ============== =============
Supplemental Schedule of Non-Cash
Financing Activities:
Amounts incurred by the Company and
paid by related parties on behalf of the
Company and its subsidiaries are as
follows:
Acquisition costs $98,206 $ -- $ --
Organizational costs -- 20,000 --
Deferred offering costs -- 542,739 43,398
Stock issuance costs 421,878 -- --
-------------- -------------- --------------
$ 520,084 $ 562,739 $ 43,398
============== ============== ==============
Costs incurred by the Company and unpaid
at period end are as follows:
Acquisition costs $ 239,449 $ 1,148 $ --
Deferred offering costs -- 267,701 36,932
Stock issuance costs 235,982 -- --
-------------- -------------- --------------
$ 475,431 $ 268,849 $ 36,932
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 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.
was organized pursuant to the laws of the state of Maryland on December
22, 1997. CNL Health Care GP Corp. and CNL Health Care LP Corp. are
wholly owned subsidiaries of CNL Health Care Properties, Inc., each of
which were organized pursuant to the laws of the state of Delaware in
December 1999. CNL Health Care Partners, LP is a Delaware limited
partnership formed in December 1999. CNL Health Care GP Corp. and CNL
Health Care LP Corp. are the general and limited partners,
respectively, of CNL Health Care Partners, LP. The term "Company"
includes, unless the context otherwise requires, CNL Health Care
Properties, Inc., CNL Health Care Partners, LP, CNL Health Care GP
Corp. and CNL Health Care LP Corp.
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 percent 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.
The Company was a development stage enterprise from December 22, 1997
through July 13, 1999. Since operations had not begun, activities
through July 13, 1999 were devoted to organization of the Company.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CNL Health Care Properties, Inc. and
its wholly owned subsidiaries, CNL Health Care GP Corp. and CNL Health
Care LP Corp., as well as the accounts of CNL Health Care Partners, LP.
All significant intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
1. Significant Accounting Policies - Continued:
Income Taxes - When the Company files its 1999 income tax return, it
will elect, pursuant to Internal Revenue Code Section 856(c)(1), to be
taxed as a REIT under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended, and related regulations. The Company
generally will not be subject to federal corporate income taxes on
amounts distributed to stockholders, providing it distributes at least
95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. For the year ended December 31,
1999, the Company believes it has qualified as a REIT; accordingly, no
provision for federal income taxes has been made in the accompanying
consolidated financial statements.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the period. The weighted average number of shares of common stock
outstanding for the period July 14, 1999 through December 31, 1999 was
412,713. As of December 31, 1999, the Company did not have any
potentially dilutive common shares.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform with the 1999
presentation. These reclassifications had no effect on stockholders'
equity or net earnings.
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.
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, 1999, the Company had received subscription proceeds of $5,435,283
(543,528 shares), including $12,540 (1,254 shares) through the
distribution reinvestment plan and $235,000 (23,500 shares) from
Pennsylvania investors which will be held in escrow until the Company
receives aggregate subscriptions of at least $7,775,000.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
3. Other Assets:
Other assets as of December 31, 1999 and 1998 were $344,338 and $1,148,
respectively, which consisted of acquisition fees and miscellaneous
acquisition expenses that will be allocated to future properties and
miscellaneous prepaid expenses.
4. Stock Issuance Costs:
The Company has incurred certain expenses of its Offering, including
commissions, marketing support and due diligence expense reimbursement
fees, filing fees, legal, accounting, printing and escrow fees, which
have been deducted from the gross proceeds of the Offering. Preliminary
costs incurred prior to raising capital were advanced by an affiliate
of the Company, CNL Health Care Corp. (formerly known as CNL Health
Care Advisors, Inc.) (the "Advisor"). The Advisor has agreed to pay all
organizational and offering expenses (excluding commissions and
marketing support and due diligence expense reimbursement fees) which
exceed three percent of the gross proceeds received from the sale of
shares of the Company in connection with the Offering.
During the years ended December 31, 1999 and 1998, the Company incurred
$1,089,013 and $975,339, respectively, in organizational and offering
costs, including $413,983 and $2,040, respectively, in commissions and
marketing support and due diligence expense reimbursement fees (see
Note 6). Of these amounts $1,074,013 and $955,339, respectively, have
been treated as stock issuance costs and $15,000 and $20,000,
respectively, have been treated as organization costs and expensed in
the current year. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
5. Distributions:
For the year ended December 31, 1999, 100 percent of the distributions
paid to stockholders were considered ordinary income for federal income
tax purposes. No amounts distributed to the stockholders for the year
ended December 31, 1999 are required to be or have been treated by the
Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements:
On December 22, 1997 (date of inception), the Advisor contributed
$200,000 in cash to the Company and became its sole stockholder.
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer of the Offering, CNL
Securities Corp. These affiliates are entitled to receive fees and
compensation in connection with the Offering, and the acquisition,
management and sale of the assets of the Company.
During the years ended December 31, 1999 and 1998, the Company incurred
$388,109 and $1,912, respectively, in selling commissions due to CNL
Securities Corp. for services in connection with the Offering. A
substantial portion of these amounts ($370,690 and $1,785,
respectively) was or will be paid by CNL Securities Corp. as
commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5
percent of the total amount raised from the sale of shares, a portion
of which may be reallowed to other broker-dealers. During the years
ended December 31, 1999 and 1998, the Company incurred $25,874 and
$128, respectively, of such fees, the majority of which were reallowed
to other broker-dealers and from which all bona fide due diligence
expenses were paid.
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, except when prohibited
by federal or state securities laws. 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 Warrants, however, will be
exercisable until one year from the date of issuance. As of December
31, 1999, CNL Securities Corp. was entitled to receive approximately
19,000 Soliciting Dealer Warrants; however, no such warrants had been
issued as of that date.
The Advisor is entitled to receive acquisition fees for services in
identifying Properties and structuring the terms of leases of the
Properties and Mortgage Loans equal to 4.5 percent of the gross
proceeds of the Offering, 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 years ended December 31,
1999 and 1998, the Company incurred $232,865 and $1,148, respectively,
of such fees. Such fees are included in other assets.
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements - Continued:
The Company incurs operating expenses which, in general, are those
expenses relating to administration of the Company on an ongoing basis.
Pursuant to the Advisory Agreement, the Advisor is required to
reimburse the Company the amount by which the total operating expenses
paid or incurred by the Company exceed in any four consecutive fiscal
quarters (the "Expense Year"), the greater of two percent of average
invested assets or 25 percent of net income (the "Expense Cap"). Due to
the fact that the Company commenced operations in July 1999, the
Advisor will be required to reimburse the Company any amounts in excess
of the Expense Cap commencing with the Expense Year ending June 30,
2000.
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. The expenses incurred for these services were
classified as follows:
<TABLE>
<CAPTION>
December 22,
1997
(Date of)
Inception)
Year Ended Through
December 31, December 31,
1999 1998 1997
----------- ----------- ---------------
<S> <C>
Deferred offering costs $ -- $196,184 $15,202
Stock issuance costs 328,229 -- --
Other assets 6,455 -- --
General operating and
administrative expenses 38,796 -- --
----------- ----------- ------------
$373,480 $196,184 $15,202
=========== =========== ============
</TABLE>
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1999 and 1998 and the
Period December 22, 1997 (Date of Inception) through
December 31, 1997
6. Related Party Arrangements - Continued:
Amounts due to related parties consisted of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C>
Due to the Advisor:
Expenditures incurred for organizational
and offering expenses on behalf
of the Company $1,432,291 $470,798
Accounting and administrative
services 6,739 211,386
Acquisition fees 336,226 1,148
------------- -----------
1,775,256 683,332
------------- -----------
Due to CNL Securities Corp.:
Commissions -- 1,912
Marketing support and due diligence
expense reimbursement fee -- 128
------------- -----------
-- 2,040
------------- -----------
$1,775,256 $685,372
============= ===========
</TABLE>
7. Subsequent Events:
During the period January 1, 2000 through January 14, 2000, the Company
received subscription proceeds for an additional 30,329 shares
($303,290) of common stock.
In addition, on January 1, 2000, the Company declared distributions
totalling $13,501 or $0.025 per share of common stock, payable in March
2000, to stockholders of record on January 1, 2000.
<PAGE>
INDEX TO OTHER FINANCIAL STATEMENTS
The following financial information is provided in connection with the Company's
acquisition of the Orland Park Property. Due to the fact that the tenant of the
Company is a newly formed entity, the information presented represents the
historical financial information of the operations of the assisted living
facility. The Orland Park Property became operational on October 11, 1999. This
information was obtained from the seller of the Property. The Company acquired
the Property but does not own any interest in the tenant's operations of the
assisted living facility. For information on the Property and the long-term,
triple-net lease which the Company entered, see "Business -- Property
Acquisitions."
BRIGHTON GARDENS BY MARRIOTT
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
<TABLE>
<CAPTION>
<S> <C>
Updated Financial Statements (unaudited):
Condensed Statement of Assets and Liabilities as of March 24, 2000 B-32
Condensed Statement of Revenues and Operating Expenses for the period from
January 1, 2000 through March 24, 2000 B-33
Condensed Statement of Excess of Assets Over Liabilities for the period from
January 1, 2000 through March 24, 2000 B-34
Condensed Statement of Cash Flows for the period from January 1, 2000 through
March 24, 2000 B-35
Notes to Condensed Financial Statements for the period from January 1, 2000
through March 24, 2000 B-36
Audited Financial Statements:
Report of Independent Certified Public Accountants B-37
Statement of Assets and Liabilities as of December 31, 1999 B-38
Statement of Revenues and Operating Expenses for the period October 11, 1999
(date of opening) through December 31, 1999 B-39
Statement of Excess of Assets Over Liabilities for the period October 11, 1999
(date of opening) through December 31, 1999 B-40
Statement of Cash Flows for the period October 11, 1999 (date of opening) through
December 31, 1999 B-41
Notes to Financial Statements for the period October 11, 1999 (date of opening) through
December 31, 1999 B-42
</TABLE>
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Assets and Liabilities
March 24, 2000
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash $ 9,339
Other assets 5,015
---------------
Total current assets 14,354
Property and Equipment, at cost, less accumulated
depreciation of $191,602 12,593,208
---------------
$12,607,562
===============
Liabilities and Excess of Assets Over Liabilities
Current Liabilities:
Accounts payable and accrued expenses $ 12,678
Unearned revenue 27,280
Due to Marriott Senior Living Services, Inc. 259,690
---------------
Total current liabilities 299,648
Excess of Assets Over Liabilities 12,307,914
---------------
$12,607,562
===============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Revenues and Operating Expenses
Period from January 1, 2000 through March 24, 2000
- --------------------------------------------------------------------------------
Revenue:
Resident fees $ 402,195
Other income 10,846
---------------
413,041
---------------
Expenses:
Operating, selling, general and administrative 538,173
Depreciation 100,843
---------------
639,016
---------------
Excess of Operating Expenses Over Revenues $ (225,975)
===============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Excess of Assets Over Liabilities
Period from January 1, 2000 through March 24, 2000
- --------------------------------------------------------------------------------
Balance at Beginning of Period $ 12,533,889
Excess of operating expenses over revenues (225,975)
----------------
Excess of Assets Over Liabilities at March 24, 2000 $ 12,307,914
================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Condensed Statement of Cash Flows
Period from January 1, 2000 through March 24, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss $ (225,975)
Depreciation 100,843
Changes in assets and liabilities:
Decrease (increase) in assets:
Decrease in accounts receivable 7,333
Decrease in other assets 2,744
Increase (decrease) in liabilities:
Decrease in accounts payable and accrued expenses (2,546)
Increase in unearned revenue 27,280
Increase in due to Marriott Senior Living Services, Inc. 83,131
----------------
Net cash used in operating activities (7,190)
Cash at Beginning of Period 16,529
----------------
Cash at End of Period $ 9,339
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Notes to Condensed Financial Statements
Period from January 1, 2000 through March 24, 2000
- --------------------------------------------------------------------------------
1. Organization and Nature of Business:
Brighton Gardens by Marriott (the "Property") is an assisted-living
facility located in Orland Park, Illinois. The Property includes 82
assisted-living units and 24 Alzheimer's units. The Property is an
unincorporated division of Marriott Senior Living Services, Inc. (the
"Owner"), a subsidiary of Marriott International, Inc. The property
became operational on October 11, 1999.
2. Basis of Presentation:
The accompanying unaudited condensed financial statements do not
include all of the information and note disclosures required by
generally accepted accounting principles. The condensed financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of management, necessary to a
fair statement of results for the interim period presented. Operating
results for the period from January 1, 2000 to March 24, 2000 may not
be indicative of the results that may be expected for the year ending
December 29, 2000. These unaudited financial statements should be read
in conjunction with the audited financial statements as of December 31,
1999.
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
Marriott Senior Living Services, Inc.
In our opinion, the accompanying statement of assets and liabilities and the
related statements of revenues and operating expenses, of excess of assets over
liabilities and of cash flows present fairly, in all material respects, the
financial position of Brighton Gardens by Marriott, Orland Park, Illinois (an
unincorporated division of Marriott Senior Living Services, Inc.) at December
31, 1999, and the results of its operations and its cash flows for the period
from October 11, 1999 (date of opening) to December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States 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 audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 20, 2000
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Statement of Assets and Liabilities
December 31, 1999
Assets
Current Assets:
Cash $ 16,529
Accounts receivable 7,333
Other assets 7,759
--------------
Total current assets 31,621
Property and Equipment, at cost, less accumulated
depreciation of $90,759 12,694,051
--------------
$ 12,725,672
==============
Liabilities and Excess of Assets Over Liabilities
Current Liabilities:
Accounts payable and accrued expenses $ 15,224
Due to Marriott Senior Living Services, Inc. 176,559
--------------
Total current liabilities 191,783
Excess of Assets Over Liabilities 12,533,889
--------------
$ 12,725,672
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Statement of Revenues and Operating Expenses
Period from October 11, 1999 (Date of Opening) through December 31, 1999
Revenue:
Resident fees $ 277,089
Other income 5,048
-----------
282,137
-----------
Expenses:
Operating, selling, general and administrative 442,299
Depreciation 90,759
-----------
533,058
-----------
Excess of Operating Expenses Over Revenues $ (250,921)
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Statement of Excess of Assets Over Liabilities
Period from October 11, 1999 (Date of Opening) through December 31, 1999
Balance at Beginning of Period $ -
Contribution of property and equipment 12,784,810
Excess of operating expenses over revenues (250,921)
-------------
Excess of Assets Over Liabilities at December 31, 1999 $ 12,533,889
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Statement of Cash Flows
Period from October 11, 1999 (Date of Opening) through December 31, 1999
Cash Flows from Operating Activities:
Net loss $ (250,921)
Depreciation 90,759
Chages in assets and liabilities:
Decrease (increase) in assets:
Increase in accounts receivable (7,333)
Increase in other assets (7,759)
Increase (decrease) in liabilities:
Increase in accounts payable and accrued expenses 15,224
Increase in due to Marriott Senior Living Services, Inc. 176,559
-------------
Net cash provided by operating activities 16,529
Cash at Beginning of Period -
-------------
Cash at End of Period $ 16,529
=============
Summary of Non-Cash Financing Transaction:
On October 11, 1999, the property became operational and property and
equipment with a cost of $12,784,810 were recognized as a contribtuion
from Marriott Senior Living Services, Inc.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Notes to Financial Statements
Period from October 11, 1999 (Date of Opening) through December 31, 1999
- --------------------------------------------------------------------------------
1. Organization and Nature of Business:
Brighton Gardens by Marriott (the "Property") is an assisted-living
facility located in Orland Park, Illinois. The Property includes 82
assisted-living units and 24 Alzheimer's units. The Property is an
unincorporated division of Marriott Senior Living Services, Inc. (the
"Owner"), a subsidiary of Marriott International, Inc.
2. Summary of Significant Accounting Policies:
Significant accounting policies followed by the Property are described
below:
Basis of Presentation
The accompanying statements have been prepared to present only the
accounts which relate to the Property since it became operational.
Revenue Recognition
The Property charges fees to residents of its assisted-living facilities
pursuant to short-term operating lease agreements. Resident fees are
recognized as revenue ratably over the term of the related leases. Other
revenues are recognized as the related services are performed.
Property and Equipment
Land is carried at cost. Buildings and improvements and equipment are
carried at cost less accumulated depreciation. Additions, improvements
and expenditures for repairs and maintenance that extend the life of the
assets are capitalized. Other expenditures for repairs and maintenance
are charged to expense.
Depreciation is computed by the straight-line method based on the
following estimated useful lives:
Buildings and improvements 40 years
Equipment 2-10 years
Income Taxes
The operations of the Property does not represent a legal entity for
income tax reporting purposes; therefore, all income and expenses of the
Property are combined into the operations of the Owner for the filing of
applicable tax returns.
Due to Marriott Senior Living Services, Inc.
Due to Marriott Senior Living Services, Inc. comprises short-term
working capital advances made by the Owner to the Property in the normal
course of business.
<PAGE>
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services, Inc.)
Notes to Financial Statements - Continued
Period from October 11, 1999 (Date of Opening) through December 31, 1999
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies - Continued:
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
3. Property and Equipment:
Property and equipment is comprised of the following:
Land $ 1,437,429
Building and improvements 10,377,634
Equipment 969,747
--------------
12,784,810
Less accumulated depreciation (90,759)
--------------
$12,694,051
==============
<PAGE>
APPENDIX C
PRIOR PERFORMANCE TABLES
<PAGE>
APPENDIX C
PRIOR PERFORMANCE TABLES
The information in this Appendix C contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Programs") which were
formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains,
or in the case of CNL Hospitality Properties, Inc., to invest in hotel
properties. No Prior Public Programs sponsored by the Company's Affiliates have
invested in health care facilities leased on a triple-net basis to operators of
health care facilities.
A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
CNL American Properties Fund, Inc., and CNL Hospitality Properties, Inc. as well
as a copy, for a reasonable fee, of the exhibits filed with such reports.
The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in restaurant properties, or in the case of CNL
Hospitality Properties, Inc., through investment in hotel properties. In
addition, the investment objectives of the Prior Public Programs included making
partially tax-sheltered distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.
DESCRIPTION OF TABLES
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of December 31, 1999. The following is a brief description of
the Tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Programs, the offerings of
which became fully subscribed between January 1995 and December 1999.
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
C-1
<PAGE>
TABLE II - COMPENSATION TO SPONSOR
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to two of the Company's principals and
their Affiliates which sponsored the Prior Public Programs.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between January 1995 and December 1999. The Table
also shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending December 31, 1999.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results for the period from
inception through December 31, 1999, of the Prior Public Programs, the offerings
of which became fully subscribed between January 1995 and December 1999.
The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of an investing or financing nature.
These items include proceeds from capital contributions of investors and
disbursements made from these sources of funds, such as syndication (or stock
issuance) and organizational costs, acquisition of the properties and other
costs which are related more to the organization of the entity and the
acquisition of properties than to the actual operations of the entities.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
TABLE IV - RESULTS OF COMPLETED PROGRAMS
Table IV is omitted from this Appendix C because none of the Prior
Public Programs have completed operations (meaning they no longer hold
properties).
TABLE V - SALES OR DISPOSAL OF PROPERTIES
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Programs between January 1995 and December
1999.
The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL American CNL Income
Fund XVI, Properties Fund, Fund XVII,
Ltd. Inc. Ltd.
------------- ----------------- -------------
(Note 1)
<S> <C> <C> <C>
Dollar amount offered $45,000,000 $747,464,420 $30,000,000
============= ================= =============
Dollar amount raised 100.0 % 100.0 % 100.0 %
------------- ----------------- -------------
Less offering expenses:
Selling commissions and discounts (8.5 ) (7.5 ) (8.5 )
Organizational expenses (3.0 ) (2.2 ) (3.0 )
Marketing support and due diligence
expense reimbursement fees
(includes amounts reallowed to
unaffiliated entities) (0.5 ) (0.5 ) (0.5 )
------------- ----------------- -------------
(12.0 ) (10.2 ) (12.0 )
------------- ----------------- -------------
Reserve for operations -- -- --
------------- ----------------- -------------
Percent available for investment 88.0 % 89.8 % 88.0 %
============= ================= =============
Acquisition costs:
Cash down payment 82.5 % 85.3 % 83.5 %
Acquisition fees paid to affiliates 5.5 4.5 4.5
Loan costs -- -- --
------------- ----------------- -------------
Total acquisition costs 88.0 % 89.8 % 88.0 %
============= ================= =============
Percent leveraged (mortgage financing
divided by total acquisition costs) -- -- --
Date offering began 9/02/94 4/19/95, 2/06/97 9/02/95
and 3/02/98
Length of offering (in months) 9 22, 13 and 9, 12
respectively
Months to invest 90% of amount
available for investment measured
from date of offering 11 23, 16 and 11, 15
respectively
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995,
CNL American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The Initial Offering of APF commenced April 19, 1995, and upon
completion of the Initial Offering on February 6, 1997, had
received subscription proceeds of $150,591,765 (7,529,588
shares), including $591,765 (29,588 shares) issued pursuant to
the reinvestment plan. Pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale
$275,000,000 of shares of common stock (the "1997 Offering"),
including $25,000,000 available only to stockholders
participating in the company's reinvestment plan. The 1997
Offering of APF commenced following the completion of the
Initial Offering on February 6, 1997, and upon completion of
the 1997 Offering on March 2, 1998, had received subscription
proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11 under
the Securities Act of 1933, as amended, effective May 12,
1998, APF registered for sale $345,000,000 of shares of common
stock (the "1998 Offering"). The 1998 Offering of APF
commenced following the completion of the 1997 Offering on
March 2, 1998. As of January 31, 1999, APF had received
subscriptions totalling approximately $345,000,000 (17,250,000
shares), from the 1998 Offering, including $3,107,848 (155,393
shares) issued pursuant to the company's reinvestment plan.
The 1998 Offering became fully subscribed in December 1998 and
proceeds from the last subscriptions were received in January
1999.
C-3
<PAGE>
CNL Income CNL Hospitality
Fund XVIII, Properties,
Ltd. Inc.
- ---------------- ------------------
(Note 2)
$35,000,000 $150,072,637
================ ==================
100.0% 100.0%
- --------------- ------------------
(8.5) (7.5)
(3.0) (3.0)
(0.5) (0.5)
- --------------- ------------------
(12.0) (11.0)
- --------------- ------------------
-- --
- --------------- ------------------
88.0% 89.0%
=============== ==================
83.5% 84.5%
4.5 4.5%
-- --
- ---------------- ------------------
88.0% 89.0%
================ ==================
-- --
9/20/96 7/09/97
17 23
17 29
Note 2: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective July 9, 1997,
CNL Hospitality Properties, Inc. ("CHP") registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The Initial Offering of CHP commenced September 11, 1997, and
upon completion of the Initial Offering on June 17, 1999 had
received $150,072,637 (15,007,264 shares), including $72,637
(7,264 shares) issued pursuant to the reinvestment plan.
Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective June 17, 1999,
CHP registered for sale $275,000,000 of shares of common stock
(the "1999 Offering"), including $25,000,000 available only to
stockholders participating in the Company's reinvestment plan.
The 1999 Offering of CHP commenced following the completion of
the Initial Offering on June 17, 1999. As of December 31,
1999, CHP had received subscription proceeds of $138,885,350
(13,888,530 shares) from its 1999 Offering, including $431,182
(43,118 shares) issued pursuant to the reinvestment plan.
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL American CNL Income
Fund XVI, Properties Fund, Fund XVII,
Ltd. Inc. Ltd.
------------- ----------------- --------------
(Note 1)
<S> <C> <C> <C>
Date offering commenced 9/02/94 4/19/95, 2/06/97 9/02/95
and 3/02/98
Dollar amount raised $45,000,000 $747,464,420 $30,000,000
============= ================= ==============
Amount paid to sponsor from proceeds of offering:
Selling commissions and discounts 3,825,000 56,059,832 2,550,000
Real estate commissions -- -- --
Acquisition fees (Notes 5 and 6) 2,475,000 33,604,618 1,350,000
Marketing support and due diligence
expense reimbursement fees
(includes amounts reallowed to
unaffiliated entities) 225,000 3,737,322 150,000
------------- ----------------- --------------
Total amount paid to sponsor 6,525,000 93,401,772 4,050,000
============= ================= ==============
Dollar amount of cash generated from
operations before deducting payments
to sponsor:
1999 (Note 7) 3,327,199 311,630,414 2,567,164
1998 3,765,104 42,216,874 2,638,733
1997 3,909,781 18,514,122 2,611,191
1996 3,911,609 6,096,045 1,340,159
1995 2,619,840 594,425 11,671
1994 212,171 -- --
1993 -- -- --
Amount paid to sponsor from operations
(administrative, accounting and
management fees) (Note 6):
1999 175,968 4,369,200 117,146
1998 141,410 3,100,599 117,814
1997 129,357 1,437,908 116,077
1996 157,883 613,505 107,211
1995 138,445 95,966 2,659
1994 7,023 -- --
1993 -- -- --
Dollar amount of property sales and
refinancing before deducting payments
to sponsor:
Cash (Note 3) 2,052,695 14,349,067 1,675,385
Notes -- -- --
Amount paid to sponsors from property
sales and refinancing:
Real estate commissions -- -- --
Incentive fees -- -- --
Other (Notes 2 and 6) -- -- --
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995,
CNL American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The Initial Offering of APF commenced April 19, 1995, and upon
completion of the Initial Offering on February 6, 1997, had
received subscription proceeds of $150,591,765 (7,529,588
shares), including $591,765 (29,588 shares) issued pursuant to
the reinvestment plan. Pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale
$275,000,000 of shares of common stock (the "1997 Offering"),
including $25,000,000 available only to stockholders
participating in the company's reinvestment plan. The 1997
Offering of APF commenced following the completion of the
Initial Offering on February 6, 1997, and upon completion of
the 1997 Offering on March 2, 1998, had received subscription
proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11 under
the Securities Act of 1933, as amended, effective May 12,
1998, APF registered for sale $345,000,000 of shares of common
stock (the "1998 Offering"). The 1998 Offering of APF
commenced following the completion of the 1997 Offering on
March 2, 1998. As of January 31, 1999, APF had received
subscriptions totalling approximately $345,000,000 (17,250,000
shares), from the 1998 Offering, including $3,107,848 (155,393
shares) issued pursuant to the company's reinvestment plan.
The 1998 Offering became fully subscribed in December 1998 and
proceeds from the last subscriptions were received in January
1999. The amounts shown represent the combined results of the
Initial Offering, the 1997 Offering and the 1998 Offering as
of January 31, 1999, including shares issued pursuant to the
company's reinvestment plans.
C-5
<PAGE>
CNL Income CNL Hospitality
Fund XVIII, Properties,
Ltd. Inc.
- ---------------- --------------------
(Note 4)
9/20/96 7/9/97 and 6/17/99
$35,000,000 $288,957,987
================ ====================
2,975,000 20,546,879
-- --
1,575,000 12,892,314
175,000 1,369,792
- ---------------- --------------------
4,725,000 34,808,985
================ ====================
2,921,071 13,348,795
2,964,628 2,985,455
1,459,963 29,358
30,126 --
-- --
-- --
-- --
124,031 458,634
132,890 208,490
98,207 6,889
2,980 --
-- --
-- --
-- --
688,997 --
-- --
-- --
-- --
-- --
Note 2: For negotiating secured equipment leases and supervising
the secured equipment lease program, APF was required to pay
its external advisor a one-time secured equipment lease
servicing fee of two percent of the purchase price of the
equipment that is the subject of a secured equipment lease
(see Note 6). During the years ended December 31, 1999, 1998,
1997 and 1996, APF incurred $77,317, $54,998, $87,665 and
$70,070, respectively, in secured equipment lease servicing
fees.
Note 3: Excludes properties sold and substituted with replacement
properties, as permitted under the terms of the lease
agreements.
Note 4: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective July 9, 1997,
CNL Hospitality Properties, Inc. registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The offering of shares of CNL Hospitality Properties, Inc.
commenced September 11, 1997, and upon completion of the
Initial Offering on June 17, 1999, had received subscription
proceeds of $150,072,637 (15,007,264 shares), including
$72,637 (7,264 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11, as
amended, effective June 17, 1999, CNL Hospitality Properties,
Inc. registered for sale $275,000,000 of shares of common
stock (the "1999 Offering"). The 1999 Offering of CNL
Hospitality Properties, Inc. commenced following the
completion of the Initial Offering on June 17, 1999. The
amounts shown represent the combined results of the Initial
Offering and the 1999 Offering, including subscription
proceeds issued pursuant to the reinvestment plan as of
December 31, 1999.
C-6
<PAGE>
TABLE II - COMPENSATION TO SPONSOR - CONTINUED
Note 5: In addition to acquisition fees paid on gross proceeds from
the offerings, prior to becoming self advised on September 1,
1999 APF also incurred acquisition fees relating to proceeds
from its line of credit to the extent the proceeds were used
to acquire properties. Such fees were paid using proceeds from
the line of credit, and as of December 31, 1999, APF had
incurred $6,175,521 of such fees (see note 6).
Note 6: On September 1, 1999, APF issued 6,150,000 shares of common
stock (with an exchange value of $20 per share) to affiliates
of APF to acquire its external advisor and two companies which
make and service mortgage loans and securitize portions of
such loans. As a result of the acquisition, APF ceased payment
of acquisition fees, administrative, accounting, management
and equipment lease servicing fees.
Note 7: In September 1999, APF acquired two companies which make
and service mortgage loans and securitize portions of loans.
Effective with these acquisitions, APF classifies its
investments in mortgage loans, proceeds from sale of mortgage
loans, collections of mortgage loans, proceeds from
securitization transactions and purchases of other investments
as operating activities in its financial statements. Prior to
these acquisitions, these types of transactions were
classified as investing activities in its financial
statements.
C-7
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390
Equity in earnings from joint venture 0 0 0 19,668
Gain/(loss) from sale of properties (Notes 4, 5
and 10) 0 0 0 124,305
Provision for loss on building (Note 8) 0 0 0 0
Interest income 0 21,478 321,137 75,160
Less: Operating expenses 0 (10,700) (274,595) (261,878)
Transaction costs 0 0 0 0
Interest expense 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447)
-------------- -------------- -------------- -------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198
============== ============== ============== =============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830
============== ============== ============== =============
- from gain (loss) on sale (Notes 4, 5
and 10) 0 0 0 0
============== ============== ============== =============
Cash generated from operations (Notes 2
and 3) 0 205,148 2,481,395 3,753,726
Cash generated from sales (Notes 4, 5 and 10) 0 0 0 775,000
Cash generated from refinancing 0 0 0 0
-------------- -------------- -------------- -------------
Cash generated from operations, sales and
refinancing 0 205,148 2,481,395 4,528,726
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251)
- from cash flow from prior period 0 0 0 0
-------------- -------------- -------------- -------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 20,174,172 24,825,828 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,355,627)
Investment in direct financing leases 0 (975,853) (5,595,236) (405,937)
Investment in joint ventures 0 0 0 (775,000)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income
Fund XVI, Ltd. by related parties 0 (854,154) (405,569) (2,494)
Increase in other assets 0 (443,625) (58,720) 0
Increase (decrease) in restricted cash 0 0 0 0
Reimbursement from developer of
construction costs 0 0 0 0
Other (36) (20,714) 20,714 0
-------------- -------------- -------------- -------------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,441,583)
============== ============== ============== =============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71
============== ============== ============== =============
- from recapture 0 0 0 0
============== ============== ============== =============
Capital gain (loss) (Notes 4, 5 and 10) 0 0 0 0
============== ============== ============== =============
</TABLE>
C-8
<PAGE>
1997 1998 1999
- ---------------- -------------- -------------
$ 4,308,853 $ 3,901,555 $ 3,852,222
73,507 132,002 158,580
41,148 0 (84,478)
0 (266,257) 0
73,634 60,199 49,008
(272,932) (270,489) (359,311)
0 (24,652) (212,093)
0 0 0
(563,883) (555,360) (588,920)
- ---------------- -------------- -------------
3,660,327 2,976,998 2,815,008
================ ============== =============
3,178,911 3,153,618 2,835,955
================ ============== =============
64,912 0 (102,397)
================ ============== =============
3,780,424 3,623,694 3,151,231
610,384 0 667,311
0 0 0
- ---------------- -------------- -------------
4,390,808 3,623,694 3,818,542
(3,600,000) (3,623,694) (3,151,231)
0 (66,306) (448,769)
- ---------------- -------------- -------------
790,808 (66,306) 218,542
0 0 0
0 0 0
0 0 0
(23,501) (3,545) 0
(29,257) (28,403) 0
0 (744,058) (158,512)
0 0 0
0 0 0
(610,384) 610,384 0
0 161,648 0
0 0 (25,866)
- ---------------- -------------- -------------
127,666 (70,280) 34,164
================ ============== =============
70 69 62
================ ============== =============
0 0 0
================ ============== =============
1 0 (2)
================ ============== =============
C-9
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
-------------- ------------- ------------- -------------
Total distributions on GAAP basis (Note 6) 0 1 45 76
============== ============= ============= =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 45 76
- from prior period 0 0 0 0
-------------- ------------- ------------- -------------
Total distributions on cash basis (Note 6) 0 1 45 76
============== ============= ============= =============
Total cash distributions as a percentage
of original $1,000 investment (Notes 7
and 9) 0.00% 4.50% 6.00% 7.88%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Notes 4, 5 and 10) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, CNL Income Fund XVI, Ltd.
("CNL XVI") and CNL Income Fund XV, Ltd. each registered for
sale $40,000,000 units of limited partnership interests
("Units"). The offering of Units of CNL Income Fund XV, Ltd.
commenced February 23, 1994. Pursuant to the registration
statement, CNL XVI could not commence until the offering of
Units of CNL Income Fund XV, Ltd. was terminated. CNL Income
Fund XV, Ltd. terminated its offering of Units on September 1,
1994, at which time the maximum offering proceeds of
$40,000,000 had been received. Upon the termination of the
offering of Units of CNL Income Fund XV, Ltd., CNL XVI
commenced its offering of Units. Activities through September
22, 1994, were devoted to organization of the partnership and
operations had not begun.
Note 2: Cash generated from operations includes cash received from
tenants, less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the financial statements of CNL XVI.
Note 4: In April 1996, CNL XVI sold one of its properties and
received net sales proceeds of $775,000, resulting in a gain
of $124,305 for financial reporting purposes. In October 1996,
CNL XVI reinvested the net sales proceeds in an additional
property as tenants-in-common with an affiliate of the general
partners.
Note 5: In March 1997, CNL XVI sold one of its properties and
received net sales proceeds of $610,384, resulting in a gain
of $41,148 for financial reporting purposes. In January 1998,
CNL XVI reinvested the net sales proceeds in an additional
property as tenants-in-common with affiliates of the general
partners.
Note 6: Distributions declared for the quarters ended December 31,
1994, 1995, 1996, 1997 and 1998 are reflected in the 1995,
1996, 1997, 1998 and 1999 columns, respectively, due to the
payment of such distributions in January 1995, 1996, 1997,
1998 and 1999, respectively. As a result of distributions
being presented on a cash basis, distributions declared and
unpaid as of December 31, 1994, 1995, 1996, 1997, 1998 and
1999 are not included in the 1994, 1995, 1996, 1997, 1998 and
1999 totals, respectively.
Note 7: Cash distributions for 1998 include an additional amount
equal to 0.20% of invested capital which was earned in 1997
but declared payable in the first quarter of 1998.
Note 8: During the year ended December 31, 1998, CNL XVI recorded a
provision for loss on building of $266,257 for financial
reporting purposes relating to a Long John Silver's property
in Celina, Ohio. The tenant of this property filed for
bankruptcy and ceased payment of rents under the terms of its
lease agreement. The allowance represents the difference
between the Property's carrying value at December 31, 1998 and
the estimated net realizable value for this Property.
C-10
<PAGE>
1997 1998 1999
- ------------------ -------------- ---------------
80 65 62
0 0 0
0 17 18
- ------------------ -------------- ---------------
80 82 80
================== ============== ===============
0 0 0
0 0 0
80 81 70
0 1 10
- ------------------ -------------- ---------------
80 82 80
================== ============== ===============
8.00% 8.20% 8.00%
202 284 364
100 % 100 % 99 %
Note 9: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 6 above)
Note 10: In November 1999, CNL XVI sold one of its properties and
received net sales proceeds of $667,311, resulting in a loss
of $84,478 for financial reporting purposes. CNL XVI intends
to reinvest the net sales proceeds from the sale of this
property in an additional property.
C-11
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL AMERICAN PROPERTIES FUND, INC.
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 539,776 $4,363,456 $ 15,516,102
Equity in earnings of joint venture 0 0 0 0
Loss on sale of assets (Notes 7 and 15) 0 0 0 0
Provision for losses on assets (Notes 12 and 14) 0 0 0 0
Interest income 0 119,355 1,843,228 3,941,831
Less: Operating expenses 0 (186,145) (908,924) (2,066,962)
Transaction costs 0 0 0 0
Interest expense 0 0 0 0
Depreciation and amortization 0 (104,131) (521,871) (1,795,062)
Advisor acquisition expense (Note 16) 0 0 0 0
Minority interest in income of consolidated
joint venture 0 (76) (29,927) (31,453)
------------ ------------ ------------- -------------
Net income (loss) - GAAP basis 0 368,779 4,745,962 15,564,456
============ ============ ============= =============
Taxable income
- from operations (Note 8) 0 379,935 4,894,262 15,727,311
============ ============ ============= =============
- from gain (loss) on sale (Notes 7 and 15) 0 0 0 (41,115)
============ ============ ============= =============
Cash generated from operations (Notes 4 and 5) 0 498,459 5,482,540 17,076,214
Cash generated from sales (Notes 7 and 15) 0 0 0 6,289,236
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------- -------------
Cash generated from operations, sales and 0 498,459 5,482,540 23,365,450
refinancing
Less: Cash distributions to investors (Note 9)
- from operating cash flow (Note 4) 0 (498,459) (5,439,404) (16,854,297)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 (136,827) 0 0
------------ ------------ ------------- -------------
Cash generated (deficiency) after cash distributions 0 (136,827) 43,136 6,511,153
Special items (not including sales of real estate
and refinancing):
Subscriptions received from stockholders 0 38,454,158 100,792,991 222,482,560
Sale of common stock to CNL Fund
Advisors, Inc. 200,000 0 0 0
Retirement of shares of common stock
(Note 13) 0 0 0 0
Contributions from minority interest 0 200,000 97,419 0
Distributions to holder of minority interest 0 0 (39,121) (34,020)
Stock issuance costs (19) (3,680,704) (8,486,188) (19,542,862)
Acquisition of land and buildings 0 (18,835,969) (36,104,148) (143,542,667)
Investment in direct financing leases 0 (1,364,960) (13,372,621) (39,155,974)
Proceeds from sales of equipment direct
financing leases 0 0 0 962,274
Investment in joint venture 0 0 0 0
Purchase of other investments 0 0 0 0
Investment in mortgage notes receivable 0 0 (13,547,264) (4,401,982)
Collections on mortgage notes receivable 0 0 133,850 250,732
Investment in equipment and other notes
receivable 0 0 0 (12,521,401)
Collections on equipment and other notes
receivable 0 0 0 0
Investment in (redemption of) certificates of
deposit 0 0 0 (2,000,000)
Proceeds of borrowing on line of credit and
note payable 0 0 3,666,896 19,721,804
Payment on line of credit 0 0 (145,080) (20,784,577)
Reimbursement of organization, acquisition,
and deferred offering and stock issuance costs
paid on behalf of CNL American Properties Fund,
Inc. by related parties (199,036) (2,500,056) (939,798) (2,857,352)
Increase in intangibles and other assets 0 (628,142) (1,103,896) 0
Proceeds from borrowings on mortgage
warehouse facility 0 0 0 0
Payments on mortgage warehouse facility 0 0 0 0
Payments of loan costs 0 0 0 0
Other 0 0 (54,533) 49,001
------------ ------------ ------------- -------------
Cash generated (deficiency) after cash
distributions and special items 945 11,507,500 30,941,643 5,136,689
============ ============ ============= =============
</TABLE>
C-12
<PAGE>
1998 1999
(Note 3) (Note 3)
- --------------- ---------------
$33,202,491 $ 62,165,451
16,018 97,307
0 (1,851,838)
(611,534) (7,779,195)
8,984,546 13,335,146
(5,354,859) (12,833,224)
0 (6,798,803)
0 (10,205,197)
(4,054,098) (9,591,787)
0 (76,333,516)
(30,156) (41,678)
- --------------- ---------------
32,152,408 (49,837,334)
=============== ===============
33,553,390 58,152,473
=============== ===============
(149,948) (789,861)
=============== ===============
39,116,275 307,261,214
2,385,941 5,302,433
0 0
- --------------- ---------------
41,502,216 312,563,647
(39,116,275) (60,078,825)
0 0
(265,053) 0
(67,821) 0
- --------------- ---------------
2,053,067 252,484,822
385,523,966 210,736
0 0
(639,528) (50,891)
0 740,621
(34,073) (66,763)
(34,579,650) (737,190)
(200,101,667) (286,411,210)
(47,115,435) (63,663,720)
0 2,252,766
(974,696) (187,452)
(16,083,055) 0
(2,886,648) (4,041,427)
291,990 393,468
(7,837,750) (26,963,918)
1,263,633 3,500,599
0 2,000,000
7,692,040 439,941,245
(8,039) (61,580,289)
(4,574,925) (1,492,310)
(6,281,069) (1,862,036)
0 27,101,067
0 (352,808,966)
0 (5,947,397)
(95,101) 0
- --------------- ---------------
75,613,060 (77,188,245)
=============== ===============
C-13
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
<TABLE>
<CAPTION>
1994 1997
(Note 1) 1995 1996 (Note 2)
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Notes 9 and 11)
- from operations (Note 8) 0 20 61 67
============== ============= ============== =============
- from recapture 0 0 0 0
============== ============= ============== =============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============= ============== =============
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 19 59 66
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 10) 0 14 8 6
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 11) 0 33 67 72
============== ============= ============== =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations (Note 4) 0 26 67 72
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 10) 0 7 0 0
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 11) 0 33 67 72
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment (Note 6) 0.00% 5.34% 7.06% 7.45%
Total cumulative cash distributions per
$1,000 investment from inception 0 33 100 172
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Note 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995,
CNL American Properties Fund, Inc. ("APF") registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The Initial Offering of APF commenced April 19, 1995, and upon
completion of the Initial Offering on February 6, 1997, had
received subscription proceeds of $150,591,765 (7,529,588
shares), including $591,765 (29,588 shares) issued pursuant to
the reinvestment plan. Pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933, as amended,
effective January 31, 1997, APF registered for sale
$275,000,000 of shares of common stock (the "1997 Offering"),
including $25,000,000 available only to stockholders
participating in the company's reinvestment plan. The 1997
Offering of APF commenced following the completion of the
Initial Offering on February 6, 1997, and upon completion of
the 1997 Offering on March 2, 1998, had received subscription
proceeds of $251,872,648 (12,593,633 shares), including
$1,872,648 (93,632 shares) issued pursuant to the reinvestment
plan. Pursuant to a Registration Statement on Form S-11 under
the Securities Act of 1933, as amended, effective May 12,
1998, APF registered for sale $345,000,000 of shares of common
stock (the "1998 Offering"). The 1998 Offering of APF
commenced following the completion of the 1997 Offering on
March 2, 1998. As of January 31, 1999, APF had received
subscriptions totalling approximately $345,000,000 (17,250,000
shares), from the 1998 Offering, including $3,107,848 (155,393
shares) issued pursuant to the company's reinvestment plan.
The 1998 Offering became fully subscribed in December 1998 and
proceeds from the last subscriptions were received in January
1999. Activities through June 1, 1995, were devoted to
organization of APF and operations had not begun.
Note 2: The amounts shown represent the combined results of the
Initial Offering and the 1997 Offering.
Note 3: The amounts shown represent the combined results of the
Initial Offering, 1997 Offering and 1998 Offering.
Note 4: Cash generated from operations from inception through
September 1999 included cash received from tenants, less cash
paid for expenses, plus interest received. In September 1999,
APF acquired two companies which make and service mortgage
loans and securitize portions of loans. Effective with these
acquisitions, APF classifies its investments in mortgage
loans, proceeds from sale of
C-14
<PAGE>
1998 1999
(Note 3) (Note 3)
- ------------------ ---------------
63 74
================== ===============
0 0
================== ===============
0 (1)
================== ===============
60 0
0 0
0 0
14 76
- ------------------ ---------------
74 76
================== ===============
0 0
0 0
73 76
1 0
0 0
- ------------------ ---------------
74 76
================== ===============
7.625% 7.62%
246 322
100% 100%
Note 4
(Continued): mortgage loans, collections of mortgage loans, proceeds from
securitization transactions and purchases of other investments
as operating activities in its financial statements. Prior to
these acquisitions, these types of transactions were
classified as investing activities in its financial
statements.
Note 5: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the financial statements of APF.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period.
Note 7: In May 1997 and July 1997, APF sold four properties and one
property, respectively, to a tenant for $5,254,083 and
$1,035,153, respectively, which was equal to the carrying
value of the properties at the time of sale. In May and July
1998, APF sold two and one properties, respectively, to third
parties for $1,605,154 and $1,152,262, respectively (and
received net sales proceeds of approximately $1,233,700 and
$629,435, respectively, after deduction of construction costs
incurred but not paid by APF as of the date of the sale),
which approximated the carrying value of the properties at the
time of sale. As a result, no gain or loss was recognized for
financial reporting purposes.
Note 8: Taxable income presented is before the dividends paid
deduction.
Note 9: For the years ended December 31, 1999, 1998, 1997, 1996 and
1995, 97%, 84.87%, 93.33%, 90.25% and 59.82%, respectively, of
the distributions received by stockholders were considered to
be ordinary income and 15%, 15.13%, 6.67%, 9.75% and 40.18%,
respectively, were considered a return of capital for federal
income tax purposes. No amounts distributed to stockholders
for the years ended December 31, 1999, 1998, 1997, 1996 and
1995 are required to be or have been treated by the company as
a return of capital for purposes of calculating the
stockholders' return on their invested capital.
C-15
<PAGE>
TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
Note 10: Cash distributions presented above as a return of capital
on a GAAP basis represent the amount of cash distributions in
excess of accumulated net income on a GAAP basis. Accumulated
net income (loss) includes deductions for depreciation and
amortization expense and income from certain non-cash items.
This amount is not required to be presented as a return of
capital except for purposes of this table, and APF has not
treated this amount as a return of capital for any other
purpose. During the year ended December 31, 1999, accumulated
net loss included a non-cash deduction for the advisor
acquisition expense of $76,333,516 (see Note 16).
Note 11: Tax and distribution data and total distributions on GAAP
basis were computed based on the weighted average dollars
outstanding during each period presented.
Note 12: During the year ended December 31, 1998, APF recorded
provisions for losses on land and buildings in the amount of
$611,534 for financial reporting purposes relating to two
Shoney's properties and two Boston Market properties. The
tenants of these properties experienced financial difficulties
and ceased payment of rents under the terms of their lease
agreements. The allowances represent the difference between
the carrying value of the properties at December 31, 1998 and
the estimated net realizable value for these properties.
Note 13: In October 1998, the Board of Directors of APF elected to
implement APF's redemption plan. Under the redemption plan,
APF elected to redeem shares, subject to certain conditions
and limitations. During the year ended December 31, 1998,
69,514 shares were redeemed at $9.20 per share ($639,528) and
retired from shares outstanding of common stock. During 1999,
as a result of the stockholders approving a one-for-two
reverse stock split of common stock, the Company agreed to
redeem fractional shares (2,545 shares).
Note 14: During the year ended December 31, 1999, APF recorded
provisions for losses on buildings in the amount of $7,779,495
for financial reporting purposes relating to several
properties. The tenants of these properties experienced
financial difficulties and ceased payment of rents under the
terms of their lease agreements. The allowances represent the
difference between the carrying value of the properties at
December 31, 1999 and the estimated net realizable value for
these properties.
Note 15: During the year ended December 31, 1999, APF sold six
properties and received aggregate net sales proceeds of
$5,302,433, which resulted in a total aggregate loss of
$781,192 for financial reporting purposes. APF reinvested the
proceeds from the sale of properties in additional properties.
In addition, APF recorded a loss on securitization of
$1,070,646 for financial reporting purposes.
Note 16: On September 1, 1999, APF issued 6,150,000 shares of
common stock to affiliates of APF to acquire its external
advisor and two companies which make and service mortgage
loans and securitize portions of loans. APF recorded an
advisor acquisition expense of $76,333,516 relating to the
acquisition of the external advisor, which represented the
excess purchase price over the net assets acquired.
C-16
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,195,263 $ 2,643,871 $ 2,816,845
Equity in earnings of unconsolidated joint 0 4,834 100,918 140,595
ventures
Loss on dissolution of consolidated joint
venture (Note 7) 0 0 0 0
Interest income 12,153 244,406 69,779 51,240
Less: Operating expenses (3,493) (169,536) (181,865) (168,542)
Transaction costs 0 0 0 (14,139)
Interest expense 0 0 0 0
Depreciation and amortization (309) (179,208) (387,292) (369,209)
Minority interest in income of
consolidated joint venture 0 0 (41,854) (62,632)
-------------- -------------- ------------- --------------
Net income - GAAP basis 8,351 1,095,759 2,203,557 2,394,158
============== ============== ============= ==============
Taxable income
- from operations 12,153 1,114,964 2,058,601 2,114,039
============== ============== ============= ==============
- from gain (loss) on sale (Note 7) 0 0 0 0
============== ============== ============= ==============
Cash generated from operations (Notes
2 and 3) 9,012 1,232,948 2,495,114 2,520,919
Cash generated from sales (Note7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated from operations, sales and
refinancing 9,012 1,232,948 2,495,114 2,520,919
Less: Cash distributions to investors (Note 4)
- from operating cash flow (1,199) (703,681) (2,177,584) (2,400,000)
- from sale of properties 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions 7,813 529,267 317,530 120,919
Special items (not including sales and
refinancing):
Limited partners' capital contributions 5,696,921 24,303,079 0 0
General partners' capital contributions 1,000 0 0 0
Contributions from minority interest 0 140,676 278,170 0
Distribution to holder of minority interest 0 0 (41,507) (49,023)
Distribution to holder of minority interest from
dissolution of consolidated joint venture 0 0 0 0
Syndication costs (604,348) (2,407,317) 0 0
Acquisition of land and buildings (332,928) (19,735,346) (1,740,491) 0
Investment in direct financing leases 0 (1,784,925) (1,130,497) 0
Investment in joint ventures 0 (201,501) (1,135,681) (124,452)
Reimbursement of organization, syndication
and acquisition costs paid on behalf of
CNL Income Fund XVII, Ltd. by related
parties (347,907) (326,483) (25,444) 0
Increase in other assets (221,282) 0 0 0
Reimbursement from developer of
construction costs 0 0 0 306,100
Other (410) 410 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860 (3,477,920) 253,544
============== ============== ============= ==============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37 69 70
============== ============== ============= ==============
- from recapture 0 0 0 0
============== ============== ============= ==============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============== ============= ==============
</TABLE>
C-17
<PAGE>
1999
- -----------------
$ 2,403,040
182,132
(82,914)
44,184
(219,361)
(71,366)
0
(384,985)
(31,461)
- -----------------
1,839,269
=================
2,003,243
=================
(23,150)
=================
2,450,018
2,094,231
0
- -----------------
4,544,249
(2,400,000)
0
- -----------------
2,144,249
0
0
0
(46,567)
(417,696)
0
0
0
(527,864)
0
0
0
0
- -----------------
1,152,122
=================
66
=================
0
=================
(1)
=================
C-18
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23 73 79
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 1
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 4) 4 23 73 80
============== ============= ============== =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 4 23 73 80
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 4) 4 23 73 80
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment (Note 5) 5.00% 5.50% 7.625% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 4 27 100 180
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Notes 6 and 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995,
CNL Income Fund XVII, Ltd. ("CNL XVII") and CNL Income Fund
XVIII, Ltd. each registered for sale $30,000,000 units of
limited partnership interests ("Units"). The offering of Units
of CNL Income Fund XVII, Ltd. commenced September 2, 1995.
Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII,
Ltd. was terminated. CNL Income Fund XVII, Ltd. terminated its
offering of Units on September 19, 1996, at which time
subscriptions for the maximum offering proceeds of $30,000,000
had been received. Upon the termination of the offering of
Units of CNL Income Fund XVII, Ltd., CNL XVIII commenced its
offering of Units. Activities through November 3, 1995, were
devoted to organization of the partnership and operations had
not begun.
Note 2: Cash generated from operations includes cash received from
tenants, plus distributions from joint ventures, less cash
paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the financial statements of CNL XVII.
Note 4: Distributions declared for the quarters ended December 31,
1995, 1996, 1997 and 1998 are reflected in the 1996, 1997,
1998 and 1999 columns, respectively, due to the payment of
such distributions in January 1996, 1997, 1998 and 1999,
respectively. As a result of distributions being presented on
a cash basis, distributions declared and unpaid as of December
31, 1995, 1996, 1997, 1998 and 1999 are not included in the
1995, 1996, 1997, 1998 and 1999 totals, respectively.
Note 5: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 4 above)
Note 6: During 1998, CNL XVII received approximately $306,100 in
reimbursements from the developer upon final reconciliation of
total construction costs relating to the properties in Aiken,
South Carolina and Weatherford, Texas, in accordance with the
related development agreements. During 1999, CNL XVII had
reinvested these amounts, plus additional funds, in a property
as tenants-in-common with an affiliate of the general partners
and in Ocean Shores Joint Venture, with an affiliate of CNL
XVII which has the same general partners.
Note 7: During 1999, CNL/El Cajon Joint Venture, CNL XVII's
consolidated joint venture in which CNL XVII owned an 80%
interest, sold its property to the 20% joint venture partner
and dissolved the joint venture. CNL XVII did not recognize
any gain or loss from the sale of the property for financial
reporting purposes. CNL XVII intends to reinvest the proceeds
from the dissolution in an additional property. As a result of
the dissolution, CNL XVII recognized a loss on dissolution of
$82,914 for financial reporting purposes.
C-19
<PAGE>
1999
- ------------------
61
0
19
- ------------------
80
==================
0
0
80
- ------------------
80
==================
8.00%
260
94%
C-20
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVIII, LTD.
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 1,373 $ 1,291,416 $ 2,956,349
Equity in earnings of joint venture 0 0 0 0
Gain on sale of properties (Note 7) 0 0 0 0
Provision for loss on land (Note 5) 0 0 0 (197,466)
Interest income 0 30,241 161,826 141,408
Less: Operating expenses 0 (3,992) (156,403) (207,974)
Transaction costs 0 0 0 (15,522)
Interest expense 0 0 0 0
Depreciation and amortization 0 (712) (142,079) (374,473)
-------------- -------------- ------------- --------------
Net income - GAAP basis 0 26,910 1,154,760 2,302,322
============== ============== ============= ==============
Taxable income
- from operations 0 30,223 1,318,750 2,324,746
============== ============== ============= ==============
- from gain on sale (Note 7) 0 0 0 0
============== ============== ============= ==============
Cash generated from operations (Notes
2 and 3) 0 27,146 1,361,756 2,831,738
Cash generated from sales (Note 7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated from operations, sales and
refinancing 0 27,146 1,361,756 2,831,738
Less: Cash distributions to investors (Note 4)
- from operating cash flow 0 (2,138) (855,957) (2,468,400)
- from cash flow from prior period 0 0 0 0
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions 0 25,008 505,799 363,338
Special items (not including sales and
refinancing):
Limited partners' capital contributions 0 8,498,815 25,723,944 854,241
General partners' capital contributions 1,000 0 0 0
Contributions from minority interest 0 0 0 0
Syndication costs 0 (845,657) (2,450,214) (161,142)
Acquisition of land and buildings 0 (1,533,446) (18,581,999) (3,134,046)
Investment in direct financing leases 0 0 (5,962,087) (12,945)
Investment in joint venture 0 0 0 (166,025)
Increase in restricted cash 0 0 0 0
Reimbursement of organization, syndication
and acquisition costs paid on behalf of CNL
Income Fund XVIII, Ltd. by related parties 0 (497,420) (396,548) (37,135)
Increase in other assets 0 (276,848) 0 0
Other (20) (107) (66,893) (10,000)
-------------- -------------- ------------- --------------
Cash generated (deficiency) after cash
distributions and special items 980 5,370,345 (1,227,998) (2,303,714)
============== ============== ============= ==============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 6 57 66
============== ============== ============= ==============
- from recapture 0 0 0 0
============== ============== ============= ==============
Capital gain (loss) (Note 7) 0 0 0 0
============== ============== ============= ==============
</TABLE>
C-21
<PAGE>
1999
- ---------------
$ 3,075,379
61,656
46,300
0
55,336
(256,060)
(74,734)
0
(392,521)
- ---------------
2,515,356
===============
2,341,350
===============
80,170
===============
2,797,040
688,997
0
- ---------------
3,486,037
(2,797,040)
(2,958)
- ---------------
686,039
0
0
0
0
(25,792)
0
(526,138)
(688,997)
(2,495)
0
(117)
- --------------
(557,500)
==============
66
==============
0
==============
2
==============
C-22
<PAGE>
TABLE III - CNL INCOME FUND XVIII, LTD. (continued)
<TABLE>
<CAPTION>
1995
(Note 1) 1996 1997 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 0 38 65
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 6
-------------- ------------- -------------- -------------
Total distributions on GAAP basis (Note 4) 0 0 38 71
============== ============= ============== =============
Source (on cash basis)
- from sales (Note 7) 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 0 38 71
-------------- ------------- -------------- -------------
Total distributions on cash basis (Note 4) 0 0 38 71
============== ============= ============== =============
Total cash distributions as a percentage of
original $1,000 investment from
inception 0.00% 5.00% 5.75% 7.63%
Total cumulative cash distributions per
$1,000 investment (Note 6) 0 0 38 109
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) (Note 7) N/A 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective August 11, 1995,
CNL Income Fund XVIII, Ltd ("CNL XVIII") and CNL Income Fund
XVII, Ltd. each registered for sale $30,000,000 units of
limited partnership interest ("Units"). The offering of Units
of CNL Income Fund XVII, Ltd. commenced September 2, 1995.
Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII,
Ltd. was terminated. CNL Income Fund XVII, Ltd. terminated its
offering of Units on September 19, 1996, at which time the
maximum offering proceeds of $30,000,000 had been received.
Upon the termination of the offering of Units of CNL Income
Fund XVII, Ltd., CNL XVIII commenced its offering of Units.
Activities through October 11, 1996, were devoted to
organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from
tenants, less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the financial statements of CNL XVIII.
Note 4: Distributions declared for the quarters ended December
1996, 1997 and 1998 are reflected in the 1997, 1998 and 1999
columns, respectively, due to the payment of such
distributions in January 1997, 1998 and 1999, respectively. As
a result of distributions being presented on a cash basis,
distributions declared and unpaid as of December 31, 1996,
1997, 1998 and 1999 are not included in the 1996, 1997, 1998
and 1999 totals, respectively.
Note 5: During the year ended December 31, 1998, CNL XVIII
established an allowance for loss on land of $197,466 for
financial reporting purposes relating to the property in
Minnetonka, Minnesota. The tenant of this Boston Market
property declared bankruptcy and rejected the lease relating
to this property. The loss represents the difference between
the Property's carrying value at December 31, 1998 and the
current estimate of net realizable value.
Note 6: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period. (See Note 4 above)
Note 7: In December 1999, CNL XVIII sold one of its properties and
received net sales proceeds of $688,997, resulting in a gain
of $46,300 for financial reporting purposes. CNL XVIII intends
to reinvest the net sales proceeds from the sale of this
property in an additional property.
C-23
<PAGE>
1999
- ----------------
71
1
8
- ----------------
80
================
0
0
80
- ----------------
80
================
8.00%
189
98%
C-24
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL HOSPITALITY PROPERTIES, INC.
<TABLE>
<CAPTION>
1996 1997 1999
(Note 1) (Note 1) 1998 (Note 2)
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 0 $ 0 $ 1,316,599 $ 4,230,995
Dividend income (Note 10) 0 0 0 2,753,506
Interest and other income 0 46,071 638,862 3,693,004
Less: Operating expenses 0 (22,386) (257,646) (802,755)
Interest expense 0 0 (350,322) (248,094)
Depreciation and amortization 0 (833) (388,554) (1,267,868)
Equity in loss of unconsolidated
subsidiary after deduction of preferred stock
dividends (Note 10) 0 0 0 (778,466)
Minority interest 0 0 0 (64,334)
------------- ------------- -------------- --------------
Net income - GAAP basis 0 22,852 958,939 7,515,988
============= ============= ============== ==============
Taxable income
- from operations (Note 6) 0 46,071 886,556 7,488,184
============= ============= ============== ==============
- from gain (loss) on sale 0 0 0 0
============= ============= ============== ==============
Cash generated from operations (Notes 3 and 4) 0 22,469 2,776,965 12,890,161
Less: Cash distributions to investors (Note 7)
- from operating cash flow 0 (22,469) (1,168,145) (10,765,881)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 8) 0 (7,307) 0 0
------------- ------------- -------------- --------------
Cash generated (deficiency) after cash
distributions 0 (7,307) 1,608,820 2,124,280
Special items (not including sales of real estate
and refinancing):
Subscriptions received from stockholders 0 11,325,402 31,693,678 245,938,907
Sale of common stock to CNL Hospitality
Corp. (formerly CNL Hospitality Advisors,
Inc.) 200,000 0 0 0
Contribution from minority interest 0 0 0 7,150,000
Distributions to holders of minority 0 0 0 0
interest
Stock issuance costs (197,916) (1,979,371) (3,948,669) (26,472,318)
Acquisition of land, buildings and 0 0 (28,752,549) (85,089,887)
equipment
Investment in unconsolidated subsidiary 0 0 0 (39,879,638)
Investment in certificate of deposit 0 0 (5,000,000) 0
Increase in restricted cash 0 0 (82,407) (193,223)
Proceeds of borrowing on line of credit 0 0 9,600,000 0
Payment on line of credit 0 0 0 (9,600,000)
Payment of loan costs 0 0 (91,262) (47,334)
Increase in intangibles and other assets 0 (463,470) (676,026) (5,068,727)
Retirement of shares of common stock 0 0 0 (118,542)
Other 0 (7,500) 7,500 0
------------- ------------- -------------- --------------
Cash generated (deficiency) after cash
distributions and special items 2,084 8,867,754 4,359,085 88,743,518
============= ============= ============== ==============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED (Note 5)
Federal income tax results:
Ordinary income (loss) (Note 9)
- from operations (Note 6) 0 7 37 47
============= ============= ============== ==============
- from recapture 0 0 0 0
============= ============= ============== ==============
Capital gain (loss) (Note 7) 0 0 0 0
============= ============= ============== ==============
</TABLE>
25
<PAGE>
TABLE III - CNL HOSPITALITY PROPERTIES, INC. (continued)
<TABLE>
<CAPTION>
1996 1997 1999
(Note 1) (Note 1) 1998 (Note 2)
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 3 40 47
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 0
- from return of capital (Note 8) 0 1 9 21
-------------- -------------- ------------- -------------
Total distributions on GAAP basis (Note 9) 0 4 49 68
============== ============== ============= =============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 3 49 68
- from cash flow from prior period 0 0 0 0
- from return of capital (Note 8) 0 1 0 0
-------------- ------------- ------------- --------------
Total distributions on cash basis (Note 9) 0 4 49 68
============== ============== ============= =============
Total cash distributions as a percentage of
original $1,000 investment (Note 5) N/A 3.00% 4.67% 7.19%
Total cumulative cash distributions per
$1,000 investment from inception N/A 4 53 121
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of properties
retained, divided by original total
acquisition cost of all properties in
program) N/A N/A 100% 100%
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, effective July 9, 1997,
CNL Hospitality Properties, Inc. ("CHP") registered for sale
$165,000,000 of shares of common stock (the "Initial
Offering"), including $15,000,000 available only to
stockholders participating in the company's reinvestment plan.
The Initial Offering of CHP commenced September 11, 1997, and
upon completion of the Initial Offering on June 17, 1999, had
received subscription proceeds of $150,072,637 (15,007,264
shares), including $72,637 (7,264 shares) issued pursuant to
the reinvestment plan. Pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933, as amended,
effective June 17, 1999, CHP registered for sale $275,000,000
of shares of common stock (the "1999 Offering"), including
$25,000,000 available only to stockholders participating in
the company's reinvestment plan. The 1999 Offering of CHP
commenced following the completion of the Initial Offering on
June 17, 1999. As of December 31, 1999, CHP had received
subscription proceeds totalling $138,885,350 from the 1999
Offering, including $431,182 issued pursuant to the company's
reinvestment plan. Activities through October 15, 1997, were
devoted to organization of CHP and operations had not begun.
Note 2: The amounts shown represent the combined results of the
Initial Offering and the 1999 Offering.
Note 3: Cash generated from operations includes cash received from
tenants and dividend, interest and other income, less cash
paid for operating expenses. Cash generated from operations
for the year ended December 31, 1999 does not include amounts
received subsequent to December 31, 1999 representing dividend
income of approximately $1,216,000.
Note 4: Cash generated from operations per this table agrees to
cash generated from operations per the statement of cash flows
included in the consolidated financial statements of CHP.
Note 5: Total cash distributions as a percentage of original $1,000
investment are calculated based on actual distributions
declared for the period.
Note 6: Taxable income presented is before the dividends paid
deduction.
Note 7: For the years ended December 31, 1999, 1998 and 1997,
approximately 75%, 76% and 100%, respectively, of the
distributions received by stockholders were considered to be
ordinary income and approximately 25%, 24% and 0%,
respectively, were considered a return of capital for federal
income tax purposes. No amounts distributed to stockholders
for years ended December 31, 1999, 1998 and 1997 are required
to be or have been treated by the company as a return of
capital for purposes of calculating the stockholders' return
on their invested capital.
C-26
<PAGE>
TABLE III - CNL HOSPITALITY PROPERTIES, INC. (continued)
Note 8: Cash distributions presented above as a return of capital
on a GAAP basis represent the amount of cash distributions in
excess of accumulated net income on a GAAP basis. Accumulated
net income includes deductions for depreciation and
amortization expense and income from certain non-cash items.
In addition, cash distributions presented as a return of
capital on a cash basis represents the amount of cash
distributions in excess of cash generated from operating cash
flow and excess cash flows from prior periods. These amounts
have not been treated as a return of capital for purposes of
calculating the amount of stockholders' invested capital.
Note 9: Tax and distribution data and total distributions on GAAP
basis were computed based on the weighted average shares
outstanding during each period presented.
Note 10: In February 1999, the company executed a series of
agreements with Five Arrows Realty Securities II, L.L.C. to
jointly own a real estate investment trust, CNL Hotel
Investors, Inc., for the purpose of acquiring eight hotels.
During the year ended December 31, 1999, the company recorded
$2,753,506 in dividend income and $778,466 in an equity in
loss after deduction of preferred stock dividends, resulting
in net earnings of $1,975,040 attributable to this investment.
C-27
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
---------------------------------------------------------------
Purchase
money Adjustments
Cash Mortgage mortgage resulting
received net balance taken from
Date Date of of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
============================== ============= ============ ============== ========== ========== ============ ============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA (14) 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
Wendy's -
Casa Grande, AZ 12/10/86 08/19/97 795,700 0 0 0 795,700
Wendy's -
North Miami, FL (9) 02/18/86 08/21/97 473,713 0 0 0 473,713
Popeye's -
Kissimmee, FL (14) 12/31/86 04/30/98 661,300 0 0 0 661,300
Golden Corral -
Kent Island, MD (21) 11/20/86 10/15/99 870,457 0 0 0 870,457
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH (11) 11/18/87 11/30/94 825,000 0 0 0 825,000
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 620,800 0 0 0 620,800
KFC -
Eagan, MN 06/01/87 06/02/97 623,882 0 42,000 0 665,882
KFC -
Jacksonville, FL 09/01/87 09/09/97 639,363 0 0 0 639,363
Wendy's -
Farmington Hills, MI (12) 05/18/87 10/09/97 833,031 0 0 0 833,031
Wendy's -
Farmington Hills, MI 05/18/87 10/09/97 1,085,259 0 0 0 1,085,259
(13) (14)
Denny's -
Plant City, FL 11/23/87 10/24/97 910,061 0 0 0 910,061
Pizza Hut -
Mathis, TX 12/17/87 12/04/97 297,938 0 0 0 297,938
KFC -
Avon Park, FL (14) 09/02/87 12/10/97 501,975 0 0 0 501,975
Golden Corral -
Columbia, MO 11/17/87 03/23/99 678,888 0 0 0 678,888
Little House -
Littleton, CO 10/07/87 11/05/99 150,000 0 0 0 150,000
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 06/02/88 01/10/97 496,418 0 0 0 496,418
Perkins -
Bradenton, FL 06/30/88 03/14/97 1,310,001 0 0 0 1,310,001
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== ============ ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA (14) 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA (14) 0 861,500 861,500 156,990
Wendy's -
Casa Grande, AZ 0 667,255 667,255 128,445
Wendy's -
North Miami, FL (9) 0 385,000 385,000 88,713
Popeye's -
Kissimmee, FL (14) 0 475,360 475,360 185,940
Golden Corral -
Kent Island, MD (21) 0 726,600 726,600 143,857
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH (11) 0 743,000 743,000 82,000
Denny's -
Show Low, AZ (8) 0 484,185 484,185 136,615
KFC -
Eagan, MN 0 601,100 601,100 64,782
KFC -
Jacksonville, FL 0 405,000 405,000 234,363
Wendy's -
Farmington Hills, MI (12) 0 679,000 679,000 154,031
Wendy's -
Farmington Hills, MI 0 887,000 887,000 198,259
(13) (14)
Denny's -
Plant City, FL 0 820,717 820,717 89,344
Pizza Hut -
Mathis, TX 0 202,100 202,100 95,838
KFC -
Avon Park, FL (14) 0 345,000 345,000 156,975
Golden Corral -
Columbia, MO 0 511,200 511,200 167,688
Little House -
Littleton, CO 0 330,456 330,456 (180,456 )
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL (14) 0 591,362 591,362 (94,944 )
Perkins -
Bradenton, FL 0 1,080,500 1,080,500 229,501
</TABLE>
C-28
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund III, Ltd.
(Continued):
Pizza Hut -
Kissimmee, FL 02/23/88 04/08/97 673,159 0 0 0 673,159
Burger King -
Roswell, GA 06/08/88 06/20/97 257,981 0 685,000 0 942,981
Wendy's -
Mason City, IA 02/29/88 10/24/97 217,040 0 0 0 217,040
Taco Bell -
Fernandina Beach, FL (14) 04/09/88 01/15/98 721,655 0 0 0 721,655
Denny's -
Daytona Beach, FL (14) 07/12/88 01/23/98 1,008,976 0 0 0 1,008,976
Wendy's -
Punta Gorda, FL 02/03/88 02/20/98 665,973 0 0 0 665,973
Po Folks -
Hagerstown, MD 06/21/88 06/10/98 788,884 0 0 0 788,884
Denny's-
Hazard, KY 02/01/88 12/23/98 432,625 0 0 0 432,625
Perkins -
Flagstaff, AZ 09/30/88 04/30/99 1,091,193 0 0 0 1,091,193
Denny's -
Hagerstown, MD 08/14/88 06/09/99 700,977 0 0 0 700,977
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550
Checkers -
Douglasville, GA 12/08/94 11/07/97 380,695 0 0 0 380,695
Taco Bell -
Fort Myers, FL (14) 12/22/88 03/02/98 794,690 0 0 0 794,690
Denny's -
Union Township, OH (14) 11/01/88 03/31/98 674,135 0 0 0 674,135
Perkins -
Leesburg, FL 01/11/89 07/09/98 529,288 0 0 0 529,288
Taco Bell -
Naples, FL 12/22/88 09/03/98 533,127 0 0 0 533,127
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000
Ponderosa -
St. Cloud, FL (14) (24) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012
Franklin National Bank -
Franklin, TN 06/26/89 01/07/97 960,741 0 0 0 960,741
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== =========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund III, Ltd.
(Continued):
Pizza Hut -
Kissimmee, FL 0 474,755 474,755 198,404
Burger King -
Roswell, GA 0 775,226 775,226 167,755
Wendy's -
Mason City, IA 0 190,252 190,252 26,788
Taco Bell -
Fernandina Beach, FL (14) 0 559,570 559,570 162,085
Denny's -
Daytona Beach, FL (14) 0 918,777 918,777 90,799
Wendy's -
Punta Gorda, FL 0 684,342 684,342 (18,369 )
Po Folks -
Hagerstown, MD 0 1,188,315 1,188,315 (399,431 )
Denny's-
Hazard, KY 0 647,622 647,622 (214,997 )
Perkins -
Flagstaff, AZ 0 993,508 993,508 97,685
Denny's -
Hagerstown, MD 0 861,454 861,454 (160,477 )
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
Wendy's -
Tampa, FL 0 828,350 828,350 221,200
Checkers -
Douglasville, GA 0 363,768 363,768 16,927
Taco Bell -
Fort Myers, FL (14) 0 597,998 597,998 196,692
Denny's -
Union Township, OH (14) 0 872,850 872,850 (198,715 )
Perkins -
Leesburg, FL 0 737,260 737,260 (207,972 )
Taco Bell -
Naples, FL 0 410,546 410,546 122,581
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
Ponderosa -
St. Cloud, FL (14) (24) 0 996,769 996,769 134,243
Franklin National Bank -
Franklin, TN 0 1,138,164 1,138,164 (177,423 )
</TABLE>
C-29
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund V, Ltd.
(Continued):
Shoney's -
Smyrna, TN 03/22/89 05/13/97 636,788 0 0 0 636,788
KFC -
Salem, NH 05/31/89 09/22/97 1,272,137 0 0 0 1,272,137
Perkins -
Port St. Lucie, FL 11/14/89 09/23/97 1,216,750 0 0 0 1,216,750
Hardee's -
Richmond, IN 02/17/89 11/07/97 397,785 0 0 0 397,785
Wendy's -
Tampa, FL (14) 02/16/89 12/29/97 805,175 0 0 0 805,175
Denny's -
Port Orange, FL (14) 07/10/89 01/23/98 1,283,096 0 0 0 1,283,096
Shoney's
Tyler, TX 03/20/89 02/17/98 844,229 0 0 0 894,229
Wendy's -
Ithaca, NY 12/07/89 03/29/99 471,248 0 0 0 471,248
Wendy's -
Endicott, NY 12/07/89 03/29/99 642,511 0 0 0 642,511
Burger King -
Halls, TN (20) 01/05/90 06/03/99 433,366 0 0 0 433,366
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0 982,980
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 349,200 0 0 0 349,200
KFC -
Whitehall Township, MI 02/26/90 07/09/97 629,888 0 0 0 629,888
Perkins -
Naples, FL 12/26/89 07/09/97 1,487,725 0 0 0 1,487,725
Burger King -
Plattsmouth, NE 01/19/90 07/18/97 699,400 0 0 0 699,400
Shoney's -
Venice, FL 08/03/89 09/17/97 1,206,696 0 0 0 1,206,696
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 510,653 0 0 0 510,653
Denny's
Deland, FL 03/22/90 01/23/98 1,236,971 0 0 0 1,236,971
Wendy's -
Liverpool, NY 12/08/89 02/09/98 145,221 0 0 0 145,221
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== ========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund V, Ltd.
(Continued):
Shoney's -
Smyrna, TN 0 554,200 554,200 82,588
KFC -
Salem, NH 0 1,079,310 1,079,310 192,827
Perkins -
Port St. Lucie, FL 0 1,203,207 1,203,207 13,543
Hardee's -
Richmond, IN 0 695,464 695,464 (297,679 )
Wendy's -
Tampa, FL (14) 0 657,800 657,800 147,375
Denny's -
Port Orange, FL (14) 0 1,021,000 1,021,000 262,096
Shoney's
Tyler, TX 0 770,300 770,300 73,929
Wendy's -
Ithaca, NY 0 471,297 471,297 (49 )
Wendy's -
Endicott, NY 0 471,255 471,255 171,256
Burger King -
Halls, TN (20) 0 329,231 329,231 104,135
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
Jack in the Box -
Dallas, TX 0 964,437 964,437 18,543
Denny's -
Show Low, AZ (8) 0 272,354 272,354 76,846
KFC -
Whitehall Township, MI 0 725,604 725,604 (95,716 )
Perkins -
Naples, FL 0 1,083,869 1,083,869 403,856
Burger King -
Plattsmouth, NE 0 561,000 561,000 138,400
Shoney's -
Venice, FL 0 1,032,435 1,032,435 174,261
Jack in the Box -
Yuma, AZ (10) 0 448,082 448,082 62,571
Denny's
Deland, FL 0 1,000,000 1,000,000 236,971
Wendy's -
Liverpool, NY 0 341,440 341,440 (196,219 )
</TABLE>
C-30
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund VI, Ltd.
(Continued):
Perkin's -
Melbourne, FL 02/03/90 02/12/98 552,910 0 0 0 552,910
Hardee's -
Bellevue, NE 05/03/90 06/05/98 900,000 0 0 0 900,000
Burger King -
Greeneville, TN 01/05/90 06/03/99 1,059,373 0 0 0 1,059,373
Burger King -
Broadway, TN 01/05/90 06/03/99 1,059,200 0 0 0 1,059,200
Burger King -
Sevierville, TN 01/05/90 06/03/99 1,168,298 0 0 0 1,168,298
Burger King -
Walker Springs, TN 01/10/90 06/03/99 1,031,274 0 0 0 1,031,274
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (14)(25) 04/30/90 12/01/95 0 0 240,000 0 240,000
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0 1,044,909
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0 617,035
Hardee's -
Columbus, IN 09/04/90 05/30/97 223,590 0 0 0 223,590
KFC -
Dunnellon, FL 08/02/90 10/07/97 757,800 0 0 0 757,800
Jack in the Box -
Yuma, AZ (10) 07/14/94 10/31/97 471,372 0 0 0 471,372
Burger King -
Maryville, TN 05/04/90 06/03/99 1,059,954 0 0 0 1,059,954
Burger King -
Halls, TN (20) 01/05/90 06/03/99 451,054 0 0 0 451,054
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (4) (14) 09/28/90 12/01/95 0 0 240,000 0 240,000
Church's Fried Chicken -
Jacksonville, FL (5) (14) 09/28/90 12/01/95 0 0 220,000 0 220,000
Ponderosa -
Orlando, FL (6) (14) 12/17/90 10/24/96 0 0 1,353,775 0 1,353,775
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== ========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund VI, Ltd.
(Continued):
Perkin's -
Melbourne, FL 0 692,850 692,850 (139,940 )
Hardee's -
Bellevue, NE 0 899,512 899,512 488
Burger King -
Greeneville, TN 0 890,240 890,240 169,133
Burger King -
Broadway, TN 0 890,036 890,036 169,164
Burger King -
Sevierville, TN 0 890,696 890,696 277,602
Burger King -
Walker Springs, TN 0 864,777 864,777 166,497
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (14)(25) 0 233,728 233,728 6,272
Shoney's -
Colorado Springs, CO 0 893,739 893,739 151,170
Hardee's -
Hartland, MI 0 841,642 841,642 (224,607 )
Hardee's -
Columbus, IN 0 219,676 219,676 3,914
KFC -
Dunnellon, FL 0 546,333 546,333 211,467
Jack in the Box -
Yuma, AZ (10) 0 413,614 413,614 57,758
Burger King -
Maryville, TN 0 890,668 890,668 169,286
Burger King -
Halls, TN (20) 0 342,669 342,669 108,385
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) (14) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) (14) 0 215,845 215,845 4,155
Ponderosa -
Orlando, FL (6) (14) 0 1,179,210 1,179,210 174,565
</TABLE>
C-31
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 05/31/91 12/12/96 918,445 0 0 0 918,445
Burger King -
Alpharetta, GA 09/20/91 06/30/97 1,053,571 0 0 0 1,053,571
Shoney's -
Corpus Christi, TX 10/28/91 02/12/99 1,350,000 0 0 0 1,350,000
Perkins -
Rochester, NY 12/20/91 03/03/99 1,050,000 0 0 0 1,050,000
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
Jack in the Box -
Freemont, CA 03/26/92 09/23/97 1,366,550 0 0 0 1,366,550
Jack in the Box -
Sacramento, CA 12/19/91 01/20/98 1,234,175 0 0 0 1,234,175
Pizza Hut -
Billings, MT 04/16/92 10/07/98 359,990 0 0 0 359,990
Perkins -
Amherst, NY 02/26/92 03/03/99 1,150,000 0 0 0 1,150,000
Shoney's -
Fort Myers Beach, FL 09/08/95 08/26/99 931,725 0 0 0 931,725
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0 1,044,750
Burger King -
Columbus, OH (19) 06/29/92 09/30/98 795,264 0 0 0 795,264
Burger King -
Nashua, NH 06/29/92 10/07/98 1,630,296 0 0 0 1,630,296
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0 1,640,000
Long John Silver's -
Monroe, NC 06/30/93 12/31/98 483,550 0 0 0 483,550
Long John Silver's -
Morganton, NC (23) 07/02/93 05/17/99 467,300 0 55,000 0 522,300
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
Checkers -
Richmond, VA 03/31/94 11/21/96 550,000 0 0 0 550,000
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== =========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH (15) 0 918,445 918,445 0
Burger King -
Alpharetta, GA 0 713,866 713,866 339,705
Shoney's -
Corpus Christi, TX 0 1,224,020 1,224,020 125,980
Perkins -
Rochester, NY 0 1,064,815 1,064,815 (14,815 )
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
Jack in the Box -
Freemont, CA 0 1,102,766 1,102,766 263,784
Jack in the Box -
Sacramento, CA 0 969,423 969,423 264,752
Pizza Hut -
Billings, MT 0 302,000 302,000 57,990
Perkins -
Amherst, NY 0 1,141,444 1,141,444 8,556
Shoney's -
Fort Myers Beach, FL 0 931,725 931,725 0
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 0 818,850 818,850 225,900
Burger King -
Columbus, OH (19) 0 795,264 795,264 0
Burger King -
Nashua, NH 0 1,217,015 1,217,015 413,281
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 0 1,636,643 1,636,643 3,357
Long John Silver's -
Monroe, NC 0 239,788 239,788 243,762
Long John Silver's -
Morganton, NC (23) 0 304,002 304,002 218,298
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
Checkers -
Richmond, VA 0 413,288 413,288 136,712
</TABLE>
C-32
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage Money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
================================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund XIII, Ltd.
(Continued):
Denny's -
Orlando, FL 09/01/93 10/24/97 932,849 0 0 0 932,849
Jack in the Box -
Houston, TX 07/27/93 07/16/99 1,063,318 0 0 0 1,063,318
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
Hardee's -
Madison, AL 12/14/93 01/08/98 700,950 0 0 0 700,950
Checkers -
Richmond, VA (#548) 03/31/94 01/29/98 512,462 0 0 0 512,462
Checkers -
Riviera Beach, FL 03/31/94 04/14/98 360,000 0 0 0 360,000
Checkers -
Richmond, VA (#486) 03/31/94 07/27/98 397,985 0 0 0 397,985
Long John Silver's -
Stockbridge, GA 03/31/94 05/25/99 696,300 0 0 0 696,300
Long John Silver's -
Shelby, NC 06/22/94 11/12/99 494,178 0 0 0 494,178
Checker's -
Kansas City, MO 03/31/94 12/10/99 268,450 0 0 0 268,450
Checker's -
Houston, TX 03/31/94 12/15/99 385,673 0 0 0 385,673
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
Long John Silver's -
Gastonia, NC 07/15/94 11/12/99 631,304 0 0 0 631,304
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-----------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
================================== ========= ============= =========== =============
<S> <C> <C> <C> <C>
CNL Income Fund XIII, Ltd.
(Continued):
Denny's -
Orlando, FL 0 934,120 934,120 (1,271 )
Jack in the Box -
Houston, TX 0 861,321 861,321 201,997
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
Hardee's -
Madison, AL 0 658,977 658,977 41,973
Checkers -
Richmond, VA (#548) 0 382,435 382,435 130,027
Checkers -
Riviera Beach, FL 0 276,409 276,409 83,591
Checkers -
Richmond, VA (#486) 0 352,034 352,034 45,951
Long John Silver's -
Stockbridge, GA 0 738,340 738,340 (42,040 )
Long John Silver's -
Shelby, NC 0 608,611 608,611 (114,433 )
Checker's -
Kansas City, MO 0 209,329 209,329 59,121
Checker's -
Houston, TX 0 311,823 311,823 73,850
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
Long John Silver's -
Gastonia, NC 0 776,248 776,248 (144,944 )
</TABLE>
C-33
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0 775,000
Checker's -
Oviedo, FL 11/14/94 02/28/97 610,384 0 0 0 610,384
Boston Market -
Madison, TN (16) 05/05/95 05/08/98 774,851 0 0 0 774,851
Boston Market -
Chattanooga, TN (17) 05/05/95 06/16/98 713,386 0 0 0 713,386
Boston Market -
Lawrence, KS 05/08/98 11/23/99 667,311 0 0 0 667,311
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 07/24/96 06/16/98 857,487 0 0 0 857,487
Golden Corral -
El Cajon, CA (22) 04/29/97 12/02/99 1,675,385 0 0 0 1,675,385
CNL Income Fund XVIII, Ltd.:
Black Eyed Pea -
Atlanta, GA 03/26/97 12/06/99 688,997 0 0 0 688,997
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 10/30/95 05/08/97 1,312,799 0 0 0 1,312,799
TGI Friday's -
Hazlet, NJ 07/15/96 05/08/97 1,324,109 0 0 0 1,324,109
TGI Friday's -
Marlboro, NJ 08/01/96 05/08/97 1,372,075 0 0 0 1,372,075
TGI Friday's -
Hamden, CT 08/26/96 05/08/97 1,245,100 0 0 0 1,245,100
Boston Market -
Southlake, TX 07/02/97 07/21/97 1,035,153 0 0 0 1,035,135
Boston Market -
Franklin, TN (26) 08/18/95 04/14/98 950,361 0 0 0 950,361
Boston Market -
Grand Island, NE (27) 09/19/95 04/14/98 837,656 0 0 0 837,656
Burger King -
Indian Head Park, IL 04/03/96 05/05/98 674,320 0 0 0 674,320
Boston Market -
Dubuque, IA (28) 10/04/95 05/08/98 969,159 0 0 0 969,159
Boston Market -
Merced, CA (29) 10/06/96 05/08/98 930,834 0 0 0 930,834
Boston Market -
Arvada, CO (30) 07/21/97 07/28/98 1,152,262 0 0 0 1,152,262
Boston Market -
Ellisville, MO 09/03/96 04/28/99 822,824 0 0 0 822,824
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== ========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 0 613,838 613,838 161,162
Checker's -
Oviedo, FL 0 506,311 506,311 104,073
Boston Market -
Madison, TN (16) 0 774,851 774,851 0
Boston Market -
Chattanooga, TN (17) 0 713,386 713,386 0
Boston Market -
Lawrence, KS 0 774,851 774,851 (107,540 )
CNL Income Fund XVII, Ltd.:
Boston Market -
Troy, OH (18) 0 857,487 857,487 0
Golden Corral -
El Cajon, CA (22) 0 1,692,994 1,692,994 (17,609 )
CNL Income Fund XVIII, Ltd.:
Black Eyed Pea -
Atlanta, GA 0 617,610 617,610 71,387
CNL American Properties
Fund, Inc.:
TGI Friday's -
Orange, CT 0 1,310,980 1,310,980 1,819
TGI Friday's -
Hazlet, NJ 0 1,294,237 1,294,237 29,872
TGI Friday's -
Marlboro, NJ 0 1,324,288 1,324,288 47,787
TGI Friday's -
Hamden, CT 0 1,203,136 1,203,136 41,964
Boston Market -
Southlake, TX 0 1,035,135 1,035,135 0
Boston Market -
Franklin, TN (26) 0 950,361 950,361 0
Boston Market -
Grand Island, NE (27) 0 837,656 837,656 0
Burger King -
Indian Head Park, IL 0 670,867 670,867 3,453
Boston Market -
Dubuque, IA (28) 0 969,159 969,159 0
Boston Market -
Merced, CA (29) 0 930,834 930,834 0
Boston Market -
Arvada, CO (30) 0 1,152,262 1,152,262 0
Boston Market -
Ellisville, MO 0 1,026,746 1,026,746 (203,922 )
</TABLE>
C-34
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------------------------
Purchase Adjustments
Cash Mortgage money resulting
received net balance mortgage from
Date Date of of closing at time taken back application
Property Acquired Sale costs of sale by program of GAAP Total
============================== ============= ============ ============== ========== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
CNL American Properties
Fund, Inc.
(Continued):
Golden Corral -
Brooklyn, OH 08/23/96 05/18/99 974,560 0 0 0 974,560
Boston Market -
Edgewater, CO 08/19/97 08/11/99 634,122 0 0 0 634,122
Black Eyed Pea -
Houston, TX (31) 10/01/97 08/24/99 648,598 0 0 0 648,598
Big Boy -
Topeka, KS (32) 02/26/99 09/22/99 939,445 0 0 0 939,445
Boston Market -
LaQuinta, CA 12/16/96 10/13/99 833,140 0 0 0 833,140
Sonny's -
Jonesboro, GA 06/02/98 12/22/99 1,098,342 0 0 0 1,098,342
<CAPTION>
Cost of Properties
Including Closing and
Soft Costs
-------------------------------------
Excess
Total (deficiency)
acquisition of property
cost, operating
capital cash
improvements receipts
Original closing and over
mortgage soft costs cash
Property financing (1) Total expenditures
============================== ========== ============= ============ =============
<S> <C> <C> <C> <C>
CNL American Properties
Fund, Inc.
(Continued):
Golden Corral -
Brooklyn, OH 0 997,296 997,296 (22,736 )
Boston Market -
Edgewater, CO 0 904,691 904,691 (270,569 )
Black Eyed Pea -
Houston, TX (31) 0 648,598 648,598 0
Big Boy -
Topeka, KS (32) 0 1,062,633 1,062,633 (123,188 )
Boston Market -
LaQuinta, CA 0 987,034 987,034 (153,894 )
Sonny's -
Jonesboro, GA 0 1,098,342 1,098,342 0
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.25% per annum and
provides for a balloon payment of $991,331 in July 2000.
(3) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.25% per annum and
provides for a balloon payment of $1,105,715 in July 2000.
(4) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $200,063 in December 2005.
(6) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.75% per annum and
provides for 12 monthly payments of interest only and thereafter, 24
equal monthly payments of principal and interest until November 1999,
when the remaining 144 equal monthly payments of principal and interest
will be reduced due to a lump sum payment received in March 1999 in
advance from the borrower.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for CNL Income Fund XIV, Ltd. and CNL
Income Fund XV, Ltd. represent each partnership's 50 percent interest in
the properties owned by Wood-Ridge Real Estate Joint Venture.
(8) CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund
VI, Ltd. owns a 36 percent interest in this joint venture. The amounts
presented for CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
represent each partnership's percent interest in the property owned by
Show Low Joint Venture.
(9) CNL Income Fund, Ltd. owned a 50 percent interest in this joint venture.
The amounts presented represent the partnerships percent interest in the
property owned by Seventh Avenue Joint Venture. A third party owns the
remaining 50 percent interest in this joint venture.
(10) CNL Income Fund VI, Ltd. and CNL Income Fund VII, Ltd. own a 52 percent
and 48 percent interest, respectively, in the property in Yuma, Arizona.
The amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund
VII, Ltd. represent each partnership's respective interest in the
property.
(11) Cash received net of closing costs includes $198,000 received as a lease
termination fee.
(12) Cash received net of closing costs includes $93,885 received as a lease
termination fee.
(13) Cash received net of closing costs includes $120,115 received as a lease
termination fee.
(14) Closing costs deducted from net sales proceeds do not include deferred,
subordinated real estate disposition fees payable to CNL Fund Advisors,
Inc. or its affiliates.
(15) The Burger King property in Woodmere, Ohio was exchanged on December 12,
1996 for a Burger King property in Carrboro, NC at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Burger King property in Carrboro, NC is being leased under
the same lease as the Burger King property in Woodmere, OH.
(16) The Boston Market property in Madison, TN was exchanged on May 8, 1998
for a Boston Market property in Lawrence, KS at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Boston Market property in Lawrence, KS is being leased under the same
lease as the Boston Market property in Madison, TN.
(17) The Boston Market property in Chattanooga, TN was exchanged on June 16,
1998 for a Boston Market property in Indianapolis, IN at the option of
the tenant as permitted under the terms of the lease agreement. Due to
the exchange, the Boston Market property in Indianapolis, IN is being
leased under the same lease as the Boston Market property in Chattanooga,
TN.
C-35
<PAGE>
(18) The Boston Market property in Troy, OH was exchanged on June 16, 1998 for
a Boston Market property in Inglewood, CA at the option of the tenant as
permitted under the terms of the lease agreement. Due to the exchange,
the Boston Market property in Inglewood, CA is being leased under the
same lease as the Boston Market property in Troy, OH.
(19) The Burger King property in Columbus, OH was exchanged on September 30,
1998 for a Burger King property in Danbury, CT at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Burger King property in Danbury, CT is being leased under
the same lease as the Burger King property in Columbus, OH.
(20) CNL Income Fund V, Ltd. owns a 49 percent interest and CNL Income Fund
VII, Ltd. owns a 51 percent interest in this joint venture. The amounts
presented for CNL Income Fund V, Ltd. and CNL Income Fund VII, Ltd.
represent each partnership's percent interest in the property owned by
Halls Joint Venture.
(21) Cash received net of closing costs includes $50,000 received as a lease
termination fee.
(22) CNL Income Fund XVII, Ltd. owned an 80 percent interest in this joint
venture. The amounts presented represent the partnership's percent
interest in the property owned by El Cajon Joint Venture. A third party
owned the remaining 20 percent interest in this joint venture.
(23) Amount shown is face value and does not represent discounted current
value. The mortgage note bears interest at a rate of 10.25% per annum and
provides for 60 equal monthly payments of principal and interest.
(24) Amount shown is face value and does not represent discounted current
value. The mortgage note bore an interest rate of 10.75% per annum and
provided for 12 monthly payments of interest only and thereafter, 168
equal monthly payments of principal and interest. The borrower prepaid
the mortgage note in full in April 1999.
(25) Amount shown is face value and does not represent discounted current
value. The mortgage note bore an interest rate of 10.00% per annum and
was paid in full in July 1999.
(26) The Boston Market property in Franklin, TN was exchanged on April 14,
1998 for a Boston Market property in Glendale, AZ at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Glendale, AZ is being leased
under the same lease as the Boston Market property in Franklin, TN.
(27) The Boston Market property in Grand Island, NE was exchanged on April 14,
1998 for a Boston Market property in Warwick, RI at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Boston Market property in Warwick, RI is being leased under
the same lease as the Boston Market property in Grand Island, NE.
(28) The Boston Market property in Dubuque, IA was exchanged on May 8, 1998
for a Boston Market property in Columbus, OH at the option of the tenant
as permitted under the terms of the lease agreement. Due to the exchange,
the Boston Market property in Columbus, OH is being leased under the same
lease as the Boston Market property in Dubuque, IA.
(29) Cash received net of closing costs includes $362,949 in construction
costs incurred but not paid by CNL American Properties Fund, Inc. as of
the closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
(30) Cash received net of closing costs includes $522,827 in construction
costs incurred but not paid by CNL American Properties Fund, Inc. as of
the closing date, which were deducted from the actual net sales proceeds
received by CNL American Properties Fund, Inc.
(31) The Black Eyed Pea property in Houston, TX was exchanged on August 24,
1999 for a Black Eyed Pea property in Dallas, TX at the option of the
tenant as permitted under the terms of the lease agreement. Due to the
exchange, the Black Eyed Pea property in Dallas, TX is being leased under
the same lease as the Black Eyed Pea property in Houston, TX.
(32) This property was being constructed and was sold prior to completion of
construction.
C-36
<PAGE>
APPENDIX D
SUBSCRIPTION AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
CNL
HEALTH CARE
PROPERTIES, INC.
- --------------------------------------------------------------------------------
UP TO 15,500,000 SHARES -- $10.00 PER SHARE
MINIMUM PURCHASE -- 250 SHARES ($2,500)
100 SHARES ($1,000) FOR IRAS, KEOGH, AND QUALIFIED PLANS
(MINIMUM PURCHASE MAY BE HIGHER IN CERTAIN STATES)
================================================================================
PLEASE READ CAREFULLY this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your check, to your Registered Representative. YOUR CHECK SHOULD BE
MADE PAYABLE TO:
SOUTHTRUST BANK, N.A.
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
================================================================================
OVERNIGHT PACKAGES: REGULAR MAIL PACKAGES:
Attn: Investor Services Attn: Investor Services
CNL Center at City Commons Post Office Box 1033
450 South Orange Avenue Orlando, Florida 32802-1033
Orlando, Florida 32801
For Telephone Inquiries:
CNL SECURITIES CORP.
(407) 650-1000 OR (800) 522-3863
<PAGE>
<TABLE>
<S> <C>
CNL HEALTH CARE PROPERTIES, INC.
- --------------------------------------------------------------------------------
1._______________ INVESTMENT____________________________________________________
This subscription is in the amount of $______________ for the purchase of
______________ Shares ($10.00 per Share). The minimum initial subscription is
250 Shares ($2,500); 100 Shares ($1,000) for IRA, Keogh and qualified plan
accounts (except in states with higher minimum purchase requirements).
|_| ADDITIONAL PURCHASE |_| REINVESTMENT PLAN - Investor elects to participate
in Plan (SEE PROSPECTUS FOR DETAILS.)
2. ______________ SUBSCRIBER INFORMATION _______________________________________
Name (1st) |_| M |_| F Date of Birth (MM/DD/YY) __________________
------------------------------------------------------------
Name (2nd) |_| M |_| F Date of Birth (MM/DD/YY) __________________
------------------------------------------------------------
Address ___________________________________________________________________________________________________________________________
City _____________________________________________________________ State ______________ Zip Code ___________________________
Custodian Account No. _____________________________________________________________ Daytime Phone # (________) ___________________
|_| U.S. Citizen |_| Resident Alien |_| Foreign Resident Country __________________________
|_| Check if Subscriber is a U.S. citizen residing outside the U.S. Income Tax Filing State __________
ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required) ____________________________________________________
TAXPAYER IDENTIFICATION NUMBER: For most individual taxpayers, it is their Social Security number. Note: If
the purchase is in more than one name, the number should be that of the first person listed. For IRAs, Keoghs
and qualified plans, enter BOTH the Social Security number and the custodian taxpayer identification number.
TAXPAYER ID# ______________ - _____________________________ SOCIAL SECURITY # __________ - ________ - ____________
3. ________________ INVESTOR MAILING ADDRESS ______________________________________________________________________________________
For the Subscriber of an IRA, Keogh, or qualified plan to receive informational mailings, please complete if
different from address in Section 2.
Name_______________________________________________________________________________________________________________________________
Address____________________________________________________________________________________________________________________________
City _____________________________________________________________ State ______________________________ Zip Code ________________
Daytime Phone # (__________) ___________________________
4. _______________ DIRECT DEPOSIT ADDRESS _________________________________________________________________________________________
Investors requesting direct deposit of distribution checks to another financial institution or mutual fund,
please complete below. In no event will the Company or Affiliates be responsible for any adverse consequences
of direct deposit.
Company __________________________________________________________________________________________________________________________
Address _________________________________________________________________________________________________________________________
City ___________________________________________________ State ____________________________ Zip Code ___________________________
Account No. _________________________________________________________________________ Phone # (_____) ___________________________
5. ______________ FORM OF OWNERSHIP ______________________________________________________________________________________________
(Select only one) |_| JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign (8)
|_| INDIVIDUAL - one signature required (1) |_| A MARRIED PERSON/SEPARATE PROPERTY - one signature required (34)
|_| HUSBAND AND WIFE, AS COMMUNITY PROPERTY - two |_| KEOGH (H.R.10) - trustee signature required (24)
signatures required (15) |_| CUSTODIAN - custodian signature required (33)
|_| TENANTS IN COMMON - two signatures required (9) |_| PARTNERSHIP (3)
|_| TENANTS BY THE ENTIRETY - two signatures |_| NON-PROFIT ORGANIZATION (12)
required (31) |_| PENSION PLAN - trustee signature(s) required (19)
|_| S-CORPORATION (22) |_| PROFIT SHARING PLAN - trustee signature(s) required (27)
|_| C-CORPORATION (5) |_| CUSTODIAN UGMA-STATE of ___________ - custodian signature required (16)
|_| IRA - custodian signature required (23) |_| CUSTODIAN UTMA-STATE of ___________ - custodian signature required (42)
|_| ROTH IRA - custodian signature required (36) |_| ESTATE - Personal Representative signature required (13)
|_| SEP - custodian signature required (38) |_| REVOCABLE GRANTOR TRUST - grantor signature required (25)
|_| TAXABLE TRUST (7) |_| IRREVOCABLE TRUST - trustee signature required (21)
|_| TAX-EXEMPT TRUST (20)
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
6. ______________ SUBSCRIBER SIGNATURES ___________________________________________________________________________________________
If the Subscriber is executing the Subscriber Signature Page, the Subscriber
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X ____________________________________________________________________ X ___________________________________________________
SIGNATURE OF 1ST SUBSCRIBER DATE SIGNATURE OF 2ND SUBSCRIBER DATE
7. ______________ BROKER/DEALER INFORMATION _______________________________________________________________________________________
Broker/Dealer NASD Firm Name _____________________________________________________________________________________________________
Registered Representative ________________________________________________________________________________________________________
Branch Mail Address ______________________________________________________________________________________________________________
City _________________________________________ State ____________________ Zip Code ________________________________________________
|_| Please check if new address
Phone # ( _______ )____________________________________ Fax # (________) __________________________________________________________
|_| Sold CNL before
Shipping Address ________________________________________ City ____________________ State _________________ Zip Code____________
|_| TELEPHONIC SUBSCRIPTIONS (check here): If the Registered Representative
and Branch Manager are executing the signature page on behalf of the
Subscriber, both must sign below. Registered Representatives and Branch
Managers may not sign on behalf of residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska,
New Mexico, North Carolina, Ohio, Oregon, South Dakota, Tennessee or
Washington. [NOTE: Not to be executed until Subscriber(s) has (have)
acknowledged receipt of final prospectus.] Telephonic subscriptions may
not be completed for IRA accounts.
|_| DEFERRED COMMISSION OPTION (check here): The Deferred Commission Option
means an agreement between a stockholder, the participating
Broker/Dealer and the Managing Dealer to have Selling Commissions paid
over a seven year period as described in "The Offering -- Plan of
Distribution." This option will only be available with prior
authorization by the Broker/Dealer.
|_| REGISTERED INVESTMENT ADVISOR (RIA) (check here): This investment is
made through the RIA in its capacity as an RIA and not in its capacity
as a Registered Representative, if applicable. If an owner or principal
or any member of the RIA firm is an NASD licensed Registered
Representative affiliated with a Broker/Dealer, the transaction should
be conducted through that Broker/Dealer, not through the RIA.
PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND SUBSCRIPTION AGREEMENT BEFORE COMPLETING
X _____________________________________________________________ _________________ ____________________________________
PRINCIPAL, BRANCH MANAGER OR OTHER AUTHORIZED SIGNATURE DATE PRINT OR TYPE NAME OF PERSON SIGNING
X _____________________________________________________________ _________________ ____________________________________
REGISTERED REPRESENTATIVE/INVESTMENT ADVISOR SIGNATURE DATE PRINT OR TYPE NAME OF PERSON SIGNING
- ------------------------------------------------------------------------------------------------------------------------------------
Make check payable to: SOUTHTRUST BANK, N.A., ESCROW AGENT
- ------------------------------------------------------------------------------------------------------------------------------------
Please remit check and For overnight delivery, please send to:
subscription document to: FOR OFFICE USE ONLY**
CNL SECURITIES CORP. CNL SECURITIES CORP. Sub. #
Attn: Investor Services Attn: Investor Services
Post Office Box 1033 CNL Center at City Commons Admit Date
Orlando, FL 32802-1033 450 South Orange Avenue
(800) 522-3863 Orlando, FL 32801 Amount
(407) 650-1000
(800) 522-3863 Region
RSVP#
Rev. 5/00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTICE TO ALL INVESTORS:
(a) The purchase of Shares by an IRA, Keogh, or other tax-qualified plan
does not, by itself, create the plan.
(b) The Company, in its sole and absolute discretion, may accept or reject
the Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. stockholders (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.
(c) THE SALE OF SHARES SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL
AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
The subscriber is asked to refer to the prospectus concerning the Deferred
Commission Option outlined in "The Offering -- Plan of Distribution." This
option will only be available with prior authorization by the Broker/Dealer.
NOTICE TO NORTH CAROLINA RESIDENTS: By signing this Subscription Agreement,
North Carolina investors acknowledge receipt of the Prospectus and represent
that they meet the suitability standards for North Carolina investors listed in
the Prospectus.
BROKER/DEALER AND FINANCIAL ADVISOR:
By signing this subscription agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Conduct Rules, and
hereby further certify as follows: (i) a copy of the Prospectus, including the
Subscription Agreement attached thereto as Appendix D, as amended and/or
supplemented to date, has been delivered to the Subscriber; (ii) they have
discussed such investor's prospective purchase of Shares with such investor and
have advised such investor of all pertinent facts with regard to the liquidity,
valuation, and marketability of the Shares; and (iii) they have reasonable
grounds to believe that the purchase of Shares is a suitable investment for such
investor, that such investor meets the suitability standards applicable to such
investor set forth in the Prospectus and related supplements, if any, that such
investor is legally capable of purchasing such Shares and will not be in
violation of any laws for having engaged in such purchase, and that such
investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; (iv) under penalties of perjury,
(a) the information provided in this Subscription Agreement to the best of our
knowledge and belief is true, correct, and complete, including, but not limited
to, the number shown above as the Subscriber's taxpayer identification number;
(b) to the best of our knowledge and belief, the Subscriber is not subject to
backup withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup withholding as a result of failure to report all
interest or dividends or the Internal Revenue Service has notified the
subscriber that the Subscriber is no longer subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our knowledge and belief, the Subscriber is not a nonresident
alien, foreign corporation, foreign trust, or foreign estate for U.S. tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.
<PAGE>
APPENDIX E
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
<PAGE>
CNL HEALTH CARE PROPERTIES, INC.
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
BEFORE DIVIDENDS PAID DEDUCTION
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH APRIL 20, 2000
For the Year Ended December 31, 1999 (Unaudited)
The following schedule presents unaudited estimated taxable operating
results before dividends paid deduction of the Property acquired by the Company
as of April 20, 2000 The statement presents unaudited estimated taxable
operating results for the Property as if it had been acquired and operational on
January 1, 1999 through December 31, 1999. The schedule should be read in light
of the accompanying footnotes.
These estimates do not purport to present actual or expected operations
of the Company for any period in the future. The estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith.
Brighton Gardens by Marriott
Orland Park Property
---------------------------------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction:
Rental Income (1) $1,350,268
FF&E Reserve Income (2) 32,476
Asset Management Fees (3) (83,093)
Interest Expense (4) (708,750)
General and Administrative
Expenses (5) (110,422)
-----------
Estimated Cash Available from
Operations 480,479
Depreciation and Amortization
Expense (6) (7) (441,243)
-----------
Estimated Taxable Operating
Results Before Dividends
Paid Deduction $ 39,236
===========
See Footnotes
<PAGE>
FOOTNOTES:
(1) Rental income does not include percentage rents which will become due
if specified levels of gross receipts are achieved.
(2) Reserve funds will be used for the replacement and renewal of
furniture, fixtures and equipment related to the Orland Park Property
("FF&E Reserve"). The funds in the FF&E Reserve and all property
purchased with the funds from the FF&E Reserve will be paid, granted
and assigned to the Company. In connection therewith, FF&E Reserve
income will be earned at 1% of gross receipts for lease years one
through four and has been estimated based on projected gross revenues.
(3) The Properties will be managed pursuant to an advisory agreement
between the Company and CNL Health Care Corp. (the "Advisor"), pursuant
to which the Advisor will receive monthly asset management fees in an
amount equal to one-twelfth of .60% of the Company's Real Estate Asset
Value as of the end of the preceding month as defined in such
agreement. See "Management Compensation."
(4) Estimated at 8.75% per annum based on the bank's base rate as of April
20, 2000.
(5) Estimated at 8% of gross rental income, based on the previous
experience of Affiliate of the Advisor with another public REIT.
(6) The estimated federal tax basis of the depreciable portion of the
property and the number of years the assets have been depreciated on
the straight-line method is as follows:
Furniture and
Buildings Fixtures
(39 years) (5-15 years)
-------------- -----------------
Orland Park Property $11,507,105 $1,023,320
(7) Loan costs of $55,917 (.5% origination fee on the $8.1 million from
borrowings on the Line of Credit, legal fees and closing costs)
amortized under the straight-line method over a period of five years.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution.
Amount
------
SEC registration fee.................................. $ 40,920*
NASD filing fee....................................... 16,000
Accounting fees and expenses.......................... 100,000**
Escrow Agent's Fees................................... 5,000**
Sales and advertising expenses........................ 3,000,000**
Legal fees and expenses............................... 250,000**
Blue Sky fees and expenses............................ 300,000**
Printing expenses..................................... 200,000**
Miscellaneous......................................... 588,080**
------------
Total..........................................$4,500,000**
============
- -------------------------
* Includes, pursuant to Rule 429, $40,920 previously paid in connection with
the registration of 14,000,000 shares of Common Stock pursuant to a
registration statement on Form S-11 (Reg. No. 333-47411).
** Estimated through completion of the offering, assuming sale of 15,000,000
shares.
Item 32. Sales to Special Parties.
Not applicable.
Item 33. Recent Sales of Unregistered Securities.
Not applicable.
Item 34. Indemnification of Directors and Officers.
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities reasonably incurred by the Indemnitee
in connection with or by reason of any act or omission performed or omitted to
be performed on behalf of the Company while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) the act or omission was material to the loss or liability and
was committed in bad faith or was the result of active or deliberate dishonesty,
(iii) the Indemnitee actually received an improper personal benefit in money,
property, or services, (iv) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful, or (v) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company. In addition,
the Company will not provide indemnification for any loss or liability arising
from an alleged violation of federal or state securities law unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee and finds the
indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities regulatory authority in which securities of the Company
were offered or sold as to indemnification for violations of securities laws.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) the Indemnitee provides the Company with
a written agreement to repay the amount paid or reimbursed by the Company,
together with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee did not comply with the requisite standard of
conduct, and (iv) the legal proceeding was initiated by a third party who is not
a stockholder or, if by a stockholder of the Company acting in his or her
capacity as such, a court of competent jurisdiction approves such advancement.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the
Company, and no portion may be recoverable from the stockholders.
The Company has entered into indemnification agreements with each
of the Company's officers and Directors. The indemnification agreements require,
among other things, that the Company indemnify its officers and Directors to the
fullest extent permitted by law, and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. In accordance with this agreement, the Company
must indemnify and advance all expenses incurred by officers and Directors
seeking to enforce their rights under the indemnification agreements. The
Company must also cover officers and Directors under the Company's directors'
and officers' liability insurance.
Item 35. Treatment of Proceeds from Securities Being Registered.
Not applicable.
Item 36. Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements are included in the Prospectus.
(1) Pro Forma Consolidated Balance Sheet as of March 31, 2000
(2) Pro Forma Consolidated Statement of Operations for the
quarter ended March 31, 2000
(3) Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1999
(4) Notes to Pro Forma Consolidated Financial Statements for
the quarter ended March 31, 2000 and the year ended
December 31, 1999
(5) Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999
(6) Condensed Consolidated Statements of Operations for the
quarters ended March 31, 2000 and 1999
(7) Condensed Consolidated Statements of Stockholders' Equity
for the quarter ended March 31, 2000 and the year ended
December 31, 1999
(8) Condensed Consolidated Statements of Cash Flows for the
quarters ended March 31, 2000 and 1999
<PAGE>
(9) Notes to Condensed Consolidated Financial Statements for
the quarters ended March 31, 2000 and 1999
(10) Report of Independent Certified Public Accountants for CNL
Health Care Properties, Inc.
(11) Consolidated Balance Sheets as of December 31, 1999 and
1998
(12) Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 and the period December 22,
1997 (date of inception) through December 31, 1997
(13) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999 and 1998 and the period
December 22, 1997 (date of inception) through December 31,
1997
(14) Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 and the period December 22,
1997 (date of inception) through December 31, 1997
(15) Notes to Consolidated Financial Statements for the years
ended December 31, 1999 and 1998 and the period December
22, 1997 (date of inception) through December 31, 1997
Other Financial Statements:
The following other financial statements are included in the
Prospectus.
Brighton Gardens by Marriott
Orland Park, Illinois
(An Unincorporated Division of Marriott Senior Living Services,
Inc.)
(16) Condensed Statement of Assets and Liabilities as of March
24, 2000
(17) Condensed Statement of Revenues and Operating Expenses for
the period from January 1, 2000 through March 24, 2000
(18) Condensed Statement of Excess of Assets Over Liabilities
for the period from January 1, 2000 through March 24, 2000
(19) Condensed Statement of Cash Flows for the period from
January 1, 2000 through March 24, 2000
(20) Notes to Condensed Financial Statements for the period
from January 1, 2000 through March 24, 2000
(21) Report of Independent Certified Public Accountants
(22) Statement of Assets and Liabilities as of December 31,
1999
(23) Statement of Revenues and Operating Expenses for the
period October 11, 1999 (date of opening) through December
31, 1999
(24) Statement of Excess of Assets Over Liabilities for the
period October 11, 1999 (date of opening) through December
31, 1999
(25) Statement of Cash Flows for the period October 11, 1999
(date of opening) through December 31, 1999
(26) Notes to Financial Statements for the period October 11,
1999 (date of opening) through December 31, 1999
All Schedules have been omitted as the required information is
inapplicable or is presented in the financial statements or related notes.
(b) Exhibits:
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
3.1 CNL Health Care Properties, Inc. Articles of Incorporation
(Previously filed as Exhibit 3.1 to the Registration
Statement on Form S-11 (file No. 333-47411) filed on March
5, 1998, as amended (the "1998 Form S-11") and
incorporated herein by reference.) (1)
3.2 CNL Health Care Properties, Inc. Amended and Restated
Articles of Incorporation (Previously filed as Exhibit 3.1
to the Form 10-K filed March 5, 1999 and incorporated
herein by reference.) (1)
3.3 CNL Health Care Properties, Inc. Bylaws (Previously filed
as Exhibit 3.2 to the Form 10-K filed March 5, 1999 and
incorporated herein by reference.) (1)
4.1 CNL Health Care Properties, Inc. Articles of Incorporation
(Previously filed as Exhibit 3.1 and incorporated herein
by reference.)
4.2 CNL Health Care Properties, Inc. Amended and Restated
Articles of Incorporation (Previously filed as Exhibit 3.2
and incorporated herein by reference.)
4.3 CNL Health Care Properties, Inc. Bylaws (Previously filed
as Exhibit 3.3 and incorporated herein by reference.)
4.4 Form of Reinvestment Plan (Included in the Prospectus as
Appendix A and incorporated herein by reference.)
*5 Opinion of Shaw Pittman as to the legality of the
securities being registered by CNL Health Care Properties,
Inc.
*8 Opinion of Shaw Pittman regarding certain material tax
issues relating to CNL Health Care Properties, Inc.
10.1 Form of Escrow Agreement between CNL Health Care
Properties, Inc. and SouthTrust Bank, N.A. (Filed
herewith.)
10.2 Form of Advisory Agreement (Previously filed as Exhibit
10.1 to the Form 10-K filed on March 5, 1999 and
incorporated herein by reference.) (1)
10.3 Form of Joint Venture Agreement (Previously filed as
Exhibit 10.3 to the 1998 Form S-11 and incorporated herein
by reference.) (1)
10.4 Form of Indemnification and Put Agreement (Previously
filed as Exhibit 10.4 to the 1998 Form S-11 and
incorporated herein by reference.) (1)
10.5 Form of Unconditional Guaranty of Payment and Performance
(Previously filed as Exhibit 10.5 to the 1998 Form S-11
and incorporated herein by reference.) (1)
- -------------------------
* To be filed by amendment
(1) Filed herewith in connection with state filings only.
<PAGE>
10.6 Form of Purchase Agreement (Previously filed as Exhibit
10.6 to the 1998 Form S-11 and incorporated herein by
reference.) (1)
10.7 Form of Lease Agreement including Rent Addendum,
Construction Addendum and Memorandum of Lease (Previously
filed as Exhibit 10.7 to the 1998 Form S-11 and
incorporated herein by reference.) (1)
10.8 Form of Reinvestment Plan (Included in the Prospectus as
Appendix A and incorporated herein by reference.)
10.9 Indemnification Agreement dated September 15, 1998 between
CNL Health Care Properties, Inc. and James M. Seneff, Jr.,
Robert A. Bourne, David W. Dunbar, Timothy S. Smick,
Edward A. Moses, Jeanne A. Wall and Lynn E. Rose and dated
as of February 19, 1999, between CNL Health Care
Properties, Inc. and Philip M. Anderson, Jr. and dated as
of February 29, 2000, between CNL Health Care Properties,
Inc. and Thomas J. Hutchison III. (Previously filed as
Exhibit 10.2 to the Form 10-Q filed on May 3, 2000 and
incorporated herein by reference.) (1)
10.10 Agreement of Limited Partnership of CNL Health Care
Partners, LP (Previously filed as Exhibit 10.10 to the
1998 Form S-11 and incorporated herein by reference.) (1)
10.11 Purchase and Sale Agreement between CNL Health Care
Partners, LP and Marriott Senior Living Services, Inc.,
relating to the Brighton Gardens(R) by Marriott(R) --
Orland Park, Illinois (Filed herewith.)
10.12 Lease Agreement between CNL Health Care Partners, LP and
BG Orlando Park, LLC dated April 20, 2000, relating to the
Brighton Gardens(R) by Marriott(R) -- Orland Park,
Illinois (Filed herewith.)
10.13 Revolving Line of Credit Agreement with CNL Health Care
Properties, Inc., CNL Health Care Partners, LP and
Colonial Bank, dated April 20, 2000 (Filed herewith.)
23.1 Consent of PricewaterhouseCoopers LLP, Certified Public
Accountants, dated May 15, 2000 (Filed herewith.)
23.2 Consent of Shaw Pittman (Contained in its opinions filed
herewith as Exhibits 5 and 8 and incorporated herein by
reference.)
23.3 Consent of PricewaterhouseCoopers LLP, Certified Public
Accountants, dated May 15, 2000 (Filed herewith.)
24 Power of Attorney (See "Signatures.")
- -------------------------
* To be filed by amendment
(1) Filed herewith in connection with state filings only.
<PAGE>
Item 37. Undertakings.
The registrant undertakes (a) to file any prospectuses required by
Section 10(a)(3) as post-effective amendments to this registration statement,
(b) that, for the purpose of determining any liability under the Securities Act
of 1933, as amended, each such post-effective amendment may be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof, (c) that all post-effective amendments will comply with
the applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendments are filed, and (d) to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
The registrant undertakes to send to each stockholder, at least on
an annual basis, a detailed statement of any transactions with the Advisor or
its Affiliates, and of fees, commissions, compensation, and other benefits paid
or accrued to the Advisor or its Affiliates, for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services performed.
The registrant undertakes to provide to the stockholders the
financial statements required by Form 10-K for the first full fiscal year of
operations of the Registrant.
The registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing each
property not identified in the Prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
simultaneously to the existing stockholders. Each sticker supplement will
disclose all compensation and fees received by the Advisor and its Affiliates in
connection with any such acquisition. Post-effective amendments will include
audited financial statements meeting the requirements of Rule 3-14 or Rule 3-05
of Regulation S-X, as appropriate based upon the type of property acquired and
the type of lease to which such property will be subject, only for properties
acquired during the distribution period.
The registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 or Rule 3-05 of
Regulation S-X, as appropriate based on the type of property acquired and the
type of lease to which such property will be subject, to reflect each commitment
(i.e., the signing of a binding purchase agreement) made after the end of the
distribution period involving the use of 10% or more (on a cumulative basis) of
the net proceeds of the offering and to provide the information contained in
such report to the stockholders at least once each quarter after the
distribution period of the offering has ended. The registrant undertakes to
include, in filings containing financial statements of the Company, separate
audited financial statements for all lessees leasing one or more properties
whose cost represents 20% or more of the gross proceeds of the offering.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any such action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS
Table VI presents information concerning the acquisition of real
properties by the public real estate limited partnerships and the unlisted
public REITs sponsored by Affiliates of the Company through December 31, 1999.
The information includes the gross leasable space or number of units and total
square feet of units, dates of purchase, locations, cash down payment and
contract purchase price plus acquisition fee. This information is intended to
assist the prospective investor in evaluating the terms involved in acquisitions
by such prior programs.
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
----------------- ---------------- ---------------- ----------------
(Note 2) (Note 3) (Note 4) (Note 5)
Locations AL, AZ, CA, FL, AL, AZ, CO, FL AL, AZ, CA, CO, AL, DC, FL, GA,
GA, LA, MD, OK, GA, IL, IN, KS, FL, GA, IA, IL, IL, IN, KS, MA,
PA, TX, VA, WA LA, MI, MN, MO, IN, KS, KY, MD, MD, MI, MS, NC,
NC, NM, OH, TN, MI, MN, MO, NC, OH, PA, TN, TX,
TX, WA, WY NE, OK, TX VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number 22 units 50 units 40 units 47 units
of units and total
square feet of units 80,314 s/f 190,753 s/f 170,944 s/f 166,494 s/f
Dates of purchase 2/18/86 - 12/31/97 2/11/87 - 11/18/99 2/11/87 - 10/25/99 10/30/87 - 1/19/99
Cash down payment (Note 1) $13,435,137 $27,417,112 $25,000,031 $28,643,526
Contract purchase price
plus acquisition fee $13,361,435 $27,266,696 $24,891,350 $28,541,500
Other cash expenditures
expensed -- -- -- --
Other cash expenditures
capitalized 73,702 150,416 108,681 102,026
----------------- ---------------- ---------------- ----------------
Total acquisition cost (Note 1) $13,435,137 $27,417,112 $25,000,031 $28,643,526
================= ================ ================ ================
</TABLE>
Note 1: This amount was derived from capital contributions or proceeds from
partners or stockholders, respectively, and net sales proceeds
reinvested in other properties. With respect to CNL American Properties
Fund, Inc. and CNL Hospitality Properties, Inc., amounts were also
advanced under their respective lines of credit to facilitate the
acquisition of certain of these properties.
Note 2: The partnership owns a 50% interest in two separate joint ventures
which each own a restaurant property. In addition, the partnership owns
a 12.17% interest in one restaurant property held as tenants-in-common
with affiliates.
Note 3: The partnership owns a 49%, 50%, 64% and a 48% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 33.87%, a 57.91%, a 47%,
a 37.01%, a 39.39% and a 13.38% interest in six restaurant properties
held separately as tenants-in-common with affiliates.
Note 4: The partnership owns a 73.4%, 69.07% and 46.88% interest in three
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 33%, a 9.84%, a 25.87%,
and a 20% interest in four restaurant properties held separately as
tenants-in-common with affiliates.
Note 5: The partnership owns a 51%, 26.6%, 57%, 96.1%, 68.87% and 35.71%
interest in six separate joint ventures. Each joint venture owns one
restaurant property. In addition, the partnership owns a 53% and a 76%
interest in two restaurant properties held as tenants-in-common with
affiliates.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII,
Ltd. Ltd. Ltd. Ltd.
----------------- ---------------- ---------------- ----------------
(Note 6) (Note 7) (Note 8) (Note 9)
Locations AZ, FL, GA, IL, AR, AZ, FL, GA, AL, AZ, CO, FL, AZ, FL, IN, LA,
IN, MI, NH, NY, IL, IN, KS, MA, GA, IN, LA, MI, MI, MN, NC, NY,
OH, SC, TN, TX, MI, MN, NC, NE, MN, NC, OH, SC, OH, TN, TX, VA
UT, WA NM, NY, OH, OK, TN, TX, UT, WA
PA, TN, TX, VA,
WA, WY
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number 36 units 59 units 51 units 43 units
of units and total
square feet of units 149,519 s/f 239,412 s/f 193,159 s/f 183,957 s/f
Dates of purchase 2/6/89 - 12/14/99 5/1/87 - 11/12/99 1/5/90 - 12/14/99 4/30/90 - 11/04/99
Cash down payment (Note 1) $26,459,769 $43,928,371 $31,613,448 $32,433,602
Contract purchase price
plus acquisition fee $26,077,897 $43,410,362 $30,946,766 $31,900,876
Other cash expenditures
expensed -- -- -- --
Other cash expenditures
capitalized 381,872 518,009 666,682 532,726
----------------- ---------------- ---------------- ----------------
Total acquisition cost (Note 1) $26,459,769 $43,928,371 $31,613,448 $32,433,602
================= ================ ================ ================
</TABLE>
Note 6: The partnership owns a 43%, 66.5%, 53.12% and 12% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. The Partnership also owns a 48.90% interest in a joint
venture that sold its property and as of 12/31/99 had not reinvested
the net sales proceeds. In addition, the partnership owns a 42.09% and
a 27.78% interest in two restaurant properties held separately as
tenants-in-common with affiliates.
Note 7: The partnership owns a 3.9%, 14.46%, 36%, 66.14%, 50%, 64.29% and 80%
interest in seven separate joint ventures. Each joint venture owns one
restaurant property. In addition, the partnership owns a 51.67%, a 18%,
a 23.04%, a 34.74%, a 46.2%, a 85%, a 77% and a 75% interest in eight
restaurant properties held separately as tenants-in-common with
affiliates.
Note 8: The partnership owns a 83.3%, 4.79%, 18%, 79% and 11% interest in five
separate joint ventures. Four of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties. The Partnership also owns a 51.10% interest in a joint
venture that sold its property and as of 12/31/99 had not reinvested
the net sales proceeds. In addition, the partnership owns a 71%, a 53%
and a 35.64% interest in three restaurant properties held separately as
tenants-in-common with affiliates.
Note 9: The partnership owns a 85.54%, 87.68%, 36.8%, 12.46% and a 34% interest
in five separate joint ventures. Four of the joint ventures each own
one restaurant property and the other joint venture owns six restaurant
properties.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CNL Income CNL Income CNL Income CNL Income
Fund IX, Fund X, Fund XI, Fund XII,
Ltd. Ltd. Ltd. Ltd.
----------------- ---------------- ---------------- ----------------
(Note 10) (Note 11) (Note 12) (Note 13)
Locations AL, CA, CO, FL, AL, AZ, CA, CO, AL, AZ, CA, CO, AL, AZ, CA, FL,
GA, IL, IN, LA, FL, ID, IL, LA, CT, FL, KS, LA, GA, LA, MO, MS,
MI, MN, MS, NC, MI, MO, MT, NC, MA, MI, MS, NC, NC, NM, OH, SC,
NH, NY, OH, SC, NE, NH, NM, NY, NH, NM, OH, OK, TN, TX, WA
TN, TX OH, PA, SC, TN, PA, SC, TX, VA,
TX, WA WA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number 46 units 55 units 44 units 51 units
of units and total
square feet of units 205,174 s/f 232,970 s/f 189,043 s/f 213,437 s/f
Dates of purchase 8/31/90 - 11/18/99 11/5/91 - 11/18/99 5/18/92 - 10/27/99 10/16/92 - 11/4/99
Cash down payment (Note 1) $35,281,872 $41,350,155 $38,564,392 $41,809,104
Contract purchase price
plus acquisition fee $34,539,511 $40,647,657 $37,968,947 $41,311,673
Other cash expenditures
expensed -- -- -- --
Other cash expenditures
capitalized 742,361 702,498 595,445 497,431
----------------- ---------------- ---------------- ----------------
Total acquisition cost (Note 1) $35,281,872 $41,350,155 $38,564,392 $41,809,104
================= ================ ================ ================
</TABLE>
Note 10: The partnership owns a 50%, 45.2% and 27.33% interest in three separate
joint ventures. One of the joint ventures owns one restaurant property
and the other two joint ventures own six restaurant properties each. In
addition, the partnership owns a 67%, a 25% and a 29% interest in three
restaurant properties held as tenants-in-common with an affiliate.
Note 11: The partnership owns a 50%, 88.26%, 40.95%, 10.51%, 69.06% and 52%
interest in six separate joint ventures. Five of the joint ventures own
one restaurant property each and the other joint venture owns six
restaurant properties. In addition, the partnership owns a 13% and a
6.69% interest in two restaurant properties held separately as
tenants-in-common with affiliates.
Note 12: The partnership owns a 62.16%, 77.33%, 85%, 76.6% and 42.8% interest in
five separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 72.58% and a 23% interest
in two restaurant properties held as tenants-in-common with affiliates.
Note 13: The partnership owns a 31.13%, 59.05%, 18.61%, 87.54%, 27.72% and 55%
interest in six separate joint ventures. Each joint venture owns one
restaurant property.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
----------------- ---------------- ----------------- ----------------
(Note 14) (Note 15) (Note 16) (Note 17)
Locations AL, AR, AZ, CA, AL, AZ, CO, FL, AL, CA, FL, GA, AZ, CA, CO, DC,
CO, FL, GA, IN, GA, KS, LA, MN, KS, KY, MN, MO, FL, GA, ID, IN,
KS, LA, MD, NC, MO, MS, NC, NJ, MS, NC, NJ, NM, KS, MN, MO, NC,
OH, PA, SC, TN, NV, OH, SC, TN, OH, OK, PA, SC, NM, NV, OH, TN,
TX, VA TX, VA TN, TX, VA TX, UT, WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number 50 units 67 units 56 units 49 units
of units and total
square feet of units 167,286 s/f 206,885 s/f 178,554 s/f 187,674 s/f
Dates of purchase 5/18/93 - 12/31/97 9/27/93 - 12/14/99 4/28/94 - 12/14/99 10/21/94 - 8/12/98
Cash down payment (Note 1) $36,388,084 $44,907,255 $38,804,451 $42,677,881
Contract purchase price
plus acquisition fee $36,019,958 $44,481,752 $38,414,061 $42,288,418
Other cash expenditures
expensed -- -- -- --
Other cash expenditures
capitalized 368,126 425,503 390,290 389,463
----------------- ---------------- ----------------- ----------------
Total acquisition cost (Note 1) $36,388,084 $44,907,255 $38,804,351 $42,677,881
================= ================ ================= ================
</TABLE>
Note 14: The partnership owns a 50% and a 27.8% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In addition,
the Partnership owns a 66.13%, a 63.09% and a 47.83% interest in three
restaurant properties held separately as tenants-in-common with
affiliates.
Note 15: The partnership owns a 50% interest in three separate joint ventures
and a 72.2%, a 39.94%, a 11% and a 44% interest in four additional
joint ventures. Six of the joint ventures each own one restaurant
property and the other joint venture owns six restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which owns six
restaurant properties. In addition, the partnership owns a 16%, a 15%
and a 33% interest in three restaurant properties held as
tenants-in-common with affiliates.
Note 17: The partnership owns a 32.35% interest in a joint venture which owns
one restaurant. In addition, the partnership owns a 80.44% and a 40.42%
interest in two restaurant properties held as tenants-in-common with
affiliates.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CNL American CNL Income CNL Income CNL Hospitality
Properties Fund, Fund XVII, Fund XVIII, Properties,
Inc. Ltd. Ltd. Inc.
----------------- ---------------- ----------------- -----------------
(Note 18) (Note 19) (Note 20) (Note 21)
Locations AL, AZ, CA, CO, CA, FL, GA, IL, AZ, CA, FL, GA, AZ, CA, GA, NV,
CT, DE, FL, GA, IN, MI, NC, NV, IL, KY, MD, MN, PA, TX, WA
IA, ID, IL, IN, OH, SC, TN, TX, NC, NV, NY, OH,
KS, KY, LA, MD, WA TN, TX, VA
MI, MN, MO, MS,
NC, NE, NH, NJ,
NM, NV, NY, OH,
OK, OR, PA, RI,
SC, TN, TX, UT,
VA, WA, WI, WV
Type of property Restaurants Restaurants Restaurants Hotels
Gross leasable space
(sq. ft.) or number 679 units 31 units 25 units 11 units
of units and total
square feet of units 3,337,708 s/f 126,129 s/f 127,937 s/f 1,675,124 s/f
Dates of purchase 6/30/95 - 12/30/99 12/20/95 - 1/28/99 12/27/96 - 2/24/99 7/31/98 - 12/10/99
Cash down payment (Note 1) $859,636,017 $26,053,830 $30,313,089 $185,839,076
Contract purchase price
plus acquisition fee $857,126,546 $26,020,021 $30,206,102 $183,057,568
Other cash expenditures
expensed -- -- -- --
Other cash expenditures
capitalized 2,509,471 33,809 106,987 2,781,508
----------------- ---------------- ----------------- -----------------
Total acquisition cost (Note 1) $859,636,017 $26,053,830 $30,313,089 $185,839,076
================= ================ ================= =================
</TABLE>
Note 18: In May 1998, CNL American Properties Fund, Inc. formed an operating
partnership, CNL APF Partners, LP, to acquire and hold all properties
subsequent to the formation of CNL APF Partners, LP. CNL American
Properties Fund, Inc. has a 100% ownership interest in the general and
limited partners (which are wholly owned subsidiaries) of CNL APF
Partners, LP. CNL American Properties Fund, Inc. and CNL APF Partners,
LP own an 85.47%, 67.68% and a 76.37% interest in three separate joint
ventures. Each joint venture owns one restaurant property.
Note 19: The partnership owns a 21%, a 60.06% and a 30.94% interest in three
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 19.56%, 27.42%, 36.91%
and 24% interest in four restaurant properties held separately as
tenants-in-common with affiliates.
Note 20: The partnership owns a 39.93% and a 57.2% interest in two separate
joint ventures. Each joint venture owns one restaurant property.
Note 21: In June 1998, CNL Hospitality Properties, Inc. formed an operating
partnership, CNL Hospitality Partners, LP, to acquire and hold its
interest in properties. CNL Hospitality Properties, Inc. has a 100%
ownership interest in the general and limited partners (which are
wholly owned subsidiaries) of CNL Hospitality Partners, LP. In February
1999, CNL Hospitality Properties, Inc. formed a jointly owned real
estate investment trust, CNL Hotel Investors, Inc., with Five Arrows
Realty Securities II L.L.C. which acquired seven hotel properties. CNL
Hospitality Properties, Inc. has a 49% ownership interest in CNL Hotel
Investors, Inc. In November 1999, CNL Hospitality Properties, Inc.
acquired an 89% interest in CNL Philadelphia Annex, LLC (formerly
Courtyard Annex, L.L.C.) to own and lease one hotel property.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Orlando, State of Florida, on May 15, 2000.
CNL HEALTH CARE PROPERTIES, INC.
(Registrant)
By: /s/ James M. Seneff, Jr.
James M. Seneff, Jr.
Chairman of the Board and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Robert A. Bourne and James M. Seneff, Jr. and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any and all
documents (including both pre-and post-effective amendments in connection with
the registration statement), and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ James M. Seneff, Jr. Chairman of the Board and May 15, 2000
- --------------------------
James M. Seneff, Jr. Chief Executive Officer
(Principal Executive Officer)
/s/ Robert A. Bourne Director and President May 15, 2000
- --------------------------
Robert A. Bourne (Principal Financial and
Accounting Officer)
/s/ David W. Dunbar Independent Director May 15, 2000
- --------------------------
David W. Dunbar
/s/ Edward A. Moses Independent Director May 15, 2000
- --------------------------
Edward A. Moses
/s/ Timothy S. Smick Independent Director May 15, 2000
- --------------------------
Timothy S. Smick
<PAGE>
EXHIBIT INDEX
Exhibits
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
3.1 CNL Health Care Properties, Inc. Articles of Incorporation
(Previously filed as Exhibit 3.1 to the Registration Statement on
Form S-11 (File No. 333-47411) filed on March 5, 1998, as amended
(the "1998 Form S-11") and incorporated herein by reference.) (1)
3.2 CNL Health Care Properties, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.1 to the Form 10-K
filed March 5, 1999 and incorporated herein by reference.) (1)
3.3 CNL Health Care Properties, Inc. Bylaws (Previously filed as
Exhibit 3.2 to the Form 10-K filed March 5, 1999 and incorporated
herein by reference.) (1)
4.1 CNL Health Care Properties, Inc. Articles of Incorporation
(Previously filed as Exhibit 3.1 and incorporated herein by
reference.)
4.2 CNL Health Care Properties, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.2 and incorporated
herein by reference.)
4.3 CNL Health Care Properties, Inc. Bylaws (Previously filed as
Exhibit 3.3 and incorporated herein by reference.)
4.4 Form of Reinvestment Plan (Included in the Prospectus as Appendix
A and incorporated herein by reference.)
*5 Opinion of Shaw Pittman as to the legality of the securities being
registered by CNL Health Care Properties, Inc.
*8 Opinion of Shaw Pittman regarding certain material tax issues
relating to CNL Health Care Properties, Inc.
10.1 Form of Escrow Agreement between CNL Health Care Properties, Inc.
and SouthTrust Bank, N.A. (Filed herewith.)
10.2 Form of Advisory Agreement (Previously filed as Exhibit 10.1 to
the Form 10-K filed March 5, 1999 and incorporated herein by
reference.) (1)
10.3 Form of Joint Venture Agreement (Previously filed as Exhibit 10.3
to the 1998 Form S-11 and incorporated herein by reference.) (1)
10.4 Form of Indemnification and Put Agreement (Previously filed as
Exhibit 10.4 to the 1998 Form S-11 and incorporated herein by
reference.) (1)
10.5 Form of Unconditional Guaranty of Payment and Performance
(Previously filed as Exhibit 10.5 to the 1998 Form S-11 and
incorporated herein by reference.) (1)
- -------------------------
* To be filed by amendment
(1) Filed herewith in connection with state filings only.
<PAGE>
10.6 Form of Purchase Agreement (Previously filed as Exhibit 10.6 to
the 1998 Form S-11 and incorporated herein by reference.) (1)
10.7 Form of Lease Agreement including Rent Addendum, Construction
Addendum and Memorandum of Lease (Previously filed as Exhibit 10.7
to the 1998 Form S-11 and incorporated herein by reference.) (1)
10.8 Form of Reinvestment Plan (Included in the Prospectus as Appendix
A and incorporated herein by reference.)
10.9 Indemnification Agreement dated September 15, 1998 between CNL
Health Care Properties, Inc. and James M. Seneff, Jr., Robert A.
Bourne, David W. Dunbar, Timothy S. Smick, Edward A. Moses, Jeanne
A. Wall and Lynn E. Rose and dated as of February 19, 1999,
between CNL Health Care Properties, Inc. and Philip M. Anderson,
Jr. and dated as of February 29, 2000, between CNL Health Care
Properties, Inc. and Thomas J. Hutchison III. (Previously filed as
Exhibit 10.2 to the Form 10-Q filed on May 3, 2000 and
incorporated herein by reference.) (1)
10.10 Agreement of Limited Partnership of CNL Health Care Partners, LP
(Previously filed as Exhibit 10.10 to the 1998 Form S-11 and
incorporated herein by reference.) (1)
10.11 Purchase and Sale Agreement between CNL Health Care Partners, LP
and Marriott Senior Living Services, Inc., relating to the
Brighton Gardens(R) by Marriott(R) -- Orland Park, Illinois
(Filed herewith.)
10.12 Lease Agreement between CNL Health Care Partners, LP and BG
Orlando Park, LLC dated April 20, 2000, relating to the Brighton
Gardens(R) by Marriott(R) -- Orland Park, Illinois (Filed
herewith.)
10.13 Revolving Line of Credit Agreement with CNL Health Care
Properties, Inc., CNL Health Care Partners, LP and Colonial Bank,
dated April 20, 2000 (Filed herewith.)
23.1 Consent of PricewaterhouseCoopers LLP, Certified Public
Accountants, dated May 15, 2000 (Filed herewith.)
23.2 Consent of Shaw Pittman (Contained in its opinions filed herewith
as Exhibits 5 and 8 and incorporated herein by reference.)
23.3 Consent of PricewaterhouseCoopers LLP, Certified Public
Accountants, dated May 15, 2000 (Filed herewith.)
24 Power of Attorney (See "Signatures.")
- -------------------------
* To be filed by amendment
(1) Filed herewith in connection with state filings only.
<PAGE>
Exhibit 1.1
Form of Managing Dealer Agreement
<PAGE>
MANAGING DEALER AGREEMENT
THIS AGREEMENT, dated as of ___________, 2000, is made by and between
CNL HEALTH CARE PROPERTIES, INC., a Maryland corporation (the "Company"), and
CNL SECURITIES CORP., a Florida corporation (the "Managing Dealer").
WHEREAS, the Company proposes to offer and sell up to an aggregate of
15,500,000 shares of common stock in the Company (the "Shares") to the public
pursuant to a public offering;
WHEREAS, the Managing Dealer is registered with the National
Association of Securities Dealers, Inc. as a broker-dealer, and is presently or,
prior to any offers or sales of Shares, will be licensed in all fifty states,
the District of Columbia, and the Commonwealth of Puerto Rico as a broker-dealer
qualified to offer and sell to the public securities of the type represented by
the Shares; and
WHEREAS, the Company desires to retain the Managing Dealer to use its
best efforts to sell the Shares and to manage the sale by others of the Shares,
and the Managing Dealer is willing and desires to serve as the Managing Dealer
for the Company for the sale of the Shares upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Company and the Managing
Dealer agree as follows:
SECTION 1
DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
following specified meanings.
1.1 "NASD" means the National Association of Securities Dealers, Inc.
1.2 "Offering" means the offering of up to 15,500,000 Shares of CNL
HEALTH CARE PROPERTIES, INC. to the public pursuant to the terms and conditions
of the Registration Statement.
1.3 "Offering Period" means the period commencing on the effective date
of the Registration Statement and ending on the earliest of the following: (i)
the later of one year after the initial date of the Prospectus or, at the
Company's election, two years after the initial date of the Prospectus; (ii) the
acceptance by the Company of subscriptions for 15,500,000 Shares, with up to
500,000 of such Shares available to investors who participate in the Company's
dividend reinvestment plan; (iii) the termination of the Offering by the
Company; (iv) the termination of the effectiveness of the Registration
Statement; or (v) the termination of the Company.
1.4 "Participating Brokers" mean those broker-dealers engaged by the
Managing Dealer to participate in the Offering pursuant to Paragraph 3.2.
1.5 "Prospectus" means the final prospectus included in the
Registration Statement, pursuant to which the Company will offer Shares to the
public, as the same may be amended or supplemented from time to time after the
effective date of the Registration Statement.
<PAGE>
1.6 "Registration Statement" means the registration statement pursuant
to which the Company has registered the Shares with the SEC as provided in the
Securities Act of 1933, as amended, as such registration statement may be
amended or supplemented from time to time.
1.7 "SEC" means the Securities and Exchange Commission.
1.8 "Shares" mean the shares of Common Stock of the Company, par value
$.01 per share, with a purchase price of $10.00 per share. An aggregate of up to
15,500,000 Shares will be offered pursuant to the Registration Statement.
1.9 "State Regulatory Authorities" mean the commissions, departments,
agencies or other authorities in the fifty states, the District of Columbia, and
the Commonwealth of Puerto Rico which regulate the offer and sale of securities.
1.10 "Company" means CNL Health Care Properties, Inc., a Maryland
corporation.
SECTION 2
APPOINTMENT
Subject to the terms and conditions set forth in this Agreement, the
Company hereby appoints the Managing Dealer as the managing dealer of the
Offering to use its best efforts to sell up to 15,500,000 Shares of the Company
and to manage the sale by others of such Shares for the Company's account. The
Managing Dealer hereby accepts such appointment.
SECTION 3
SALE OF SHARES
3.1 Best Efforts. The Managing Dealer shall use its best efforts during
the Offering Period to sell or cause to be sold the Shares in such quantities
and to such persons and in accordance with such terms as are set forth in this
Agreement, the Prospectus and the Registration Statement. Notwithstanding
anything herein to the contrary, the Managing Dealer shall have no obligation
under this Agreement to purchase any of the Shares for its own account.
3.2 Association of Other Broker-Dealers. The Company hereby
acknowledges and agrees that the Managing Dealer may engage Participating
Brokers to participate in the Offering, provided that (i) all Participating
Brokers are registered with the NASD and are duly licensed by the State
Regulatory Authorities in the jurisdictions in which they will offer and sell
Shares or exempt from broker-dealer registration with the NASD and the State
Regulatory Authorities, and (ii) all such engagements are evidenced by written
agreements, the terms and conditions of which substantially conform to the form
of Participating Broker Agreement approved by the Company and attached hereto as
Exhibit A (the "Participating Broker Agreement"). The Managing Dealer is
authorized to reallow so much of the commissions which it receives under
Paragraph 4.1 to Participating Brokers as it sees fit.
3.3 Telephonic Subscriptions.
<PAGE>
(a) The Managing Dealer may permit certain Participating
Brokers to accept telephonic or other oral subscriptions for Shares;
provided, however, that any such Participating Broker agrees that: (i)
the registered representative and branch manager of the Participating
Broker shall execute the subscription agreement on behalf of any
investor who telephonically or orally subscribes for Shares; (ii) the
Participating Broker shall not charge investors who telephonically or
orally subscribe for Shares any additional fees, including but not
limited to fees relating to opening an account with the Participating
Broker; and (iii) the Participating Broker shall not accept telephonic
or oral subscriptions for Shares from any investor unless such investor
has received a copy of the Company's Prospectus prior to making a
decision to invest. The Managing Dealer shall enter into a written
agreement with each Participating Broker who wishes to accept
telephonic or other oral subscriptions for Shares from investors in
certain states more particularly identified in the Prospectus, pursuant
to which the Participating Broker shall agree to explain to such
investor that: (i) the investor shall have the right to rescind such
subscription for a period of ten days following the receipt of the
Confirmation (as hereinafter defined); and (ii) unless the investor
rescinds such subscription within the applicable period of time, the
investor shall be bound by the subscription agreement. The Managing
Dealer shall confirm the receipt of subscriptions for Shares which have
been subscribed for by telephone or other oral instructions by written
notice to the investor (the "Confirmation"). Such Confirmation shall be
mailed to the investor not later than seven (7) days after the date on
which the investor's funds are deposited, shall contain a statement
that the investor has a right to rescind his subscription, and shall be
accompanied by a Prospectus and a Subscriber's Signature Page.
(b) Notwithstanding anything to the contrary contained in
Paragraph 4.3(a) of this Agreement, in the event that the Company pays
any commission to the Managing Dealer for sale by a Participating
Broker of one or more Shares pursuant to a telephonic or other oral
subscription where representatives of such Participating Broker execute
the subscription agreement relating to such Shares, and the
subscription is rescinded as to one or more of the Shares covered by
such subscription, the Company shall decrease the next payment of
commissions or other compensation otherwise payable to the Managing
Dealer by the Company under this Agreement by an amount equal to the
commission rate established in Paragraph 4.1 of this Agreement,
multiplied by the number of Shares as to which the subscription is
rescinded. In the event that no payment of commissions or other
compensation is due to the Managing Dealer after such withdrawal
occurs, the Managing Dealer shall pay the amount specified in the
preceding sentence to the Company within ten (10) days following
receipt of notice by the Managing Dealer from the Company stating the
amount owed as a result of rescinded subscriptions.
3.4 Suitability and Minimum Purchase Requirements.
(a) The Managing Dealer will use every reasonable effort, to
the extent it sells Shares to investors, to assure that any such Shares
are sold only to investors who:
(i) meet the investor suitability standards,
including the minimum income and net worth standard
established by the Company, and minimum purchase requirements
set forth in the Registration Statement;
<PAGE>
(ii) can reasonably benefit from the Company based on
the prospective investor's overall investment objectives and
portfolio structure;
(iii) are able to bear the economic risk of the
investment based on each prospective investor's overall
financial situation; and
(iv) have apparent understanding of: (A) the
fundamental risks of the investment; (B) the risk that the
prospective investor may lose the entire investment; (C) the
lack of liquidity of the Shares; (D) the restrictions on
transferability of the Shares; (E) the background and
qualifications of the officers and directors of CNL Health
Care Corp., the advisor to the Company (the "Advisor"); and
(F) the tax consequences of an investment in the Shares.
(b) The Managing Dealer will make the determinations required
to be made by it pursuant to Paragraph 3.4(a) above based on
information it has obtained from a prospective investor, including, at
a minimum, but not limited to, the prospective investor's age,
investment objectives, investment experience, income, net worth,
financial situation, other investments of the prospective investor, as
well as any other pertinent factors deemed by the Managing Dealer to be
relevant.
(c) The Managing Dealer shall maintain such records evidencing
compliance with the determination of the investor suitability standards
and minimum purchase requirements set forth in the Registration
Statement, as required by Paragraphs 3.4(a) and 3.4(b) above for a
period of not less than six years, or for such greater time period as
shall comply with all applicable federal, state and other regulatory
requirements.
(d) In addition to the foregoing, the Managing Dealer shall
comply fully with all the applicable provisions of the NASD's Conduct
Rules and the following provisions:
(i) the Managing Dealer shall have reasonable grounds
to believe, based upon information provided by the investor
concerning his investment objectives, other investments,
financial situation and needs, and upon any other information
known by the Managing Dealer, that (A) each investor to whom
the Managing Dealer sells Shares is or will be in a financial
position appropriate to enable him to realize to a significant
extent the benefits (including tax benefits) of an investment
in the Shares, (B) each investor to whom the Managing Dealer
sells Shares has a fair market net worth sufficient to sustain
the risks inherent in an investment in the Shares (including
potential loss and lack of liquidity), and (C) the Shares
otherwise are or will be a suitable investment for each
investor to whom the Managing Dealer sells Shares, and the
Managing Dealer shall maintain files disclosing the basis upon
which the determination of suitability was made;
(ii) the Managing Dealer shall not execute any
transaction involving the purchase of Shares in a
discretionary account without prior written approval of the
transaction by the investor;
<PAGE>
(iii) the Managing Dealer shall have reasonable
grounds to believe, based upon the information made available
to it, that all material facts are adequate and accurately
disclosed in the Registration Statement and provide a basis
for evaluating the Shares;
(iv) in making the determination set forth in item
(iii) above, the Managing Dealer shall evaluate items of
compensation, properties, tax aspects, financial stability and
experience of the sponsor, conflicts of interest and risk
factors, and any other information deemed pertinent by it; and
(v) prior to executing a purchase transaction in the
Shares, the Managing Dealer shall have informed the
prospective investor of all pertinent facts relating to the
liquidity and marketability of the Shares.
(e) The Managing Dealer shall comply with the requirements for
determining the suitability of investors who elect to participate in
the Reinvestment Plan (the "Reinvestment Plan") in accordance with the
procedure set forth in Paragraph 6 of such Reinvestment Plan in the
form of Appendix A to the Prospectus.
3.5 Sales Literature. The Managing Dealer shall use and distribute in
conjunction with the offer and sale of any Shares only the Prospectus and such
sales literature and advertising as shall have been previously approved in
writing by the Company.
3.6 Jurisdictions. The Managing Dealer shall cause Shares to be offered
and sold only in those jurisdictions specified in writing by the Company for
whose account Shares are then offered for sale, and such list of jurisdictions
shall be updated by the Company as additional states are added. The Company
shall specify only such jurisdictions in which the offering and sale of its
Shares has been authorized by appropriate State Regulatory Authorities. No
Shares shall be offered or sold for the account of the Company in any other
states.
3.7 Escrow. All funds received by the Managing Dealer for the sale of
Shares shall be deposited in an escrow account established by the Company at
SouthTrust Bank, N.A. (the "Escrow Agent"), by the close of the first business
day following receipt of such funds by the Managing Dealer. Such escrow account
shall be denominated "ESCROW ACCOUNT FOR THE BENEFIT OF SUBSCRIBERS FOR COMMON
STOCK OF CNL HEALTH CARE PROPERTIES, INC." Checks may be made payable to either
the Escrow Agent or the Company. The Managing Dealer may authorize certain
Participating Brokers which are "$250,000 broker-dealers" to instruct their
customers to make their checks for Shares subscribed for payable directly to the
Participating Broker. In such case, the Soliciting Dealer will collect the
proceeds of the subscribers' checks and issue a check made payable to the order
of the Escrow Agent for the aggregate amount of the subscription proceeds.
<PAGE>
SECTION 4
COMPENSATION
4.1 Commissions.
(a) The Company shall pay to the Managing Dealer, as
compensation for all services to be rendered by the Managing Dealer
pursuant to this Agreement, a commission equal to seven and one-half
percent (7.5%) of the selling price of each Share for which a sale is
completed, regardless of whether such Share is sold by the Managing
Dealer or a Participating Broker; provided, however, that the Company
will pay reduced commissions or may eliminate commissions on certain
sales of Shares, including the reduction or elimination of commissions
in accordance with, and on the terms set forth in, the Prospectus and
the following paragraph of this Paragraph 4.1, which reduction or
elimination of commissions will not change the net proceeds to the
Company. Stockholders who elect to participate in the Reinvestment Plan
will be charged commissions on Shares purchased for their accounts on
the same basis as investors who otherwise purchase Shares in the
Offering.
(b) A registered principal or representative of the Managing
Dealer or a Participating Broker, employees, officers, and directors of
the Company or the Advisor, any of their Affiliates (and the families
of any of the foregoing persons), and any Plan (as defined in the
Prospectus) established exclusively for the benefit of such persons or
entities may purchase Shares net of 7% commissions, at a per Share
purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended, who
have been advised by such adviser on an ongoing basis regarding
investments other than in the Company, and who are not being charged by
such adviser or its Affiliates, through payment of commissions or
otherwise, for the advice rendered by such adviser in connection with
the purchase of the Shares, may purchase the Shares net of commissions.
In addition, brokers that have a contractual arrangement with their
clients for the payment of fees which is consistent with accepting
selling commissions, in their sole discretion, may elect not to accept
any selling commissions offered by the Company for Shares that they
sell. In that event, such Shares shall be sold to the investor net of
all selling commissions, at a per share purchase price of $9.30.
4.2 Marketing Support and Due Diligence. The Company shall pay to the
Managing Dealer a nonaccountable fee for expenses incurred in selling and
marketing the Shares and for bona fide expenses incurred in connection with due
diligence activities. This marketing support and due diligence expense
reimbursement fee shall be equal to one-half of one percent (0.5%) of the
selling price of each Share for which a sale is completed, regardless of whether
such Share is sold by the Managing Dealer or a Participating Broker. All due
diligence expense reimbursements shall be paid by the Managing Dealer from this
fee.
4.3 Completed Sale.
(a) A sale of a Share shall be deemed to be completed under
Paragraph 4.1 if and only if (i) the Company has received a properly
completed and executed subscription agreement, together with payment of
the full purchase price of each purchased Share, from or, in accordance
with Paragraph 3.3(a), on behalf of an investor who satisfies the
applicable suitability standards and minimum purchase requirements set
forth in the Registration Statement as determined by the Managing
Dealer in accordance with the provisions of this Agreement, (ii) the
Company has accepted such subscription, and (iii) such investor has
been admitted as a stockholder of the Company.
(b) The Managing Dealer hereby acknowledges and agrees that
the Company, in its sole and absolute discretion, may accept or reject
any subscription, in whole or in part, for any reason whatsoever, and
no commission will be paid to the Managing Dealer with respect to that
portion of any subscription which is rejected.
4.4 Payment. Except as provided in "The Offering - Plan of
Distribution" of the Prospectus, the commissions specified in Paragraph 4.1 for
the sale of any Share shall be payable in cash by the Company, as specified in
Paragraph 4.1, no later than the end of the calendar month in which the investor
subscribing for the Share is admitted as a stockholder of the Company. Investors
whose subscriptions for Shares are accepted shall be admitted no later than the
end of the calendar month in which such subscriptions are accepted. The Company
will accept or reject all subscriptions within 30 days after receipt.
Notwithstanding anything to the contrary contained herein, in the event that the
Company pays any commission to the Managing Dealer for sale by a Participating
Broker of one or more Shares and the subscription is rescinded as to one or more
of the Shares covered by such subscription, the Company shall decrease the next
payment of commissions or other compensation otherwise payable to the Managing
Dealer by the Company under this Agreement by an amount equal to the commission
rate established in Paragraph 4.1 of this Agreement, multiplied by the number of
Shares as to which the subscription is rescinded. In the event that no payment
of commissions or other compensation is due to the Managing Dealer after such
withdrawal occurs, the Managing Dealer shall pay the amount specified in the
preceding sentence to the Company within ten (10) days following receipt of
notice by the Managing Dealer from the Company stating the amount owed as a
result of rescinded subscriptions.
Certain stockholders may agree with their participating Soliciting
Dealer and the Managing Dealer to have Selling Commissions relating to their
Shares paid over a seven year period pursuant to a deferred commission
arrangement (the "Deferred Commission Option"). Stockholders electing the
Deferred Commission Option will be required to pay a total of $9.40 per Share
purchased upon subscription, rather than $10.00 per Share, with respect to which
$0.15 per Share will be payable as Selling Commissions due upon subscription,
$0.10 of which may be reallowed to the Soliciting Dealer by the Managing Dealer.
For each of the six (6) years following such subscription on a date to be
determined by the Managing Dealer, $0.10 per Share will be paid by the Company
as deferred Selling Commissions with respect to Shares sold pursuant to the
Deferred Commission Option, which amounts will be deducted from and paid out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting Dealer by the Managing Dealer. The net proceeds
to the Company will not be affected by the election of the Deferred Commission
Option. Under this arrangement, a stockholder electing the Deferred Commission
Option will pay a 1% Selling Commission per year thereafter for the next six (6)
years which will be deducted from and paid by the Company out of distributions
otherwise payable to such stockholder. However, in the event the Company's
Shares are listed on a national securities exchange or over-the-counter market
or a stockholder electing the Deferred Commission Option sells or otherwise
transfers his or her Shares, prior to such time as the full amount otherwise
payable under the Deferred Commission Option has been paid, the obligation of
the Company and the stockholder to make any further payments of deferred
commissions shall terminate. In such event, the Managing Dealer (and any
Soliciting Dealer if the deferred
<PAGE>
commissions are reallowed by the Managing Dealer) will not be entitled to
receive any further portion of the unpaid deferred commissions following listing
the Company's Shares on a national securities exchange or over-the-counter
market or the sale or transfer of the applicable Shares to which the deferred
commissions relate.
4.5 Sales Incentives. The Company or its Affiliates also may provide
incentive items for registered representatives of the Managing Dealer and the
Participating Brokers, which in no event shall exceed an aggregate of $100 per
annum per participating salesperson. In the event other incentives are provided
to registered representatives of the Managing Dealer or the Participating
Brokers, they will only be paid in cash and such payments will only be made to
the Managing Dealer or the Participating Brokers rather than their registered
representatives. Before any such sales incentive program is offered, the Company
agrees to obtain prior approval of the terms of such program from the NASD.
4.6 Wholesaling Compensation. The Company hereby acknowledges that the
Managing Dealer may pay each of its wholesalers 1% of the gross sales price
(computed at $10.00 per Share) of all Shares sold in such wholesaler's
geographic territory (as the same may be established from time to time by
agreement between the Managing Dealer and one or more of its wholesalers) but
not in excess, in the aggregate, of 1% of the gross sales price (computed at
$10.00 per Share) of all Shares sold, or a maximum of 15,500,000 Shares. The
Company and the Managing Dealer hereby agree that the Company shall have no
obligation to pay any portion of such amounts. The Company hereby agrees to
reimburse reasonable out-of-pocket expenses that such wholesalers incur in
connection with the distribution of its Shares; provided, however, that in no
event will the Managing Dealer or the Company pay any amounts to any person if
(i) such amounts constitute "underwriting compensation," and (ii) payment of
such amounts could cause total underwriting compensation paid to underwriters,
broker-dealers, or affiliates thereof from any source, and deemed to be in
connection with or related to the distribution of the Offering, to exceed
then-applicable compensation NASD guidelines.
4.7 Soliciting Dealer Servicing Fee. The Company shall pay to the
Managing Dealer an annual servicing fee (the "Soliciting Dealer Servicing Fee")
of .20% of the Company's Invested Capital (as defined below) on December 31 of
each year, commencing in the year following the year in which the Offering
terminates, subject to any limitations imposed on the Company by the NASD, state
securities regulators or otherwise. The Managing Dealer may reallow all or a
portion of the Soliciting Dealer Servicing Fee to Participating Brokers whose
clients hold Shares on December 31 of the applicable year. In general, Invested
Capital is the amount of cash contributed by stockholders to the Company,
reduced by certain prior capital distributions to the stockholders from the sale
of the Company's properties. The Soliciting Dealer Servicing Fee will terminate
as of the beginning of any year in which the Company is liquidated or the Shares
become listed on a national securities exchange or over-the-counter market.
SECTION 5
TERM OF AGREEMENT
5.1 Commencement and Expiration. This Agreement shall commence as of
the date first above written and, unless sooner terminated pursuant to Paragraph
5.2 or by operation of law or otherwise, shall expire at the end of the Offering
Period.
<PAGE>
5.2 Termination. Any party may terminate this agreement at any time and
for any reason by giving 30 days prior written notice of intention to terminate
to each other party hereto.
5.3 Obligations Surviving Expiration or Termination.
(a) In addition to any other obligations of the Managing
Dealer that survive the expiration or termination of this Agreement,
the Managing Dealer, upon the expiration or termination of this
Agreement, shall (i) promptly deposit any and all funds in its
possession which were received from investors for the sale of Shares
into the appropriate escrow account specified in Paragraph 3.7 or, if
the minimum number of Shares have been sold and accepted by the
Company, into such other account as the Company may designate, and (ii)
promptly deliver to the Company all records and documents in its
possession which relate to the Offering and are not designated as
dealer copies. The Managing Dealer, at its sole expense, may make and
retain copies of all such records and documents, but shall keep all
such information confidential. The Managing Dealer shall use its best
efforts to cooperate with the Company to accomplish an orderly transfer
of management of the Offering to a party designated by the Company.
(b) In addition to any other obligations of the Company that
survive the expiration or termination of this Agreement, the Company,
upon expiration or termination of this Agreement, shall pay to the
Managing Dealer all commissions to which the Managing Dealer is or
becomes entitled under Section 4 at such time or times as such
commissions become payable pursuant to Paragraph 4.3.
SECTION 6
COVENANTS OF THE MANAGING DEALER
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) it is (i) a corporation duly organized and validly
existing under the laws of the State of Florida, (ii) a member of the
NASD, and (iii) a broker-dealer registered under the securities laws of
all fifty states, the District of Columbia, and the Commonwealth of
Puerto Rico.
(b) it will use its best efforts to assure that all Shares are
offered and sold in accordance with (i) the terms of the Registration
Statement, the Prospectus and this Agreement, (ii) the requirements of
applicable federal and state securities laws and regulations, and (iii)
the applicable rules of the NASD, including, without limitation, the
NASD's Conduct Rules;
(c) it will cause the Shares to be offered or sold only in
those jurisdictions specified in writing by the Company;
(d) it will not use any offering or selling materials other
than materials furnished or previously approved in writing by the
Company; and
(e) it either (i) will not purchase Shares for its own account
or (ii) will hold all such Shares for investment.
SECTION 7
COVENANTS OF THE COMPANY
The Company covenants, warrants and represents, during the full term of
this Agreement, that:
(a) it will use its best efforts to maintain the effectiveness
of the Registration Statement, and will file, or cause to be filed,
such amendments to the Registration Statement as may be reasonably
necessary for that purpose;
(b) It will use its best efforts to (i) prevent the issuance
of any order by the SEC, any State Regulatory Authority or any other
regulatory authority which suspends the effectiveness of the
Registration Statement, prevents the use of the Prospectus, or
otherwise prevents or suspends the Offering, and (ii) obtain the
lifting of any such order if issued;
(c) it will give the Managing Dealer written notice when the
Registration Statement becomes effective and shall deliver to the
Managing Dealer a signed copy of the Registration Statement, including
its exhibits, and such number of copies of the Registration Statement,
without exhibits, and the Prospectus, and any supplements and
amendments thereto which are finally approved by the SEC, as the
Managing Dealer may reasonably request for sale of the Shares, which
Prospectus shall not contain any untrue statement of a material fact
required to be stated therein or omit any material statement necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading;
(d) if at any time any event occurs and becomes known to the
Company prior to the end of the Offering Period, as a result of which
the Registration Statement or Prospectus would include an untrue
statement of a material fact or, in view of the circumstances under
which they were made, omit to state any material fact necessary to make
the statements therein not misleading, the Company will effect the
preparation of an amended or supplemented Registration Statement or
Prospectus which will correct such statement or omission;
(e) it will promptly notify the Managing Dealer of any
post-effective amendments or supplements to the Registration Statement
or Prospectus;
(f) it will, during the full term of this Agreement, abide by
all applicable provisions of its governing instruments, as the same may
be amended; and
(g) it will use its best efforts to cause, at or prior to the
time the Registration Statement becomes effective, the qualification or
registration of the Shares for offering and sale under the securities
laws of such jurisdictions as shall be determined by the Company.
<PAGE>
SECTION 8
PAYMENT OF COSTS AND EXPENSES
8.1 Managing Dealer. The Managing Dealer shall pay all costs and
expenses incident to the performance of its obligations under this Agreement
which are not expressly assumed by the Company under Paragraph 8.2 below.
8.2 Company. The Company shall pay all costs and expenses related to:
(a) the registration of the offer and sale of the Shares with
the SEC, including the cost of preparation, printing, filing and
delivery of the Registration Statement and all copies of the Prospectus
used in the Offering, and any amendments or supplements to such
documents;
(b) the preparation and printing of the form of subscription
agreement to be used in the sale of the Shares;
(c) the qualification or registration of the Shares under
state securities or "blue sky" laws of states where the Shares are to
be offered or sold;
(d) the filing of the Registration Statement and any related
documents, including any amendments or supplements to such documents,
with the NASD;
(e) any filing fees, and fees and disbursements to counsel,
accountants and escrow agents which are in any way related to any of
the above items; and
(f) the preparation, printing and filing of all advertising
originated by it relating to the sale of Shares.
SECTION 9
INDEMNIFICATION
The Managing Dealer agrees to indemnify, defend and hold harmless the
Company from all losses, claims, demands, liabilities and expenses, including
reasonable legal and other expenses incurred in defending such claims or
liabilities, whether or not resulting in any liability to the Company, which the
Company may incur in connection with the offer or sale of any Shares, either by
the Managing Dealer pursuant to this Agreement or any Participating Broker
acting on the Managing Dealer's behalf pursuant to the Participating Broker
Agreement which arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact, or any omission or alleged omission
of a material fact, other than a statement or omission contained in the
Prospectus, the Registration Statement, or any state securities filing which was
not based on information supplied to the Company by the Managing Dealer or a
Participating Broker, or (ii) the breach by the Managing Dealer or any
Participating Broker acting on its behalf of any of the terms and conditions of
this Agreement or any Participating Broker Agreement, including, but not limited
to, alleged violations of the Securities Act of 1933, as amended.
<PAGE>
SECTION 10
MISCELLANEOUS
10.1 Notices. Any notice, approval, request, authorization, direction
or other communication under this Agreement shall be given in writing and shall
be deemed to be delivered when delivered in person or deposited in the United
States mail, properly addressed and stamped with the required postage,
registered or certified mail, return receipt requested, to the intended
recipient as set forth below.
<TABLE>
<CAPTION>
<S> <C>
If to the Company: CNL Health Care Properties, Inc.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: James M. Seneff, Jr., Chairman of the Board
If to the Managing Dealer: CNL Securities Corp.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: Robert A. Bourne, President
</TABLE>
Any party may change its address specified above by giving each other party
notice of such change in accordance with this Paragraph 10.1.
10.2 Invalid Provision. The invalidity or unenforceability of any
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
10.3 No Partnership. Nothing in this Agreement shall be construed or
interpreted to constitute the Managing Dealer as in association with or in
partnership with the Company, and instead, this Agreement only shall constitute
the Managing Dealer as a dealer authorized by the Company to sell and to manage
the sale by others of the Shares according to the terms set forth in the
Registration Statement, the Prospectus or this Agreement.
10.4 No Third Party Beneficiaries. No provision of this Agreement is
intended to be for the benefit of any person or entity not a party to this
Agreement, and no third party shall be deemed to be a beneficiary of any
provision of this Agreement. Further, no third party shall by virtue of any
provision of this Agreement have a right of action or an enforceable remedy
against either party to this Agreement.
10.5 Survival. Paragraph 5.3 and Section 9 and all provisions of this
Agreement which may reasonably be interpreted or construed as surviving the
expiration or termination of this Agreement shall survive the expiration or
termination of this Agreement.
10.6 Entire Agreement. This Agreement constitutes the complete
understanding among the parties hereto, and no variation, modification or
amendment to this Agreement shall be deemed valid or effective unless and until
it is signed by all parties hereto.
10.7 Successors and Assigns. No party shall assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest or benefit
under this Agreement without the prior written consent of each other party.
Subject to the foregoing, this Agreement shall be fully binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns.
10.8 Nonwaiver. The failure of any party to insist upon or enforce
strict performance by any other party of any provision of this Agreement or to
exercise any right under this Agreement shall be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, such provision or
right shall be and remain in full force and effect.
10.9 Applicable Law. This Agreement shall be interpreted, construed and
enforced in all respects in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Company: CNL HEALTH CARE PROPERTIES, INC.
By: __________________________________
JAMES M. SENEFF, JR., Chairman of the Board
Managing Dealer: CNL SECURITIES CORP.
By: __________________________________
ROBERT A. BOURNE, President
<PAGE>
EXHIBIT 1.2
Form of Participating Broker Agreement
<PAGE>
PARTICIPATING BROKER AGREEMENT
CNL HEALTH CARE PROPERTIES, INC.
THIS PARTICIPATING BROKER AGREEMENT (the "Agreement") is made and
entered into as of the day indicated on Exhibit A attached hereto and by this
reference incorporated herein, between CNL SECURITIES CORP., a Florida
corporation (the "Managing Dealer"), and the Participating Broker (the "Broker")
identified in Exhibit A hereto.
WHEREAS, CNL HEALTH CARE PROPERTIES, INC. is a Maryland corporation
(the "Company"); and
WHEREAS, the Company proposes to offer and sell up to 15,500,000 shares
of Common Stock of the Company (the "Shares") to the general public, pursuant to
a public offering (the "Offering") of the Shares pursuant to a prospectus (the
"Prospectus") filed with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Managing Dealer, which has heretofore entered into a
Managing Dealer Agreement with the Company pursuant to which it has been
designated the managing dealer to sell and manage the sale by others of the
Shares pursuant to the terms of such agreement and the Offering, is a
corporation incorporated in and presently in good standing in the State of
Florida, and is presently registered with the Florida Securities Commission and
with the National Association of Securities Dealers, Inc. ("NASD") as a
securities broker-dealer qualified to offer and sell to members of the public
securities of the type represented by the Shares; and
WHEREAS, the Broker is an entity, as designated in Exhibit A hereto,
organized and presently in good standing in the state or states designated in
Exhibit A hereto, presently registered as a broker-dealer with the NASD, and
presently licensed by the appropriate regulatory agency of each state in which
it will offer and sell the Shares as a securities broker-dealer qualified to
offer and sell to members of the public securities of the type represented by
the Shares or exempt from all such registration requirements; and
WHEREAS, the Company has filed with the SEC a registration statement on
Form S-11, including a preliminary or final prospectus, for the registration of
the Shares under the Securities Act of 1933, as amended (such registration
statement, as it may be amended, and the prospectus and exhibits on file with
the SEC at the time the registration statement becomes effective, including any
post-effective amendments or supplements to such registration statement or
prospectus after the effective date of registration, being herein respectively
referred to as the "Registration Statement" and the "Prospectus"); and
WHEREAS, the offer and sale of the Shares shall be made pursuant to the
terms and conditions of the Registration Statement and the Prospectus and,
further, pursuant to the terms and conditions of all applicable securities laws
of all states in which the Shares are offered and sold; and
WHEREAS, the Managing Dealer desires to retain the Broker to use its
best efforts to sell the Shares, and the Broker is willing and desires to serve
as a broker for the Managing Dealer for the sale of the Shares upon the
following terms and conditions;
NOW, THEREFORE, in consideration of the premises and terms and
conditions thereof, it is agreed between the Managing Dealer and the Broker as
follows.
1. Employment.
(a) Subject to the terms and conditions herein set forth, the
Managing Dealer hereby employs the Broker to use its best efforts to sell for
the account of the Company a portion of the Shares described in the Registration
Statement, as specified on Exhibit A hereto. The Broker hereby accepts such
employment and covenants, warrants and agrees to sell the Shares according to
all of the terms and conditions of the Registration Statement, all applicable
state and federal laws, including the Securities Act of 1933, as amended, and
any and all regulations and rules pertaining thereto, heretofore or hereafter
issued by the SEC and the NASD. Neither the Broker nor any other person shall
have any authority to give any information or make any representations in
connection with any offer or sale of the Shares other than as contained in the
Prospectus, as amended and supplemented, and as is otherwise expressly
authorized in writing by the Managing Dealer.
(b) The Broker shall use its best efforts, promptly following
receipt of written notice from the Managing Dealer of the effective date of the
Registration Statement, to sell the Shares in such quantities and for the
account of Company as shall be agreed between the Broker and the Managing Dealer
and specified on Exhibit A hereto, and to such persons and according to all such
terms as are contained in the Registration Statement and the Prospectus. The
Broker shall comply with all requirements set forth in the Registration
Statement and the Prospectus. The Broker shall use and distribute, in connection
with the offer and sale of the Shares, only the Prospectus and such sales
literature and advertising as shall conform in all respects to any restrictions
of local law and the applicable requirements of the Securities Act of 1933, as
amended, and which has been approved in writing by the Company or the Managing
Dealer. The Managing Dealer reserves the right to establish such additional
procedures as it may deem necessary to ensure compliance with the requirements
of the Registration Statement, and the Broker shall comply with all such
additional procedures to the extent that it has received written notice thereof.
(c) The Broker shall be permitted to accept subscriptions for
the Shares by telephone from residents of those states identified on Schedule A
attached hereto and made a part hereof provided that: (1) the registered
representative and branch manager of the Broker execute the subscription
agreement on behalf of any investor who subscribes for Shares by telephone; and
(2) the Broker does not charge any additional fees, including but not limited to
fees relating to opening an account with the Broker, to any investor who
telephonically or orally subscribes for Shares. It is understood and agreed
between the Managing Dealer and the Broker that the Managing Dealer may, in its
discretion, change, modify, add to or delete from the list of states identified
on Schedule A. Any such modification shall be effective ten days from the date
written notice to the Broker has been mailed by the Managing Dealer. The Broker
shall not execute a subscription agreement on behalf of any investor who
subscribes for Shares by telephone unless such investor has specifically
authorized the registered representative and the branch manager of the Broker to
execute the subscription agreement on behalf of such investor and has made or
agreed to make full payment for all Shares covered by such subscription
agreement. Notwithstanding anything contained herein to the contrary, the Broker
shall have no authority to make representations on behalf of an investor or to
initial representations contained in the subscription agreement on behalf of an
investor. In connection with telephonic or other oral subscriptions for Shares,
the Broker represents and warrants as follows: (i) that a Prospectus was
delivered to the investor before the investor made a decision to invest; (ii)
that the investor meets the suitability requirements set forth in the
Prospectus; and (iii) that, in compliance with the NASD's Conduct Rules, the
Broker has reasonable grounds to believe that the investment in the Company is
suitable for the investor, based upon information supplied by the investor to
such Broker. Further, the Broker shall explain to any investor from a state
identified in the Prospectus as having such additional requirements, that: (i)
the investor has the right to rescind such subscription for a period of at least
ten days following the date written confirmation of the subscription has been
received by the investor from the Managing Dealer; and (ii) unless the investor
rescinds such subscription within the applicable period of time, the investor
shall be bound by the subscription agreement.
(d) Notwithstanding anything to the contrary contained in
Section 2 of this Agreement, in the event that the Managing Dealer pays any
commission to the Broker for sale of one or more Shares, including, but not
limited to, those Shares sold pursuant to a telephonic or other oral
subscription therefor, where representatives of the Broker execute the
subscription agreement relating to such Shares, and the subscription is
rescinded as to one or more of the Shares covered by such subscription, the
Managing Dealer shall decrease the next payment of commissions or other
compensation otherwise payable to the Broker by the Managing Dealer under this
Agreement by an amount equal to the commission rate established in Section 2 and
Exhibit A of this Agreement, multiplied by the number of Shares as to which the
subscription is rescinded. In the event that no payment of commissions or other
compensation is due to the Broker after such withdrawal occurs, the Broker shall
pay the amount specified in the preceding sentence to the Managing Dealer within
ten (10) days following mailing of notice to the Broker by the Managing Dealer
stating the amount owed as a result of rescinded subscriptions.
<PAGE>
(e) All monies received for purchase of any of the Shares
shall be forwarded by the Broker to the Managing Dealer for delivery to
SouthTrust Bank, N.A. (the "Escrow Agent"), where such monies will be deposited
in an escrow account established by the Company solely for such subscriptions.
The Broker may accept checks made payable to either the Company or the Escrow
Agent. Subscriptions will be executed as described in the Registration Statement
or as directed by the Managing Dealer. The monies shall be deposited or
transmitted by the Broker to the Managing Dealer no later than the close of
business of the first business day after receipt of the subscription documents
by the Broker; provided, however, that if the Broker maintains a branch office,
the branch office shall transmit the subscription documents and check to the
Broker by the close of business on the first business day following their
receipt by the branch office and the Broker shall review the subscription
documents and check to ensure their proper execution and form and, if they are
acceptable, transmit the check to the Managing Dealer by the close of business
on the first business day after their receipt by the Broker. Pursuant to the
terms of the Managing Dealer Agreement, the Managing Dealer will transmit the
check or monies to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Broker.
(f) During the full term of this Agreement the Managing Dealer
shall have full authority to take such action as it may deem advisable in
respect to all matters pertaining to the performance of the Broker under this
Agreement.
(g) The Shares shall be offered and sold by the Broker only
where the Shares may be legally offered and sold, and only to such persons in
such states who shall be legally qualified to purchase the Shares. The Managing
Dealer shall give the Broker written notice at the time of effectiveness of
those states in which the offering and sale of Shares may be made, and shall
amend such notice thereafter as additional states are added; no Shares shall be
offered or sold in any other states.
(h) The Broker shall have no obligation under this Agreement
to purchase any of the Shares for its own account.
(i) The Broker will use every reasonable effort to assure that
Shares are sold only to investors who:
(1) meet the investor suitability standards,
including the minimum income and net worth standard established by the
Company, and minimum purchase requirements set forth in the
Registration Statement;
(2) can reasonably benefit from the Company based on
the prospective investor's overall investment objectives and portfolio
structure;
(3) are able to bear the economic risk of the
investment based on each prospective investor's overall financial
situation; and
(4) have apparent understanding of: (a) the
fundamental risks of the investment; (b) the risk that the prospective
investor may lose the entire investment; (c) the lack of liquidity of
the Shares; (d) the restrictions on transferability of the Shares; (e)
the background and qualifications of the officers and directors of CNL
Health Care Corp., the advisor to the Company (the "Advisor"); and (f)
the tax consequences of an investment in the Shares.
The Broker will make the determinations required to
be made by it pursuant to subparagraph (i) based on information it has
obtained from a prospective investor, including, at a minimum, but not
limited to, the prospective investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments of the prospective investor, as well as any other pertinent
factors deemed by the Broker to be relevant.
<PAGE>
(j) In addition to complying with the provisions of
subparagraph (i) above, and not in limitation of any other obligations of the
Broker to determine suitability imposed by state or federal law, the Broker
agrees that it will comply fully with all of the applicable provisions of the
NASD's Conduct Rules, and the following provisions:
(1) The Broker shall have reasonable grounds to
believe, based upon information provided by the investor concerning his
investment objectives, other investments, financial situation and
needs, and upon any other information known by the Broker, that (A)
each investor to whom the Broker sells Shares is or will be in a
financial position appropriate to enable him to realize to a
significant extent the benefits (including tax benefits) of an
investment in the Shares, (B) each investor to whom the Broker sells
Shares has a fair market net worth sufficient to sustain the risks
inherent in an investment in the Shares (including potential loss and
lack of liquidity), and (C) the Shares otherwise are or will be a
suitable investment for each investor to whom it sells Shares, and the
Broker shall maintain files disclosing the basis upon which the
determination of suitability was made;
(2) The Broker shall not execute any transaction
involving the purchase of Shares in a discretionary account without
prior written approval of the transaction by the investor;
(3) The Broker shall have reasonable grounds to
believe, based upon the information made available to it, that all
material facts are adequately and accurately disclosed in the
Registration Statement and provide a basis for evaluating the Shares;
(4) In making the determination set forth in
subparagraph (3) above, the Broker shall evaluate items of
compensation, physical properties, tax aspects, financial stability and
experience of the sponsor, conflicts of interest and risk factors,
appraisals, as well as any other information deemed pertinent by it;
(5) If the Broker relies upon the results of any
inquiry conducted by another member of the NASD with respect to the
obligations set forth in subparagraphs (3) or (4) above, the Broker
shall have reasonable grounds to believe that such inquiry was
conducted with due care, that the member or members conducting or
directing the inquiry consented to the disclosure of the results of the
inquiry and that the person who participated in or conducted the
inquiry is not a sponsor or an affiliate of the sponsor of the Company;
and
(6) Prior to executing a purchase transaction in the
Shares, the Broker shall have informed the prospective investor of all
pertinent facts relating to the liquidity and marketability of the
Shares.
(k) The Broker agrees that it will comply with Rules 2730,
2740 and 2750 of the NASD's Conduct Rules.
(l) The Broker agrees to retain in its files, for a period of
at least six (6) years, information which will establish that each purchaser of
Shares falls within the permitted class of investors.
(m) The Broker shall not, directly or indirectly, pay or award
any finder's fees, commissions or other compensation to any persons engaged by a
potential investor for investment advice as an inducement to such advisor to
advise the potential investor to purchase Shares in the Company.
(n) The Broker either (i) shall not purchase Shares for its
own account or (ii) shall hold for investment any Shares purchased for its own
account.
(o) The Broker hereby confirms that it is familiar with
Securities Act Release No. 4968 and Rule 15c2-8 under the Securities Exchange
Act of 1934, relating to the distribution of preliminary and final prospectuses,
and confirms that it has and will comply therewith.
(p) The Broker shall deliver a copy of the Articles of
Incorporation of the Company with each Prospectus that is delivered to potential
investors in Mississippi.
(q) The Broker shall not in any way participate in, or effect
the sale or transfer of Shares in connection with, a tender offer with respect
to shares of the Company's common stock, whether or not such offer is subject to
Section 14(d)(1) of the Securities Exchange Act of 1934, as amended, other than
with the written consent of the Company and/or the Managing Dealer.
2. Compensation of Broker.
The Managing Dealer shall pay the Broker, as compensation for all
services to be rendered by the Broker hereunder, a commission equal to 7.0% on
sales of Shares by such Broker, as set forth in Exhibit A hereto, subject to
reduction as specified in this Section 2 and the Prospectus. The Managing
Dealer, in its sole discretion, may reallow to the Broker, from its marketing
support and due diligence expense reimbursement fee, up to an additional 0.5% on
sales of Shares by such Broker, based on such factors as the number of Shares
sold by the Broker, the assistance of the Broker in marketing the Offering, and
bona fide due diligence expenses incurred by the Broker. Such commission rates
shall remain in effect during the full term of this Agreement unless otherwise
changed by a written agreement between the parties hereto. A sale of Shares
shall be deemed to be completed only after the Company receives a properly
completed subscription agreement for Shares from the Broker evidencing the fact
that the investor had received a final Prospectus for a period of not less than
five (5) full business days, together with payment of the full purchase price of
each purchased Share from a buyer who satisfies each of the terms and conditions
of the Registration Statement and Prospectus, and only after such subscription
agreement has been accepted in writing by the Company. Such compensation shall
be payable to the Broker by the Managing Dealer after such acceptance of the
subscription agreement; provided, however, that compensation or commissions
shall not be paid by the Managing Dealer: (i) other than from funds received as
compensation or commissions from the Company for the sale of its Shares; (ii)
until any and all compensation or commissions payable by the Company to the
Managing Dealer have been received by the Managing Dealer; and (iii) if the
commission payable to any broker-dealer or salesman exceeds the amount allowed
by any regulatory agency. The Broker shall not reallow any commissions to
non-NASD members. The Company (and the Managing Dealer) may pay reduced
commissions or may eliminate commissions on certain sales of Shares, including
the reduction or elimination of commissions in accordance with the following
paragraph of this Section 2. Any such reduction or elimination of commissions
will not, however, change the net proceeds to the Company.
A registered principal or representative of the Managing Dealer or a
Broker, employees, officers, Directors, and directors of the Company or the
Advisor, or any of their Affiliates (and the families of any of the foregoing
persons), and any Plan (as defined in the Prospectus) established exclusively
for the benefit of such persons may purchase Shares net of 7% commissions, at a
per Share purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended, who have been
advised by such adviser on an ongoing basis regarding investments other than in
the Company, and who are not being charged by such adviser or its Affiliates,
through the payment of commissions or otherwise, for the advice rendered by such
adviser in connection with the purchase of the Shares, may purchase the Shares
net of commissions. In addition, brokers that have a contractual arrangement
with their clients for the payment of fees which is consistent with accepting
selling commissions, in their sole discretion, may elect not to accept any
selling commissions offered by the Company for Shares that they sell. In that
event, such Shares shall be sold to the investor net of all selling commissions,
at a per share purchase price of $9.30.
Certain stockholders may agree with their participating Broker and the
Managing Dealer to have commissions relating to their Shares paid over a seven
year period pursuant to a deferred commission arrangement (the "Deferred
Commission Option"). Stockholders electing the Deferred Commission Option will
be required to pay a total of $9.40 per Share purchased upon subscription,
rather than $10.00 per Share, with respect to which $0.15 per Share will be
payable as commissions due upon subscription, $0.10 of which may be reallowed to
the Broker by the Managing Dealer. For each of the six years following such
subscription on a date to be determined by the Managing Dealer, $0.10 per Share
will be paid by the Company as deferred commissions with respect to Shares sold
pursuant to the Deferred Commission Option, which amounts will be deducted from
and paid out of distributions otherwise payable to such stockholders holding
such Shares and may be reallowed to the Broker by the Managing Dealer. The net
proceeds to the Company will not be affected by the election of the Deferred
Commission Option. Under this arrangement, a stockholder electing the Deferred
Commission Option will pay a 1% Broker commission per year thereafter for the
next six years which will be deducted from and paid by the Company out of
distributions otherwise payable to such stockholder. However, in the event the
Company's Shares are listed on a national securities exchange or
over-the-counter market or a stockholder electing the Deferred Commission Option
sells or otherwise transfers his or her Shares, prior to such time as the full
amount otherwise payable under the Deferred Commission Option has been paid, the
obligation of the Company and the stockholder to make any further payments of
deferred commissions shall terminate. In such event, the Managing Dealer (and
any Participating Broker if the deferred commissions are reallowed by the
Managing Dealer) will not be entitled to receive any further portion of the
unpaid deferred commissions following listing the Company's Shares on a national
securities exchange or over-the-counter market or the sale or transfer of the
applicable Shares to which the deferred commissions relate.
The Managing Dealer shall pay the Broker commissions on Shares
purchased pursuant to the Company's Reinvestment Plan on the same basis as
commissions paid for Shares otherwise purchased in the Offering.
In addition to the commissions described above in this Section 2, the
Managing Dealer may reallow to the Broker all or a portion of its annual fee
actually received from the Company of .20% of the Company's Invested Capital (as
defined below) on December 31 of each year, commencing in the year following the
year in which the Offering terminates. It is understood that payment of such fee
by the Company to the Managing Dealer is subject to any limitations imposed on
the Company by the NASD, state securities regulators or otherwise. The Managing
Dealer may reallow this fee only to a Broker whose clients hold Shares on
December 31 of the applicable year. In general, Invested Capital is the amount
of cash contributed by the stockholders to the Company, reduced by certain prior
capital distributions to the stockholders from the sale of Company properties.
For purposes of this provision, Invested Capital shall only refer to Shares sold
under this Offering. This fee will terminate as of the beginning of any year in
which the Company is liquidated or the Shares become listed on a national
securities exchange or over-the-counter market.
3. Association with Other Dealers.
It is expressly understood between the Managing Dealer and the Broker
that the Managing Dealer may cooperate with other broker-dealers who are
registered as broker-dealers with the NASD and duly licensed by the appropriate
regulatory agency of each state in which they will offer and sell the Shares or
with broker-dealers exempt from all such registration requirements. Such other
participating broker-dealers may be employed by the Managing Dealer as brokers
on terms and conditions identical or similar to this Agreement and shall receive
such rates of commission as are agreed to between the Managing Dealer and the
respective other participating broker-dealers and as are in accordance with the
terms of the Registration Statement. The Broker understands that, to that
extent, such other participating broker-dealers shall compete with the Broker in
the sale of the Shares.
4. Conditions of the Broker's Obligations.
The Broker's obligations hereunder are subject, during the full term of
this Agreement and the Offering, to (a) the performance by the Managing Dealer
of its obligations hereunder; and (b) the conditions that: (i) the Registration
Statement shall become and remain effective; and (ii) no stop order shall have
been issued suspending the effectiveness of the Offering.
5. Conditions to the Managing Dealer's Obligations.
The obligations of the Managing Dealer hereunder are subject, during
the full term of this Agreement and the Offering, to the conditions that: (a) at
the effective date of the Registration Statement and thereafter during the term
of this Agreement while any Shares remain unsold, the Registration Statement
shall remain in full force and effect authorizing the offer and sale of the
Shares; (b) no stop order suspending the effectiveness of the Offering or other
order restraining the offer or sale of the Shares shall have been issued nor
proceedings therefor initiated or threatened by any state regulatory agency or
the SEC; and (c) the Broker shall have satisfactorily performed all of its
obligations hereunder.
<PAGE>
6. Covenants of the Managing Dealer.
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) It shall use its best efforts to prevent the sale of the
Shares through persons other than registered NASD broker-dealers.
(b) It shall use its best efforts to cause the Company to
maintain the effectiveness of the Registration Statement and to file such
applications or amendments to the Registration Statement as may be reasonably
necessary for that purpose.
(c) It shall advise the Broker whenever and as soon as it
receives or learns of any order issued by the SEC, any state regulatory agency
or any other regulatory agency which suspends the effectiveness of the
Registration Statement or prevents the use of the Prospectus or which otherwise
prevents or suspends the offering or sale of the Shares, or receives notice of
any proceedings regarding any such order.
(d) It shall use its best efforts to prevent the issuance of
any order described herein at subparagraph (c) hereof and to obtain the lifting
of any such order if issued.
(e) It shall give the Broker written notice when the
Registration Statement becomes effective and shall deliver to the Broker such
number of copies of the Prospectus, and any supplements and amendments thereto,
which are finally approved by the SEC, as the Broker may reasonably request for
sale of the Shares.
(f) It shall promptly notify the Broker of any post-effective
amendments or supplements to the Registration Statement or Prospectus, and shall
furnish the Broker with copies of any revised Prospectus and/or supplements and
amendments to the Prospectus.
(g) To the extent to which the Managing Dealer has knowledge,
it shall keep the Broker fully informed of any material development to which the
Company is a party or which concerns the business and condition of the Company.
(h) In conjunction with the Company, it shall use its best
efforts to cause, at or prior to the time the Registration Statement becomes
effective, the qualification of the Shares for offering and sale under the
securities laws of such states as the Company shall elect.
7. Payment of Costs and Expenses.
The Broker shall pay all costs and expenses incident to the performance
of its obligations under this Agreement, including:
(a) All expenses incident to the preparation, printing and
filing of all advertising originated by it related to the sale of the Shares;
and
(b) All other costs and expenses incurred in connection with
its sales efforts related to the sales of the Shares which are not expressly
assumed by the Company in its Managing Dealer Agreement with the Managing
Dealer.
8. Indemnification.
(a) The Broker agrees to indemnify, defend and hold harmless
the Company, its affiliates and their or its officers, directors, trustees,
employees and agents, including the Managing Dealer, against all losses, claims,
demands, liabilities and expenses, joint or several, including reasonable legal
and other expenses incurred in defending such claims or liabilities, whether or
not resulting in any liability to the Company, its affiliates and their or its
officers, directors, trustees, employees or agents, which they or any of them
may incur arising out of the offer or sale by the Broker, or any person acting
on its behalf, of any Shares pursuant to this Agreement if such loss, claim,
demand, liability, or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement of a material fact, or any omission or
alleged omission of a material fact, other than a statement, omission, or
alleged omission by the Broker which is also, as the case may be, contained in
or omitted from the Prospectus or the Registration Statement and which statement
or omission was not based on information supplied to the Company or the Managing
Dealer by such Broker, or (ii) the breach by the Broker, or any person acting on
its behalf, of any of the terms and conditions of this Agreement. This indemnity
provision shall survive the termination of this Agreement.
(b) The Managing Dealer agrees to indemnify, defend and hold
harmless the Broker, its officers, directors, employees and agents, against all
losses, claims, demands, liabilities and expenses, including reasonable legal
and other expenses incurred in defending such claims or liabilities, which they
or any of them may incur, including, but not limited to, alleged violations of
the Securities Act of 1933, as amended, but only to the extent that such losses,
claims, demands, liabilities and expenses shall arise out of or be based upon
(i) any untrue statement of a material fact contained in the Prospectus or the
Registration Statement, as filed and in effect with the SEC, or in any amendment
or supplement thereto, or in any application prepared or approved in writing by
counsel to the Company and filed with any state regulatory agency in order to
register or qualify the Shares under the securities laws thereof (the "Blue Sky
applications"), or (ii) any omission or alleged omission to state therein a
material fact required to be stated in the Prospectus or the Registration
Statement or the Blue Sky applications, or necessary to make such statements,
and any part thereof, not misleading; provided, further, that any such untrue
statement, omission or alleged omission is not based on information included in
any such document which was supplied to the Managing Dealer, the Company, or any
officer of the Company by such Broker. This indemnity provision shall survive
the termination of this Agreement.
(c) No indemnifying party shall be liable under the indemnity
agreements contained in subparagraphs (a) and (b) above unless the party to be
indemnified shall have notified such indemnifying party in writing promptly
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the party to be indemnified, but
failure to notify an indemnifying party of any such claim shall not relieve it
from any liabilities which it may have to the indemnified party against whom
action is brought other than on account of its indemnity agreement contained in
subparagraphs (a) and (b) above. In the case of any such claim, if the party to
be indemnified notified the indemnifying party of the commencement thereof as
aforesaid, the indemnifying party shall be entitled to participate at its own
expense in the defense of such claim. If it so elects, in accordance with
arrangements satisfactory to any other indemnifying party or parties similarly
notified, the indemnifying party has the option to assume the entire defense of
the claim, with counsel who shall be satisfactory to such indemnified party and
all other indemnified parties who are defendants in such action; and after
notice from the indemnifying party of its election so to assume the defense
thereof and the retaining of such counsel by the indemnifying party, the
indemnifying party shall not be liable to such indemnified party under
subparagraphs (a) and (b) above for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, other
than for the reasonable costs of investigation.
9. Term of Agreement.
This Agreement shall become effective at 8:00 A.M. (Eastern Standard
Time) on the first full business day following the day on which the Registration
Statement becomes effective, or if later, the date on which this Agreement is
executed by the Managing Dealer and the Broker. The Broker and the Managing
Dealer may each prevent this Agreement from becoming effective, without
liability to the other, by written notice before the time this Agreement would
otherwise become effective. After this Agreement becomes effective, either party
may terminate it at any time for any reason by giving thirty (30) days' written
notice to the other party; provided, however, that this Agreement shall in any
event automatically terminate at the first occurrence of any of the following
events: (a) the Registration Statement for offer and sale of the Shares shall
cease to be effective; (b) the Company shall be terminated; or (c) the Broker's
license or registration to act as a broker-dealer shall be revoked or suspended
by any federal, self-regulatory or state agency and such revocation or
suspension is not cured within ten (10) days from the date of such occurrence.
In any event, this Agreement shall be deemed suspended during any period for
which such license is revoked or suspended.
<PAGE>
10. Notices.
All notices and communications hereunder shall be in writing and shall
be deemed to have been given and delivered when deposited in the United States
mail, postage prepaid, registered or certified mail, to the applicable address
set forth below.
If sent to the Managing Dealer:
CNL SECURITIES CORP.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: Robert A. Bourne, President
If sent to the Broker: to the person whose name and address are
identified in Exhibit A hereto.
11. Successors.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and shall not be assigned or transferred by the Broker by
operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be construed in accordance with the
applicable laws of the State of Florida.
(b) Nothing in this Agreement shall constitute the Broker as
in association with or in partnership with the Managing Dealer. Instead, this
Agreement shall only authorize the Broker to sell the Shares according to the
terms as expressly set forth herein; provided, further, that the Broker shall
not in any event have any authority to act as the agent or broker of the
Managing Dealer except according to the terms expressly set forth herein.
(c) This Agreement, including Exhibit A and Schedule A hereto,
embodies the entire understanding between the parties to the Agreement, and no
variation, modification or amendment to this Agreement shall be deemed valid or
effective unless it is in writing and signed by both parties hereto.
(d) If any provision of this Agreement shall be deemed void,
invalid or ineffective for any reason, the remainder of the Agreement shall
remain in full force and effect.
(e) This Agreement may be executed in counterpart copies, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument comprising this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year indicated on Exhibit A hereto.
MANAGING DEALER FOR
BROKER:________________________________ CNL HEALTH CARE PROPERTIES, INC.:
(Name of Broker)
CNL SECURITIES CORP.
By:_____________________________________ By_________________________________
Print Name:______________________________ Print Name:________________________
Title:___________________________________ Title:_____________________________
Witness:_________________________________ Witness:___________________________
<PAGE>
EXHIBIT A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL HEALTH CARE PROPERTIES, INC.
This Exhibit A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ___________________,
_________, by and between CNL SECURITIES CORP., as Managing Dealer, and
________________________________________________, as Broker.
1. Date of Agreement: ____________________________________________________
2. Identity of Broker:
Name:__________________________________________________________________
Firm NASD (CRD) No:____________________________________________________
Type of Entity_________________________________________________________
(To be completed by Broker, e.g., corporation,
partnership or sole proprietorship.)
State Organized in:____________________________________________________
(To be completed by Broker)
Qualified To Do Business and in Good Standing in the Following
Jurisdictions (including your state of organization) (Note:
Qualification to do business in any jurisdiction is generally a
requirement imposed by the secretary of state or other authority of
jurisdictions in which you do business, and is not related to your
holding a license as a securities broker-dealer in such jurisdictions.
Questions concerning this matter should be directed to you or your
legal counsel.):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(To be completed by Broker)
Licensed as Broker-Dealer in The Following States: ____________________
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(To be completed by Broker)
<PAGE>
3. Schedule of Commissions Payable to Participating Broker (see Section 2
of Agreement):
<TABLE>
<CAPTION>
Number of Shares
Purchased In Sales Price As a Percentage
Individual Order To Subscriber of the Sales Price(1) Dollar Amount
---------------- --------------- ---------------------- -------------
1 or more $10.00 7.0% $0.70
<S> <C>
4. Name and Address for Notice Purposes (see Paragraph 10 of Agreement):
Name: _______________________________________________ email:________________________
Title: __________________________________________________________________________________
Company: _______________________________________________________________________________
Address: ________________________________________________________________________________
City, State and Zip Code:___________________________________________________________________
Telephone Number (including area code): ______________________________________________________
5. Please complete the following for our records:
(a) Please name those individuals who hold the following positions:
President:_____________________________________ email:________________________
Due Diligence Officer:___________________________ email:________________________
Marketing Director:_____________________________ email:________________________
In-House Editor:________________________________ email:________________________
(b) Does your company hold national or regional conferences? Yes _____ No _____
If so, when?______________________________________________________________________
Who is the coordinator?_____________________________________________________________
(c) How many representatives are registered with your broker-dealer?____________________________
PLEASE ENCLOSE A CURRENT LIST OF QUALIFIED(2) REGISTERED REPRESENTATIVES. ALL INFORMATION WILL BE HELD
IN CONFIDENCE.
- -----------------------------
(1) Subject to reduction as set forth in Section 2 of the Participating Broker Agreement.
(2) Qualified includes those Registered Representatives with an NASD Series 7 or Series 62 license.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(d) Does your firm publish a newsletter? Yes _____ No _____
What is/are the frequency of the publication(s)?
_____ Weekly _____ Monthly _____ Quarterly
_____ Bi-weekly _____ Bi-monthly _____ Other (please specify)
PLEASE PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE OF
THE PUBLICATION IF AVAILABLE.
(e) Does your firm have regular internal mailings, or bulk package
mailings to representatives? Yes _____ No _____
PLEASE PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE OF
THE PUBLICATION IF AVAILABLE.
(f) Does your firm have a computerized electronic mail (E-Mail)
system for your representatives?
Yes _____ No _____
If so, please provide e-mail address: _________________________________________________
(g) Website address: __________________________________________________________________
Person responsible: ________________________________________________________________
</TABLE>
<PAGE>
SCHEDULE A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL HEALTH CARE PROPERTIES, INC.
TELEPHONIC SUBSCRIPTION AUTHORIZATION
This Schedule A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ____________________,
________, by and between CNL SECURITIES CORP., as Managing Dealer, and
_____________________________________________, as Broker.
The list of states in which the Broker is permitted to accept
telephonic subscriptions shall be those states identified by Item 2 of Exhibit
A, as amended from time to time, to the Broker Agreement between the parties
hereto, as states in which the Broker is licensed as a Broker-Dealer, except for
the following states in which the Broker is specifically prohibited from
accepting telephonic subscriptions: Florida, Iowa, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North
Carolina, Ohio, Oregon, South Dakota, Tennessee and Washington.
Initials:______________ -- CNL SECURITIES CORP.
______________ -- PARTICIPATING BROKER
DEFERRED COMMISSION OPTION AUTHORIZATION
Authorization is hereby given for registered representatives to select,
at the request of the investor, the deferred commission option, as explained in
Section 2, paragraph 3 of the Participating Broker Agreement.
Initials:______________ -- CNL SECURITIES CORP.
______________ -- PARTICIPATING BROKER
<PAGE>
Exhibit 10.1
Form of Escrow Agreement between CNL Health Care Properties, Inc.
and SouthTrust Bank, N.A.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is dated this ___ day of
_____________, 2000, by and among CNL HEALTH CARE PROPERTIES, INC., a Maryland
corporation (the "Company"), CNL SECURITIES CORP., a Florida corporation (the
"Managing Dealer"), and SOUTHTRUST BANK, N.A. (the "Escrow Agent"). This
Agreement shall be effective as of the effective date of the Company's
Registration Statement filed with the Securities and Exchange Commission (the
"Effective Date").
WHEREAS, the Company proposes to offer and sell, on a best-efforts
basis through the Managing Dealer and selected broker-dealers registered with
the National Association of Securities Dealers, Inc. (the Managing Dealer and
such selected broker-dealers are hereinafter referred to collectively as the
"Soliciting Dealers") up to 15,500,000 shares of common stock of the Company
(the "Shares") to investors at $10.00 per Share pursuant to a registration
statement (the "Registration Statement") filed with the Securities and Exchange
Commission; and
WHEREAS, the Company and the Managing Dealer desire to establish an
escrow in which funds received from subscribers will be deposited, and the
Escrow Agent is willing to serve as Escrow Agent upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties covenant and agree as follows.
1. Establishment of Escrow Accounts. On or prior to the Effective Date,
the Company and the Managing Dealer shall establish an interest-bearing escrow
account with the Escrow Agent, which escrow account shall be entitled "ESCROW
ACCOUNT FOR THE BENEFIT OF SUBSCRIBERS FOR COMMON STOCK OF CNL HEALTH CARE
PROPERTIES, INC." (the "Escrow Account"). All monies deposited in the Escrow
Account are hereinafter referred to as the "Escrowed Funds." The Managing Dealer
will, and will cause selected broker-dealers acting as Soliciting Dealers to,
instruct subscribers to make checks for subscriptions payable to either the
Escrow Agent or the Company. The Managing Dealer may authorize certain
Soliciting Dealers which are "$250,000 broker-dealers" to instruct their
customers to make their checks for Shares subscribed for payable directly to the
Soliciting Dealer. In such case, the Soliciting Dealer will collect the proceeds
of the subscribers' checks and issue a check made payable to the order of the
Escrow Agent for the aggregate amount of the subscription proceeds.
2. Deposits into the Escrow Account. The Managing Dealer will promptly
deliver all monies received from subscribers for the payment of Shares to the
Escrow Agent for deposit in the Escrow Account.
<PAGE>
3. Collection Procedure.
(a) The Escrow Agent is hereby authorized to forward each
check for collection and, upon collection of the proceeds of each
check, to deposit the collected proceeds in the Escrow Account or,
alternatively, the Escrow Agent may telephone the bank on which the
check is drawn to confirm that the check has been paid.
(b) Any check returned unpaid to the Escrow Agent shall be
returned to the Soliciting Dealer that submitted the check. In such
cases the Escrow Agent will promptly notify the Company of such return.
(c) In the event that (i) the Company rejects any subscription
for Shares or (ii) an investor who has telephonically or orally
subscribed for Shares properly withdraws such subscription within
fifteen (15) days from the date written confirmation has been mailed to
the subscriber, and, in either such event, the Escrow Agent has already
collected funds for such subscription, the Escrow Agent shall promptly
issue a refund check to the drawer of the check submitted by or on
behalf of the rejected or withdrawing subscriber. If either of the
events specified in the clauses (i) or (ii) of the preceding sentence
occur and, in either such event, the Escrow Agent has not yet collected
funds for such subscription but has submitted the check relating to
such subscription for collection, the Escrow Agent shall promptly issue
a check in the amount of such check to the rejected or withdrawing
subscriber after the Escrow Agent has cleared such funds. If the Escrow
Agent has not yet submitted the check relating to the subscription of
the rejected or withdrawing subscriber, the Escrow Agent shall promptly
remit such check directly to the drawer of the check submitted by or on
behalf of the subscriber.
4. Investment of Escrowed Funds. The Escrow Agent, immediately upon
receipt of each check remitted to it, shall deposit such check in
interest-bearing savings accounts, in short-term certificates of deposit issued
by a bank, or in other short-term securities directly or indirectly issued or
guaranteed by the United States government, all as directed by the Company.
Interest and dividends earned on such investments shall be similarly reinvested.
5. Distribution of Escrowed Funds. The Escrow Agent shall release from
the Escrow Account to the Company any and all Escrowed Funds therein, together
with all interest earned thereon, upon the written request of an officer of the
Company.
6. Liability of Escrow Agent.
(a) In performing any of its duties under this Agreement, or
upon the claimed failure to perform its duties hereunder, the Escrow
Agent shall not be liable to anyone for any damages, losses, or
expenses which it may incur as a result of the Escrow Agent so acting,
or failing to act; provided, however, the Escrow Agent shall be liable
for damages arising out of its willful default or misconduct or its
gross negligence under this Agreement. Accordingly, the Escrow Agent
shall not incur any such liability with respect to (i) any action taken
or omitted to be taken in good faith upon advice of its counsel or
counsel for the Company which is given with respect to any questions
relating to the duties and responsibilities of the Escrow Agent
hereunder, or (ii) any action taken or omitted to be taken in reliance
upon any document, including any written notice or instructions
provided for in this Escrow Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions but also as to
the truth and accuracy of any information contained therein, if the
Escrow Agent shall in good faith believe such document to be genuine,
to have been signed or presented by a proper person or persons, and to
conform with the provisions of this Agreement.
(b) The Company hereby agrees to indemnify and hold harmless
the Escrow Agent against any and all losses, claims, damages,
liabilities and expenses, including, without limitation, reasonable
costs of investigation and counsel fees and disbursements which may be
incurred by it resulting from any act or omission of the Company;
provided, however, that the Company shall not indemnify the Escrow
Agent for any losses, claims, damages, or expenses arising out of the
Escrow Agent's willful default, misconduct, or gross negligence under
this Agreement.
(c) If a dispute ensues between any of the parties hereto
which, in the opinion of the Escrow Agent, is sufficient to justify its
doing so, the Escrow Agent shall be entitled to tender into the
registry or custody of any court of competent jurisdiction, including
the Circuit Court of Orange County, Florida, all money or property in
its hands under the terms of this Agreement, and to file such legal
proceedings as it deems appropriate, and shall thereupon be discharged
from all further duties under this Agreement. Any such legal action may
be brought in any such court as the Escrow Agent shall determine to
have jurisdiction thereof. The Company shall indemnify the Escrow Agent
against its court costs and attorneys' fees incurred in filing such
legal proceedings.
7. Inability to Deliver. In the event that checks for subscriptions
delivered to the Escrow Agent by the Company pursuant to this Agreement are not
cleared through normal banking channels within 120 days after such delivery, the
Escrow Agent shall deliver such uncleared checks to the Company.
8. Notice. All notices, requests, demands and other communications or
deliveries required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or deposited for mailing, first class, postage prepaid,
registered or certified mail, as follows:
If to the subscribers for Shares: To their respective
addresses as specified in
their Subscription
Agreements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
If to the Company: CNL Health Care Properties, Inc.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: Mr. James M. Seneff, Jr.,
Chairman of the Board
If to the Managing Dealer: CNL Securities Corp.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
Attention: Mr. Robert A. Bourne, President
If to the Escrow Agent: SOUTHTRUST BANK, N.A.
135 West Central Boulevard, Suite 1200
Orlando, Florida 32801
Attention: Ms. Michelle Bradley
</TABLE>
9. Fees to Escrow Agent. In consideration of the services to be
provided by the Escrow Agent hereunder, the Company will pay the Escrow Agent a
fee for its services hereunder (the "Escrow Fee"). The Escrow Fee shall be $350
for each month or any portion thereof that the Escrow Account continues for the
Company. Payments by the Company, if any, shall be due and payable no less
frequently than six-month intervals while the escrow continues for the Company.
In no event shall the total Escrow Fees payable by the Company pursuant to this
Agreement be less than $2,100, nor more than $4,200, for any 12-month period.
Notwithstanding anything contained in this Agreement to the contrary, in no
event shall any fee, reimbursement for costs and expenses, indemnification for
any damages incurred by the Escrow Agent, or monies whatsoever be paid out of or
chargeable to the Escrowed Funds in the Escrow Account.
10. General.
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
(b) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties with regard to this escrow transaction and
supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or
cancelled, and any of the terms or conditions hereof may be waived,
only by a written instrument executed by each party hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce
the same. No waiver in any one or more instances by any party of any
condition, or of the breach of any term contained in this Agreement,
whether by conduct or otherwise, shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach, or
a waiver of any other condition or of the breach of any other terms of
this Agreement.
(e) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of the parties
hereto and their respective administrators, successors, and assigns.
11. Representation of the Company. The Company hereby acknowledges that
the status of the Escrow Agent with respect to the offering of the Shares is
that of agent only for the limited purposes herein set forth, and hereby agrees
it will not represent or imply that the Escrow Agent, by serving as the Escrow
Agent hereunder or otherwise, has investigated the desirability or advisability
of an investment in the Shares, or has approved, endorsed or passed upon the
merits of the Shares, nor shall the Company use the name of the Escrow Agent in
any manner whatsoever in connection with the offer or sale of the Shares, other
than by acknowledgement that it has agreed to serve as Escrow Agent for the
limited purposes herein set forth.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
<TABLE>
<CAPTION>
<S> <C>
"Company"
CNL HEALTH CARE PROPERTIES, INC.
By: __________________________________
JAMES M. SENEFF, JR.,
Chairman of the Board
"MANAGING DEALER"
CNL SECURITIES CORP.
Attest:______________ By: ___________________________________
ROBERT A. BOURNE, President
"ESCROW AGENT"
SOUTHTRUST BANK, N.A.
Attest:______________ By: ___________________________________
Name: ___________________________________
Title: ___________________________________
</TABLE>
<PAGE>
EXHIBIT 10.11
Purchase and Sale Agreement between
CNL Health Care Partners, LP and
Marriott Senior Living Services, Inc.
<PAGE>
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
MARRIOTT INTERNATIONAL, INC.
as MI,
and
MARRIOTT SENIOR LIVING SERVICES, INC.
as Seller,
and
CNL HEALTH CARE PARTNERS, L.P.
as Purchaser
---------------------------
Dated: March 23, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION 1. DEFINITIONS...........................................................................................1
<S><C>
SECTION 2. PURCHASE-SALE; DILIGENCE..............................................................................3
2.1 Purchase-Sale............................................................................................3
2.2 Diligence Inspections....................................................................................3
2.3 Title Matters............................................................................................3
2.4 Survey...................................................................................................3
2.5 Environmental Report.....................................................................................3
2.6 Immaterial Taking........................................................................................3
SECTION 3. PURCHASE AND SALE.....................................................................................3
3.1 Closing....................................................................................................3
3.2 Purchase Price.............................................................................................3
3.3 Competitor.................................................................................................3
SECTION 4. CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE.........................................................3
4.1 Closing Documents..........................................................................................3
4.2 Condition of the Property..................................................................................3
4.3 Title Policies.............................................................................................3
4.4 Opinions of Counsel........................................................................................3
4.5 FF&E Schedule..............................................................................................3
4.6 Other......................................................................................................3
SECTION 5. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE............................................................3
5.1 Purchase Price.............................................................................................3
5.2 Closing Documents..........................................................................................3
5.3 Opinions of Counsel........................................................................................3
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER..............................................................3
6.1 Status and Authority of the Seller.........................................................................3
6.2 Status and Authority of MI.................................................................................3
6.3 Status and Authority of Tenant.............................................................................3
6.4 Employees..................................................................................................3
6.5 Existing Agreements........................................................................................3
6.6 Tax Returns................................................................................................3
6.7 Action of MI and Seller....................................................................................3
6.8 No Violations of Agreements................................................................................3
6.9 Litigation.................................................................................................3
6.10 Not A Foreign Person......................................................................................3
6.11 Construction Contracts; Mechanics' Liens..................................................................3
6.12 Permits, Licenses.........................................................................................3
6.13 Hazardous Substances......................................................................................3
6.14 Insurance.................................................................................................3
6.15 Financial Information.....................................................................................3
6.16 Contracts.................................................................................................3
6.17 Title to FF&E.............................................................................................3
6.18 FF&E......................................................................................................3
SECTION 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................................................3
7.1 Status and Authority of the Purchaser......................................................................3
7.2 Status and Authority of the Guarantors.....................................................................3
7.3 Action of the Purchaser....................................................................................3
7.4 No Violations of Agreements................................................................................3
7.5 Litigation.................................................................................................3
SECTION 8. COVENANTS OF THE SELLER...............................................................................3
8.1 Compliance with Laws.......................................................................................3
8.2 Correction of Defects......................................................................................3
8.3 Insurance..................................................................................................3
8.4 Material Defects in Structural Systems.....................................................................3
SECTION 9. APPORTIONMENTS........................................................................................3
9.1 Apportionments.............................................................................................3
9.2 Closing Costs..............................................................................................3
SECTION 10. DEFAULT..............................................................................................3
10.1 Default by the Seller.....................................................................................3
10.2 Default by the Purchaser..................................................................................3
10.3 Purchaser's Deposit.......................................................................................3
SECTION 11. MISCELLANEOUS........................................................................................3
11.1 Agreement to Indemnify....................................................................................3
11.2 Brokerage Commissions.....................................................................................3
11.3 Publicity.................................................................................................3
11.4 Notices...................................................................................................3
11.5 Waivers, Etc..............................................................................................3
11.6 Assignment; Successors and Assigns........................................................................3
11.7 Severability..............................................................................................3
11.8 Counterparts, Etc.........................................................................................3
11.9 Governing Law.............................................................................................3
11.10 Performance on Business Days.............................................................................3
11.11 Attorneys' Fees..........................................................................................3
11.12 Relationship.............................................................................................3
11.13 Section and Other Headings...............................................................................3
11.14 Disclosure...............................................................................................3
</TABLE>
Schedule A - Purchase Price
Schedule B - Guaranty
Schedule C - Lease Agreement
Schedule D - Limited Rent Guaranty
Schedule E - Membership Interest Pledge Agreement
Schedule F - Form of Owner Agreement
Schedule G - Permitted Encumbrances
Schedule H - Plans & Specifications
Schedule I - Legal Description of the Real Property
Schedule J - Owner's Policy Commitment
Schedule K - Leasehold Policy Commitment
Schedule L - Survey
Schedule M - Form of Architect's Certificate
Schedule M-1 - Form of Marriott's Architect Certificate
Schedule N - Form of Engineer's Certificate
Schedule N-1 - Form of Marriott's Engineer Certificate
Schedule O - Operating Agreement
Schedule P - Escrow Agreement
Schedule Q - Environmental Report
Schedule R - FF&E Schedule
<PAGE>
3
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT is made as of the 23rd day of March,
2000, by and between MARRIOTT SENIOR LIVING SERVICES, Inc., a Delaware
corporation, as seller, and CNL HEALTH CARE PARTNERS, L.P., a Delaware limited
partnership, as purchaser, and joined in by MARRIOTT INTERNATIONAL, INC., a
Delaware corporation.
W I T N E S S E T H :
WHEREAS, the Seller (this and other capitalized terms used and not
otherwise defined herein having the meanings ascribed to such terms in Section
1) is, the owner of the Property; and
WHEREAS, Purchaser desires to purchase the Property and thereby acquire
all of the Seller's right, title and interest in and to the Property upon the
terms and conditions hereinafter set forth; and
WHEREAS, the Seller desires to sell to the Purchaser the Property and
thereby convey all right, title and interest in the Property, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the Seller and the Purchaser
hereby agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used in this Agreement and not defined elsewhere
herein shall have the meanings set forth below, in the Section of this Agreement
referred to below, or in such other document or agreement referred to below:
"Act of Bankruptcy" shall mean if a party hereto or any general partner
thereof or Tenant shall (a) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or all of or a substantial part of its property; (b) admit in writing its
inability to pay its debts as they become due; (c) make a general assignment for
the benefit of its creditors; (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect); (e) be adjudicated a bankrupt or insolvent; (f) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts;
(g) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect); or (h) take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if the proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof or
Tenant, in any court of competent jurisdiction seeking (1) the liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment of
debts, of such party or general partner or Tenant; (2) the appointment of a
receiver, custodian, trustee or liquidator for such party or general partner or
Tenant or all or any substantial part of its assets; or (3) other similar relief
under any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, and such proceeding or case shall continue
undismissed; or an order (including an order for relief entered in an
involuntary case under the Federal Bankruptcy Code, as now or hereinafter in
effect), judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstated and in effect, for a period of sixty (60)
consecutive days.
"Agreement" shall mean this Purchase and Sale Agreement, together with
Schedules A through Q hereto, as it and they may be amended from time to time as
herein provided.
"Architect" shall mean Shayman, Salk, Sussholz & Company.
"As-Built' Drawings" shall mean the final "as-built" plans and
specifications for the Improvements which are to be furnished by the Seller to
Purchaser pursuant to Section 4.1 of this Agreement.
"Assets" shall mean all of the FF&E, the Contracts and the Intangible
Property, collectively, now owned or hereafter (but prior to the Closing Date)
acquired by Seller in connection with or relating to the Property other than any
Excluded Assets.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which banking institutions in the State of Maryland are authorized
by law or executive action to close.
"CHCP" shall mean CNL Health Care Property, Inc., a Maryland
corporation.
"CHCLP" shall mean CNL Health Care Partners, L.P., a Delaware limited
partnership.
"Closing" shall have the meaning given such term in Section 3.1.
"Closing Date" shall have the meaning given such term in Section 3.1.
"Competitor" shall mean a Person that owns or has an equity interest in
an assisted living facility brand, tradename, system or chain (a "Brand") which
is comprised of at least ten assisted living facilities; provided that such
Person shall not be deemed a Competitor if it holds its interest in a Brand
merely as a mere passive investor that has no control or influence over the
business decisions of the Brand at issue, such as a mere limited partner in a
partnership, a mere shareholder in a corporation or a mere payee of royalties
based on a prior sale transaction. A mere passive investor that is represented
by a Mere Director on the board of directors of a Competitor shall not be deemed
to have control or influence over the business decisions of that Competitor.
"Contracts" shall mean, with respect to the Property, any equipment
leases relating to the Property and disclosed to Purchaser on or before Closing
and which are to survive the Closing and to which the Seller is a party.
"Controlling Interest" shall mean (a) as to a corporation, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the shares of the Entity (through ownership of such
shares or by contract), and (b) as to an Entity not a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the Entity.
"Deposit" shall have the meaning given such term in Section 10.3.
"Engineer" shall mean Manhard Consulting Ltd.
"Entity" shall mean any corporation, general or limited partnership,
limited liability company, partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.
"Excluded Assets" shall mean (i) any right, title or interest in any
name containing any of the names "Marriott" and "Brighton Gardens" and other
marks used, or that may in the future be used, by MI or its affiliates,
including the Seller of such Property (and Seller and MI shall have the right to
remove any such name or mark appearing on any signage or other property pursuant
to the terms of the Operating Agreement), (ii) all property owned by the Seller
or any of its affiliates, not normally located at the Property and used, but not
exclusively, in connection with the operation of the Property, (iii) all items,
tangible or intangible, consisting of Proprietary Information, (iv) computer
software, (v) FAS, (vi) any Inventories located at the Property, (vii) working
capital, including without limitation, cash, bank accounts and accounts
receivable owned or held by Seller or any of its affiliates, (viii) all books,
ledger sheets, files and records, (ix) all contracts pertaining to the operation
of the Property other than the Contracts, and (x) any software, manuals,
brochures or directives used by the Seller or any of its affiliates, in the
operation of the Property.
"FAS" shall have the meaning given such term in the Lease.
"FF&E" shall mean all appliances, machinery, devices, fixtures,
appurtenances, equipment, furniture, furnishings and articles of tangible
personal property of every kind and nature whatsoever owned by the Seller or any
of its affiliates, and located in or at, or used in connection with the
ownership, operation or maintenance of such Property, other than motor vehicles.
"FF&E Schedule" shall have the meaning given such term in Section 4.5.
"Operating Agreement" shall mean the Operating Agreement to be entered
into at or prior to the Closing of the purchase and sale of the Property between
Tenant, as Owner, and Seller, as Operator, substantially in the form attached
hereto at Schedule O.
"Guarantor" shall mean CHCP and CHCLP, jointly and severally.
"Guaranty of Landlord's Obligations" shall mean the Guaranty in the
form of Schedule B hereto to be entered into by Guarantor for the benefit of
Tenant, in respect of the Lease and guarantying the landlord's obligations under
the Lease.
"Immaterial Taking" shall have the meaning given such term in Section
2.6.
"Improvements" shall mean all buildings, fixtures, walls, fences,
landscaping and other structures and improvements situated on, affixed or
appurtenant to the Real Property, including, but not limited to, all pavement,
access ways, curb cuts, parking, kitchen and support facilities, meeting and
conference rooms, swimming pool facilities, recreational amenities, office
facilities, drainage system and facilities, air ventilation and filtering
systems and facilities and utility facilities and connections for sanitary
sewer, potable water, irrigation, electricity, telephone, cable television and
natural gas, if applicable, to the extent the same form a part of the Property
and all appurtenances thereto acquired by Purchaser in connection with
Purchaser's acquisition of the Property pursuant to the terms of this Agreement.
"Intangible Property" shall mean, with respect to any Property, all
transferable or assignable (a) governmental permits, including licenses and
authorizations, required for the construction, ownership and operation of the
Improvements, including without limitation certificates of occupancy, building
permits, signage permits, liquor licenses, site use approvals, zoning
certificates, environmental and land use permits and any and all necessary
approvals from state or local authorities (hereinafter defined as "Permits") and
other approvals granted by any public body or by any private party pursuant to a
recorded instrument relating to the Property and (b) certificates, licenses,
warranties and guarantees and the Contracts held by Seller, other than (x) the
Excluded Assets and (y) such permits, operating permits, certificates, licenses
and approvals which are to be held by, or transferred to, the Tenant in order to
permit the Tenant to operate such Property properly in accordance with the terms
of the Lease.
"Inventories" shall have the meaning given such term in the Lease.
"Lease" shall mean the Lease Agreement in the form of Schedule C
attached hereto to be entered into by Tenant and Purchaser.
"Limited Rent Guaranty" shall mean the Limited Rent Guaranty in the
form of Schedule D hereto to be entered into by MI in respect of the Lease.
"Membership Interest Pledge" shall mean the Membership Interest Pledge
Agreement in the form of Schedule E hereto to be entered into by MI, or its
affiliates, owning all of the outstanding membership interests in Tenant, as
pledgor, and the Purchaser of such Property, as pledgee, as further security for
the performance of Tenant's obligations under the Lease for such Property.
"Mere Director" shall mean a Person who holds the office of director of
a corporation and who, as such director, has the right to vote not more than
twelve and one-half percent (12.5%) of the total voting rights on the board of
directors of such corporation, and who represents or acts on behalf of a mere
passive investor which neither (i) owns more than three percent (3%) of the
total voting rights attributable to all shares or ownership interests of a
Competitor, nor (ii) otherwise has the power to direct or cause the direction of
the management or policies of a Competitor.
"MI" shall mean Marriott International, Inc., a Delaware corporation,
its successor or successors by merger or operation of law, and assignee or
assignees to whom it has transferred all or substantially all of its assisted
living facility assets and/or businesses and which assumes in writing Marriott
International, Inc.'s obligations under this Agreement.
"Owner Agreement" shall mean the Owner Agreement in substantially the
form of Schedule F hereto to be entered into by MI, Tenant and CHCLP in respect
of the Lease.
"Permitted Encumbrances" shall mean: (a) any and all matters affecting
title to the Property as shown on Schedule G hereto; (b) liens for taxes,
assessments and governmental charges with respect to the Property not yet due
and payable or due and payable but not yet delinquent; (c) applicable zoning
regulations and ordinances and other governmental laws, ordinances and
regulations; (d) such other nonmonetary encumbrances which were granted by
Seller in order to facilitate, in Seller's reasonable discretion, the
construction and operation of the Improvements; (e) any utility, drainage or
other easements which are customary in connection with (or which reasonably
serve) the Improvements; (f) the Lease; (g) such other nonmonetary encumbrances
with respect to the Property which are not objected to by the Purchaser in
accordance with Section 2.3; and (h) such matters as are disclosed by the
Existing Survey.
"Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Plans and Specifications" shall mean those certain plans and
specifications which have been approved by Purchaser and which are identified on
Schedule H.
"Property" shall mean the Real Property and Improvements, together with
the Assets relating to the Property.
"Proprietary Information" shall have the meaning given such term in
the Lease.
"Purchase Price" shall mean the amount set forth on Schedule A hereto.
"Purchaser" shall mean CHCLP and its permitted successors and assigns.
"Real Property" shall mean the real property described in Schedule I to
this Agreement, together with all easements, rights of way, privileges, licenses
and appurtenances which the Seller may now own or hereafter acquire with respect
thereto, less any portion or portions thereof taken by way of an Immaterial
Taking.
"Reserve" shall have the meaning given such term in the Lease.
"Seller" shall mean Marriott Senior Living Services, Inc.
"Tenant" shall mean a limited liability company, wholly-owned, directly
or indirectly, by MI.
"Title Commitments" shall have the meaning given such term in Section
2.3.
"Title Company" shall mean First American Title Insurance Company or
such other title insurance company as shall have been approved by the Purchaser
and the Seller.
SECTION 2. PURCHASE-SALE; DILIGENCE.
2.1 Purchase-Sale. In consideration of the mutual covenants herein
contained, the Purchaser hereby agrees to purchase the Property from the Seller
and the Seller hereby agrees to sell the Property to the Purchaser for the
Purchase Price, subject to and in accordance with the terms and conditions of
this Agreement.
2.2 Diligence Inspections. Purchaser has approved (or is deemed to have
approved for purposes of this Agreement) the Property in its "as is, where is"
condition as of the date hereof. The Seller shall permit the Purchaser and its
representatives to inspect the Improvements at such reasonable times as the
Purchaser or its representatives may request by reasonable prior notice to the
Seller. During any such inspection, the Purchaser and its representatives shall
minimize any resulting interference with the operation of the Property. To the
extent that, in connection with such investigations, the Purchaser, its agents,
representatives or contractors, damages or disturbs the Property, the Purchaser
shall return the same to substantially the same condition which existed
immediately prior to such damage or disturbance. The Purchaser shall indemnify,
defend and hold harmless the Seller from and against any and all expense, loss
or damage (including, without limitation, reasonable attorneys' fees) which the
Seller may incur as a result of any act or omission of the Purchaser or its
representatives, agents or contractors in connection with any such inspections,
other than any expense, loss or damage arising from any act or omission of the
Seller. The foregoing indemnification agreement shall survive the termination of
this Agreement and the Closing hereunder.
2.3 Title Matters. Purchaser has approved (or is hereby deemed to have
approved) the state of title to the Property and all exceptions thereto
reflected in the written commitments for the issuance of (a) a title insurance
policy for the Property, a copy of which commitment is attached hereto as
Schedule J (the "Commitment"), and (b) a Leasehold Owner's Title Insurance
Policy for the Property naming Tenant as the insured, a copy of which commitment
is attached hereto as Schedule K (the "Leasehold Policy Commitment") (the
Commitment and Leasehold Policy Commitment herein, collectively, the "Title
Commitments"). Purchaser has approved the Commitment and the form of policy
provided for therein. MI has approved the Leasehold Policy Commitment and the
form of the leasehold policy provided for therein on behalf of the Tenant.
In the event that Seller decides to encumber a Property with an
additional document, instrument or other matter, Seller shall give Purchaser
notice thereof together with a copy of the document, instrument or other matter
to be placed of record against the Property ("Additional Exception"). Within
five (5) Business Days after receipt of a notice of any Additional Exception
with respect to any Property, the Purchaser shall give the Seller notice of its
approval or disapproval thereof. Purchaser shall not withhold its approval of
any such Additional Exception which would be a Permitted Encumbrance specified
in clauses (a) through (g), inclusive, of the definition of Permitted
Encumbrance in Section 1, and shall not unreasonably withhold, delay or
condition its approval of any other Additional Exception. If Purchaser fails to
respond within said five (5) Business Day period, Purchaser shall be deemed to
have approved such Additional Exception. If Purchaser unreasonably disapproves
of any Additional Exception, Seller shall be excused from performing any term or
condition (or any portion or aspect of a term or condition) of this Agreement
which Seller is unable or unwilling to perform as a result of its inability to
enter into and/or record such Additional Exception.
In the event that an encumbrance is placed on any Property (other than
a monetary encumbrance, which Seller shall pay, provided such encumbrance does
not exceed $250,000) as a result of judicial action taken by a local, state, or
Federal governmental entity with respect to violation of any state or Federal
environmental laws not caused by, authorized or acquiesced to by Seller, the
Purchaser's sole remedy shall be (A) to terminate this Agreement, in which event
this Agreement shall terminate and be of no further force or effect and Seller
shall reimburse to Purchaser the Purchaser's expenses incurred in respect of the
Property, not to exceed $5,000 (and direct Escrow Agent to refund to Purchaser
the Deposit as provided in Section 10.3) or (B) to consummate the transactions
contemplated hereby, notwithstanding such encumbrance, without any abatement or
reduction in the Purchase Price for the Property on account thereof.
2.4 Survey. Purchaser has approved the survey ("Existing Survey") for
the Property and all matters shown thereon (other than the billboard on the
southwest corner of the Property), which survey is identified on Schedule L
attached hereto.
2.5 Environmental Report. Purchaser has approved and accepts the
environmental condition of the Property as existing on the date hereof and as
reflected in the environmental report or reports in respect of the Property
identified in Schedule Q hereto.
2.6 Immaterial Taking. If prior to the Closing of the purchase of the
Property, such Property is the subject of a condemnation which does not, in
Seller's reasonable opinion, affect any material part of the Improvements and
does not materially adversely affect access to the Improvements or compliance
with applicable zoning or building requirements, including parking (an
"Immaterial Taking"), Seller will provide written notice of such Immaterial
Taking to Purchaser and this Agreement will remain in full force and effect in
respect of the purchase and sale of such Property, but with an abatement of the
Purchase Price for such Property equal to the amount of the award paid to Seller
on account of such taking, less the amount of Seller's costs and expenses,
including reasonable attorneys' fees and expenses, in establishing and
collecting such award.
SECTION 3. PURCHASE AND SALE.
3.1 Closing. (a) The purchase and sale of the Property shall be
consummated at a closing (the "Closing") in escrow with the Title Company at the
offices of Seller at 10400 Fernwood Road, Bethesda, Maryland, or at such other
location as the Seller and the Purchaser may agree, at 10:00 a.m. local time on
the date (the "Closing Date") that is three (3) Business Days after Purchaser
receives written notice that the condition set forth in Section 4.1(x) has been
fulfilled but not earlier than April 4, 2000 and not later than April 14, 2000.
3.2 Purchase Price. At the Closing, the Purchase Price for the Property
shall be payable by wire transfer of immediately available funds on the Closing
Date to an account or accounts to be designated by the Seller prior to the
Closing, subject to any adjustments and apportionments made pursuant to Section
9.1 of this Agreement.
3.3 Competitor. In the event that any sale, assignment, transfer or
other disposition, for value or otherwise, voluntary or involuntary, by merger,
operation of law or otherwise, in a single transaction or a series of
transactions, of any interest in Purchaser or any Person having an interest in
Purchaser, directly or indirectly, results, directly or indirectly, in a
Competitor owning a Controlling Interest in Purchaser, Seller shall have the
right, but not the obligation, to terminate this Agreement (and such termination
shall not constitute a default under any of the related transactions or
documents contemplated thereby, including this Agreement), and, solely with
respect to this Section 3.3, Purchaser shall be entitled to direct Escrow Agent
to refund to Purchaser the entire Deposit.
SECTION 4. CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE.
The obligation of the Purchaser to acquire the Property on the Closing
Date shall be subject to the satisfaction or waiver of the following conditions
precedent on and as of the Closing Date:
4.1 Closing Documents. The Seller shall have delivered to the Purchaser
with respect to the applicable Property:
(a) A special warranty deed, duly executed by the Seller, conveying to
Purchaser good and marketable title to the Property, free from all liens,
encumbrances, security interests, options and adverse claims of any kind or
character, subject to the Permitted Encumbrances and except as otherwise
specifically permitted hereunder;
(b) A Warranty Bill of Sale, an Assignment of Contracts, an Assignment
of Intangible Property and an Assignment of Construction-Related Contracts, each
duly executed by Seller (or MI, as applicable), transferring and assigning to
Purchaser all rights, title and interest of Seller (and MI, as applicable) in
the Assets, together with, to the extent the same are in the Seller's or MI's
(or their agent's) possession, original (or copies certified by Seller as true
and correct), fully executed copies of all agreements constituting any of the
same;
(c) The Lease for the Property duly executed by Tenant;
(d) The Limited Rent Guaranty duly executed by MI;
(e) The Membership Interest Pledge duly executed by Seller;
(f) A copy of the fully executed Operating Agreement with respect to
the Property ;
(g) The Owner Agreement duly executed by MI;
(h) A copy of the final certificate of occupancy for the Property;
(i) An architect's certificate in respect of the Improvements to the
Property in the form attached hereto as Schedule M, or as otherwise provided in
Section 4.2(c) below;
(j) An engineer's certificate in respect of the Improvements to the
Property in the form attached hereto as Schedule N, or as otherwise provided in
Section 4.2(c) below;
(k) Certified copies of applicable resolutions and certificates of
incumbency with respect to the Seller, Tenant, MI, and such other persons as the
Purchaser may reasonably require;
(l) A certificate of a duly authorized officer of MI and Seller
confirming the continued truth and accuracy of the representations and
warranties of the Seller in this Agreement (subject to such changes as Seller
has given notice of to Purchaser pursuant to Section 6 and subject to Section
4.2(b));
(m) A copy of the certificate of substantial completion substantially
in the form of AIA G704, if any, and a copy of the final "punch list" of
incomplete work, if any, required upon substantial completion of the
Improvements;
(n) The "As-Built" Drawings;
(o) The Permits (or copies thereof certified by Seller as true
and correct);
(p) The Contracts (or copies thereof certified by Seller as true
and correct);
(q) Copies of any and all warranties and guarantees pertaining to the
Improvements, specifically including the manufacturers roof membrane warranty
issued with respect to the buildings comprising the Improvements;
(r) Insurance certificates to be provided by Tenant pursuant to
the Lease;
(s) The FF&E Schedule;
(t) An Owner's affidavit in the usual and customary form of the Title
Company for the purpose of satisfying any request for the same in the applicable
Title Commitment;
(u) A settlement statement;
(v) Joint written notification from Seller and Purchaser to Escrow
Agent pursuant to the Escrow Agreement (hereinafter defined) authorizing the
release to Seller of the Deposit for application to the Purchase Price for such
Property;
(w) A certificate duly executed by Seller as required by the Illinois
Responsible Party Transfer Act;
(x) Evidence of the approval by the Illinois Health Facilities Planning
Board of a Certificate of Exemption from Change of Ownership relating to the
transfer of ownership of the Property from Seller to Purchaser; and
(y) An "as-built" survey prepared by Manhard Consulting, Ltd. dated as
of March 2000 which does not disclose any matter not referred to in clauses (a),
(c), (d), (e) or (g) of the definition of Permitted Encumbrances and that would
become an additional exception in the title policies issued pursuant to the
Title Commitments and not set forth in the Title Commitments.
(z) Such other documents, certificates and other instruments as may be
reasonably required to consummate the transaction contemplated hereby.
4.2 Condition of the Property
(a) No action shall be pending or threatened for the condemnation or
taking by power of eminent domain of all or any material portion of the
Property;
(b) All material licenses, permits and other authorizations necessary
for the current use, occupancy and operation of the Property shall be in full
force and effect; however, in the event that Seller fails to obtain any such
licenses, permits or other authorizations and discloses same to Purchaser,
Purchaser may, but shall not be required to, waive Seller's compliance with
Section 6.12 of this Agreement and proceed with Closing; and
(c) The Purchaser shall have received an architect's certificate in the
form of Schedule M executed by the Architect and an engineer's certificate in
the form of Schedule N, executed by the Engineer in respect of the applicable
Property; provided, however, that in the event that Seller is not able to
deliver to Purchaser either or both of the foregoing certificates executed by
the Architect and/or Engineer, as applicable, Purchaser shall accept in lieu
thereof, a certificate executed by Seller in substantially the form attached
hereto as Schedule M-1 and/or Schedule N-1, as applicable.
4.3 Title Policies. The Title Company shall be prepared, subject only
to payment of the applicable premium and delivery of all conveyance documents,
to issue the title policies pursuant to the Title Commitments, in accordance
with Section 2.3.
4.4 Opinions of Counsel. The Purchaser shall have received a written
opinion from counsel to the Seller and MI (which may be its in-house counsel),
in form and substance reasonably satisfactory to the Purchaser and its counsel,
regarding the organization, good standing and/or authority of the Seller and MI,
the Tenant, and the guarantor under the Limited Rent Guaranty and the
enforceability of this Agreement, the Lease, the Limited Rent Guaranty, the
Owner Agreement and the Membership Interest Pledge and such other matters with
respect to the transactions contemplated by this Agreement as the Purchaser may
reasonably require.
4.5 FF&E Schedule. Attached hereto as Schedule R is a schedule (the
"FF&E Schedule") of all FF&E at the Property owned by Seller and which FF&E is
intended to be part of the Assets to be owned by Purchaser upon and following
such Closing. Upon reasonable prior notice to Seller, Purchaser shall be
entitled to inspect the FF&E at the Property prior to Closing in order to
confirm and verify the FF&E Schedule.
4.6 Other.
(a) The representations and warranties of the Seller and MI set forth
in Section 6 hereof (as the same may have been changed by notice from Seller as
provided therein) shall be true, correct and complete in all material respects
on and as of the Closing Date;
(b) No Act of Bankruptcy on the part of the Seller, MI or Tenant shall
have occurred and remain outstanding as of the Closing Date;
(c) The Seller shall be the sole owner of good and marketable title to
the applicable Property free and clear of all liens, encumbrances, restrictions,
conditions and agreements (other than the Permitted Encumbrances and this
Agreement);
(d) There shall be no unsatisfied state or federal tax liens against or
affecting the applicable Seller, or any tax audit of the Seller in process,
which could result in a lien against the Property; and
(e) There shall be no outstanding, unsettled claim against the Seller
arising under any insurance policies in respect of the Seller or the Property
which could result in a lien against the Property.
SECTION 5. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE.
The obligation of the Seller to convey and transfer to the Purchaser
the Property on the applicable Closing Date is subject to the satisfaction or
waiver of the following conditions precedent on and as of such Closing Date:
5.1 Purchase Price. The Purchaser shall deliver to the Seller the
Purchase Price of the Property as provided in Section 3.2.
5.2 Closing Documents. The Purchaser shall have delivered to
the Seller:
(a) Duly executed and acknowledged counterparts of the documents
described in Subsections 4.1(b), (c), (d), (e), (g), (u) and (v);
(b) The Guaranty of Landlord's Obligations duly executed by the
Guarantor;
(c) A certificate of a duly authorized officer of the Purchaser
confirming the continued truth and accuracy of the representations and
warranties of the Purchaser in this Agreement;
(d) Certified copies of applicable resolutions and certificates of
incumbency with respect to the Purchaser, the Guarantor, and such other persons
as the Seller or the Tenant may reasonably require; and
(e) Such other documents, certificates and other instruments as may be
reasonably required to consummate the transaction contemplated hereby.
5.3 Opinions of Counsel. The Seller shall have received a written
opinion from (a) Lowndes, Drosdick, Doster, Kantor & Reed, P.A., counsel to the
Purchaser (or other counsel reasonably acceptable to Seller, MI and its
counsel), in form and substance reasonably satisfactory to Seller and its
counsel, regarding the good standing and authority of the Purchaser and the
Guarantor, and (b) counsel reasonably acceptable to Seller, MI, and its counsel
regarding the enforceability of this Agreement, the Lease, the Owner Agreement,
the Guaranty of Landlord's Obligations and such other matters with respect to
the transactions contemplated by this Agreement as MI, Seller or Tenant may
reasonably require.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce the Purchaser to enter into this Agreement, the Seller and
MI, represent and warrant to the Purchaser as follows:
6.1 Status and Authority of the Seller. The Seller is, or will be at or
before Closing, a corporation duly organized, validly existing and in corporate
good standing under the laws of its state of incorporation, and has all
requisite power and authority under the laws of such state and its respective
charter documents to enter into and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. Seller is duly qualified
to transact business and is in good standing in the state in which the Property
is located.
6.2 Status and Authority of MI. MI is a corporation duly organized,
validly existing and in corporate good standing under the laws of its state of
incorporation, and has all requisite power and authority under the laws of such
state and its respective charter documents to enter into and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. MI has duly qualified to transact business and is in good standing in
the state in which the Property is located.
6.3 Status and Authority of Tenant. Tenant is, or will be at Closing, a
limited liability company, duly organized, validly existing and in good standing
under the laws of the State of Delaware and duly qualified to do business and in
good standing under the laws of the state in which the Property is located.
6.4 Employees The Seller shall be responsible for payment of all wages
and salaries payable to, and all vacation pay, pension and welfare benefits and
other fringe benefits accrued with respect to all individuals employed by the
Seller at the Property relating to the period prior to the Closing and Tenant
shall be responsible for payment of all wages, salaries and benefits relating to
the period commencing on and from and after the Closing. At no time hereunder,
upon Closing or under the Lease, shall any of the employees at the Property
including employees of any manager thereof, be or be deemed to be the employees
of Purchaser, and upon and after Closing, be or be deemed to be transferred to
Purchaser. If required, the Seller will comply with the notice and other
requirements under the Worker Adjustment Retraining and Notification Act ("WARN
Act"), the Consolidated Omnibus Budget Reconciliation Act ("COBRA") or any
similar state or local legislation with respect to such employee matters, and
such obligation shall survive Closing, notwithstanding anything to the contrary
in the WARN Act. Because Purchaser at no time will be or be deemed to be the
employer of employees at the Property, it is expressly understood and agreed
that Purchaser is not and shall not be responsible or liable, directly or
indirectly, for payment of any benefits, severance liability, compensation, pay
or other obligations, of whatever nature, due or alleged to be due to any
employee at the Property including employees of any manager thereof, or of the
Seller attributable to any time period up to, upon and after Closing. Similarly,
there shall be no union agreements, pension plans, health plans, benefit plans,
deferred compensation plans, bonus plans or vacation plans or similar agreements
for or concerning such employees which shall be binding upon Purchaser.
6.5 Existing Agreements. There are no (or will not be at the Closing)
service contracts, maintenance agreements, leasing commissions or brokerage
agreements, repair contracts, property management contracts, contracts for the
purchase or delivery of labor, services, materials or goods, supplies or
equipment, leases, licensees or occupancy agreements, or similar agreements
entered into by or on behalf of any Seller which will be obligations of
Purchaser after the Closing, other than (i) the Permitted Encumbrances, (ii) the
documents to be assigned to the Purchaser pursuant to the terms hereof, (iii)
the Contracts, (iv) the Lease, (v) the Owner Agreement, and (vi) any other
document or instrument given or entered into in connection with Closing.
6.6 Tax Returns. All tax returns for privilege, gross receipts, excise,
sales and use, personal property and franchise taxes required by law to be filed
by the Seller prior to the date of the Closing will be prepared and duly filed,
prior to the Closing (or after Closing with respect to pre-Closing matters) and
all taxes, if any, shown on such returns or otherwise determined to be due,
together with any interest or penalties thereon, will be paid by Seller prior to
Closing, or allowance made therefor at Closing.
6.7 Action of MI and Seller. MI and Seller have taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and upon the execution and delivery of any document to be delivered by MI or the
Seller on or prior to each Closing Date, such document shall constitute the
valid and binding obligation and agreement of MI and/or Seller, as applicable,
enforceable against MI and/or Seller, as applicable, as the case may be, in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting the rights and remedies of creditors and general
principles of equity.
6.8 No Violations of Agreements. Neither the execution, delivery or
performance of this Agreement by the Seller and/or MI, nor compliance with the
terms and provisions hereof, will result in any breach of the terms, conditions
or provisions of, or conflict with or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon the Property pursuant to
the terms of any indenture, mortgage, deed of trust, note, evidence of
indebtedness or any other agreement or instrument by which the Seller and/or MI,
as the case may be, is bound.
6.9 Litigation. Neither Seller nor MI has received written notice of
and, to the Seller's and MI's knowledge, no investigation, action or proceeding
is pending or, to the Seller's and MI's knowledge, threatened, and the Seller
has not received written notice of and, to the Seller's and MI's knowledge, no
investigation looking toward such an action or proceeding has begun, which (a)
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto, or (b) may result in or subject the Property to a material
liability which is not covered by insurance, whether or not Purchaser is
indemnified by Seller and/or MI with respect to the same, or (c) involves
condemnation or eminent domain proceedings against any material part of the
Property.
6.10 Not A Foreign Person. The Seller is not a "foreign person" within
the meaning of Section 1445 of the United States Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
6.11 Construction Contracts; Mechanics' Liens. At the Closing, there
will be no outstanding contracts made by the Seller for the construction or
repair of any Improvements relating to the Property which have not been fully
paid for or provision for the payment of which has not been made by Seller and
Seller shall discharge and have released of record or bonded all mechanics' or
materialmen's liens, if any, arising from any labor or materials furnished to
such Property prior to the Closing to the extent any such lien is not insured
over by the Title Company or bonded over pursuant to applicable law.
6.12 Permits, Licenses. As of the Closing, there will be in effect all
material licenses (including liquor licenses, if required), permits and other
authorizations necessary for the then current use, occupancy and operation of
the Property, unless failure to obtain any such licenses, permits and other
authorizations is disclosed to Purchaser, and Purchaser waives compliance
herewith in accordance with Section 4.2(b) of this Agreement.
6.13 Hazardous Substances. Except as otherwise disclosed to Purchaser,
including without limitation any matters described in the Environmental Reports,
to the Seller's and MI's knowledge, the Seller, since the date that Seller
acquired title to the Property, has not stored or disposed of (or engaged in the
business of storing or disposing of, or authorized the storage or disposal of)
nor has released nor caused nor authorized the release of any hazardous waste,
contaminants, oil, radioactive or other material on the Property, or any portion
thereof, the removal of which is required or the maintenance of which is
prohibited or penalized by any applicable Federal, state or local statutes,
laws, ordinances, rules or regulations, and which has not as of the Closing Date
been removed from the Property in accordance with such applicable statutes,
laws, ordinances, rules or regulations.
6.14 Insurance. The Seller has received no written notice from any
insurance carrier of defects or inadequacies in the Property which, if
uncorrected, would result in a termination of insurance coverage or a material
increase in the premiums charged therefor.
6.15 Financial Information. Financial information, including, without
limitation, all books and records and financial statements relating to the
Property, which have been provided to Purchaser are true, correct and complete
in all material respects.
6.16 Contracts. Seller has performed all of its obligations under each
Contract to which the Seller is a party or is subject and no fact or
circumstance has occurred, which by itself or with the passage of time or the
giving of notice or both would constitute a default under any such Contract.
Further, to Seller's knowledge, all other parties to such Contracts have
performed all of their obligations thereunder in all material respects and are
not in default thereunder.
6.17 Title to FF&E. The Seller has good and marketable title to the
FF&E described on the FF&E Schedule.
6.18 FF&E. The FF&E Schedule accurately describes in all material
respects the FF&E owned by the Seller and located at the Property.
The representations and warranties made in this Agreement by Seller
and, if applicable, MI, in Section 6.1 through Section 6.10, inclusive, are made
as of the date hereof and shall be deemed remade by the Seller and, if
applicable, MI, as of the Closing Date for the Property the Seller, with the
same force and effect as if made on, and as of, such date; and the
representations and warranties made in this Agreement by Seller and, if
applicable, MI, in Section 6.11 through Section 6.19, inclusive, shall be made
as of the Closing Date, provided, however, that, the Seller shall have the
right, from time to time prior to the Closing Date to modify the representations
and warranties made in Section 6.8 (No Violation of Agreements), Section 6.9
(Litigation) and Section 6.14 (Insurance) as a result of changes in applicable
conditions beyond the control of Seller, by notice to the Purchaser and, in such
event, the representations and warranties shall be deemed modified to the extent
required by such changes, and (a) if Seller and MI agree to indemnify Purchaser
against any loss that may be suffered by Purchaser as a result of such changes,
then Purchaser will be required to close hereunder without any abatement of the
Purchase Price or changes in any other condition, and (b) if Seller and MI elect
not to so indemnify Purchaser, Purchaser shall have the option to either accept
the change and close, or reject the change, in which case Purchaser's obligation
to purchase the Property shall terminate. All representations and warranties
made in this Agreement by the Seller and MI shall survive the Closing for a
period of one year. Any action, suit or proceeding with respect to the truth,
accuracy or completeness of any such representation or warranty shall be
commenced, if at all, on or before the date which is twelve (12) months after
the date of the Closing and, if not commenced on or before such date, thereafter
shall be void and of no force or effect.
Prior to the Closing contemplated by this Agreement, Purchaser will
have had the opportunity to investigate independently all physical aspects of
the Property, and to make all such independent inspections and/or investigations
of the Property that Purchaser deems necessary or desirable including, without
limitation, review of the building permits, certificates of occupancy,
environmental audits and assessments, toxic reports, surveys, investigation of
land use and development rights, development restrictions and conditions that
are or may be imposed by governmental agencies, agreements with associations or
other private parties affecting or concerning the Property, the condition of
title, soils and geological reports, engineering and structural certificates,
tests and third-party reports (if any), governmental agreements and approvals
and architectural plans and site plans. Purchaser represents and warrants that,
in entering into this Agreement, Purchaser has not relied on any representation,
warranty, promise or statement, express or implied, of Seller or MI, or anyone
acting for or on behalf of Seller or MI, other than as expressly set forth in
this Agreement; AND THAT, AS A MATERIAL INDUCEMENT TO THE EXECUTION AND DELIVERY
OF THIS AGREEMENT BY SELLER AND MI, PURCHASER ACKNOWLEDGES THAT THE PROPERTY
WILL, UPON THE ACQUISITION BY PURCHASER OF the PROPERTY, BE IN ITS "AS IS"
CONDITION AND IN ITS "AS IS" STATE OF REPAIR, WITH ALL FAULTS SUBJECT ONLY,
HOWEVER, TO THE EXPRESS COVENANTS, REPRESENTATIONS AND WARRANTIES MADE BY THE
SELLER AND MI FOR THE BENEFIT OF PURCHASER EXPRESSLY SET FORTH IN THIS
AGREEMENT.
Except as otherwise expressly provided in this Agreement or any
documents executed and delivered by Seller or MI to the Purchaser at the
Closing, the Seller and MI disclaim the making of any representations or
warranties, express or implied, regarding the Property or matters affecting the
same, whether made by the Seller or MI, on the Seller's behalf or on MI's
behalf, or otherwise, including, without limitation, the physical condition of
the Property, title to, the boundaries or other survey matters of, the Real
Property, pest control matters, soil conditions, the presence, existence or
absence of hazardous wastes, toxic substances or other environmental matters,
compliance with building, health, safety, land use and zoning laws, regulations
and orders, structural and other engineering characteristics, traffic patterns,
market data, economic conditions or projections, and any other information
pertaining to the Property or the market and physical environments in which they
are located. The Purchaser acknowledges that the Purchaser has entered into this
Agreement with the intention of making and relying upon its own investigation or
that of third parties with respect to the physical, environmental, economic and
legal condition of each Property, except as expressly provided in Section 6.8,
Section 6.9, Section 6.11, Section 6.12, Section 6.13, Section 6.15 and Section
6.17. The Purchaser further acknowledges that it has not received from or on
behalf of the Seller or MI, any accounting, feasibility, marketing, economic,
tax, legal, architectural, engineering, property management or other advice with
respect to this transaction and is relying solely upon the advice of third party
accounting, tax, legal, architectural, engineering, property management and
other advisors.
As used in this Agreement, the phrases "to Seller's knowledge," "to
MI's knowledge" and "to Seller's and MI's knowledge" or words of similar import
shall mean the actual (and not constructive or imputed) knowledge, without
independent investigation or inquiry, of Kevin E. Montano (and any subsequent
officer of Marriott Senior Living Services, Inc. having direct oversight
responsibility for the transactions contemplated hereby), or Timothy J. Grisius
(and any subsequent finance officer of MI having direct oversight responsibility
for the transactions contemplated hereby), or of an employee of Seller or MI, or
any Affiliated Person as to either, assigned to work at the Property in
connection with construction of the Improvements and/or in connection with the
installment of the FF&E on a full-time basis, if any.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
To induce the Seller to enter into this Agreement, the Purchaser and,
if Purchaser is other than CHCLP, CHCLP represents and warrants to the Seller as
follows:
7.1 Status and Authority of the Purchaser. The Purchaser is duly
organized and validly existing under the laws of the jurisdiction in which it
was formed, and has all requisite power and authority under the laws of such
state and under its charter documents to enter into and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
Purchaser is, or will be by the Closing Date, duly qualified and in good
standing in each of the states in which the Property is located.
7.2 Status and Authority of the Guarantors. CHCLP is a limited
partnership duly organized and validly existing under the laws of the State of
Delaware. CHCP is a corporation duly organized and validly existing under the
laws of the State of Maryland. CHCP and CHCLP each has all requisite power and
authority under the laws of the state under whose laws it has organized or
incorporated and under their respective charter documents to enter into and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. CHCLP is, or will be by the Closing Date, duly qualified
and in good standing in each of the states in which the Property is located.
7.3 Action of the Purchaser. The Purchaser has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and upon the execution and delivery of any document to be delivered by the
Purchaser on or prior to each Closing Date, such document shall constitute the
valid and binding obligation and agreement of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application affecting the rights and remedies of creditors and general
principles of equity.
7.4 No Violations of Agreements. Neither the execution, delivery or
performance of this Agreement by the Purchaser, nor compliance with the terms
and provisions hereof, will result in any breach of the terms, conditions or
provisions of, or conflict with or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of the
Purchaser pursuant to the terms of any indenture, mortgage, deed of trust, note,
evidence of indebtedness or any other agreement or instrument by which the
Purchaser is bound.
7.5 Litigation. Purchaser has received no written notice of and, to
Purchaser's knowledge, no investigation, action or proceeding is pending and, to
Purchaser's knowledge, no action or proceeding is threatened and Purchaser has
received no notice of, and to Purchaser's knowledge, no investigation looking
toward such an action or proceeding has begun, which questions the validity of
this Agreement or any action taken or to be taken pursuant hereto.
The representations and warranties made in this Agreement by the
Purchaser are made as of the date hereof and shall be deemed remade by the
Purchaser as of the Closing Date with the same force and effect as if made on,
and as of, such date. All representations and warranties made in this Agreement
by the Purchaser shall survive the Closing for a period of one year. Any action,
suit or proceeding with respect to the truth, accuracy or completeness of any
such representation or warranty shall be commenced and served, if at all, on or
before the date which is twelve (12) months after the date of the Closing and,
if not commenced on or before such date, thereafter shall be void and of no
force or effect.
As used in this Agreement, the phrase "to Purchaser's knowledge" or
words of similar import shall mean the actual (and not constructive or imputed)
knowledge, without independent investigation or inquiry, of Phillip M. Anderson.
SECTION 8. COVENANTS OF THE SELLER.
The Seller and MI hereby covenant with the Purchaser as follows:
8.1 Compliance with Laws. From the date of this Agreement to the
Closing Date, Seller shall use commercially reasonable efforts to comply in all
material respects with (i) all laws, regulations and other requirements
affecting the Property, from time to time applicable, of every governmental body
having jurisdiction of the Property or the use or occupancy of any Improvements
located thereon and (ii) all terms, covenants and conditions of instruments of
record affecting the Property.
8.2 Correction of Defects. Seller shall correct, at Seller's or MI's
cost, all defects in the Improvements that are discovered and disclosed by or to
the Seller within one year following the acceptance of the Improvements by the
Seller from the general contractor for such Improvements. At Closing, Seller and
MI shall, at Purchaser's request, certify the outside date of such one-year
warranty period to Purchaser. The Purchaser agrees to cooperate with the Seller,
MI and/or the Tenant in enforcing any applicable warranties or guaranties with
respect to such defects. Seller and/or Tenant shall have the exclusive right and
obligation to pursue the aforementioned rights and remedies; however, in the
event that Seller and/or Tenant fails to exercise such rights and remedies,
after ten (10) days from notice by Purchaser to Seller of such failure to
exercise such rights and remedies, Purchaser shall then have the right to pursue
the same. The provisions of this Section 8.2 shall survive any Closing under
this Agreement.
8.3 Insurance. The Seller shall, at no expense to the Seller,
reasonably cooperate with Purchaser in connection with Purchaser's obtaining any
insurance which may be required to be maintained by Purchaser under the terms of
the Lease for the Property following the Closing.
8.4 Material Defects in Structural Systems. If, to Seller's or MI's
knowledge, a material construction defect or a material design defect in the
structural system of the Improvements exists at any time prior to Closing,
Seller or MI shall disclose the same to Purchaser, provided that neither Seller
nor MI shall have any obligation to correct such disclosed defects if the cost
to correct such defects exceeds $250,000. If such cost exceeds $250,000 and
Seller and MI elect not to correct, then Purchaser's sole remedy shall be to
terminate this Agreement, in which event this Agreement shall terminate and be
of no further force or effect and Seller shall reimburse to Purchaser the
Purchaser's expenses incurred in respect of the Property, not to exceed $5,000
(and direct Escrow Agent to refund to Purchaser the Deposit as provided in
Section 10.3).
SECTION 9. APPORTIONMENTS.
9.1 Apportionments. Representatives of the Purchaser, Tenant and the
Seller shall make and perform any and all of the adjustments and apportionments
which are appropriate and usual for a transaction of this nature, taking into
account the applicable provisions of the Lease and this Agreement. The
adjustments hereunder shall be calculated or paid in an amount based upon a fair
and reasonable estimated accounting performed and agreed to by representatives
of the Seller and the Purchaser at the applicable Closing. Subsequent final
adjustments and payments shall be made in cash or other immediately available
funds as soon as practicable after the Closing Date, and in any event within
ninety (90) days after the Closing Date, based upon an agreed accounting
performed by representatives of the Seller, Tenant and the Purchaser. In the
event the parties have not agreed with respect to the adjustments required to be
made pursuant to this Section 9.1 within such ninety-day period, upon
application by either party, a certified public accountant reasonably acceptable
to the Purchaser and the Seller shall determine any such adjustments which have
not theretofore been agreed to between the Seller and the Purchaser. The charges
of such accountant shall be borne fifty percent (50%) by the Seller and fifty
percent (50%) by the Purchaser. Seller shall pay the entire amount of the
calendar year 1999 real estate taxes after the bill for such real estate taxes
is received after the Closing Date and prior to the date such real estate taxes
become delinquent. Seller shall pay (on or before the due date) that portion of
the calendar year 2000 real estate taxes allocable (on a daily basis) to the
period commencing on January 1, 2000 and ending on the Closing Date and Tenant
shall, pursuant to the Lease, pay (on or before the due date) that portion of
the calendar year 2000 real estate taxes allocable (on a daily basis) to the
period commencing on the day after the Closing Date and ending on December 31,
2000.
9.2 Closing Costs.
(a) In the event that Closing is consummated hereunder, Seller shall
pay all Third-Party Costs (hereinafter defined) and Transfer Taxes (hereinafter
defined) to the extent that the aggregate amount of all Third-Party Costs and
Transfer Taxes does not exceed Sixty Eight Thousand Nine Hundred Dollars
($68,900) and Purchaser shall pay any Third-Party Costs and Transfer Taxes in
excess of Sixty Eight Thousand Nine Hundred Dollars ($68,900). As used herein,
the term "Third-Party Costs" include but shall not be limited to (i) the
Environmental Reports; (ii) the Existing Survey; (iii) premiums for the title
insurance policies to be provided at the Closing pursuant to Section 2.3 and
Section 4.3(a); (iv) any closing or escrow charges or other expenses payable to
the Title Company conducting the Closing; (v) the third party MAI property
appraisal of the Property obtained by Purchaser; (vi) the third party market
assessment report obtained by Purchaser; (vii) the third party architectural and
engineering inspection report of the Property obtained by Purchaser; and (viii)
the third party audited Special Purpose Financial Statement for the Property
obtained by Purchaser. All Third-Party Costs shall be advanced by Purchaser
prior to Closing and in the event that Closing is not consummated hereunder,
Purchaser shall pay the entire amount of the Third-Party Costs; provided,
however, that in the event that this Agreement is terminated by Purchaser
pursuant to Section 2.3 or Section 8.4, Seller shall pay (or reimburse Purchaser
for) such Third-Party Costs in an amount not exceeding Five Thousand Dollars
($5,000).
(b) As used herein, the term "Transfer Taxes" shall mean any transfer,
sales, use, recordation or other similar taxes, impositions or expenses incurred
in connection with the Closing of the transactions contemplated hereby and/or
the recordation or filing of any documents or instruments in connection
therewith or the sale, transfer or conveyance of the Property from Seller to
Purchaser or the lease of the Property from Purchaser to Tenant; provided
Transfer Taxes shall not include, and Seller shall be solely responsible for any
taxes due in respect of its income, net worth or capital, if any, and any
privilege, sales and occupancy taxes, due or owing to any governmental entity in
connection with the operation of the Property for any period of time prior to
Closing, and Purchaser or Tenant, as applicable, shall be solely responsible for
all such taxes for any period from and after Closing, and provided further that
any income tax arising as a result of the sale and transfer of the Property by
Seller to Purchaser shall be the sole responsibility of Seller and any income
tax arising as a result of the lease of the Property from Purchaser to Tenant
shall be the sole responsibility of Tenant or Purchaser, as applicable.
(c) Except as expressly provided in this Section 9, Seller and
Purchaser shall each pay their own separate costs and expenses incurred in
connection with the transactions contemplated hereby, including the fees and
expenses of counsel in connection with the preparation and negotiation of this
Agreement, the Lease and all other documents and instruments in connection
therewith and in consummating any and all of the transactions contemplated
hereby and thereby.
(d) The obligations of the parties under this Section 9 shall survive
the Closings.
SECTION 10. DEFAULT.
10.1 Default by the Seller. If the Seller or MI shall have made any
representation or warranty herein which shall be untrue in any material respect
when made or updated as herein provided, or if the Seller or MI shall fail to
perform any of the material covenants and agreements contained herein and such
condition or failure continues for a period of ten (10) days (or such additional
period as may be reasonably required to effectuate a cure of the same) after
notice thereof from the Purchaser, the Purchaser may terminate this Agreement
and Seller shall reimburse to Purchaser the Purchaser's expenses incurred in
respect of the Property, not to exceed $30,000 (and direct Escrow Agent to
refund to Purchaser the Deposit as provided in Section 10.3), and/or the
Purchaser may pursue any and all remedies available to it at law or in equity,
including, but not limited to, a suit for specific performance or other
equitable relief; provided, however, that in such event (x) neither Seller nor
MI shall be liable for (and Purchaser hereby agrees that it will not commence or
prosecute any action for) consequential or punitive or exemplary damages and (y)
the aggregate liability of the Seller or MI under this Agreement shall not
exceed an amount equal to One Hundred Thousand Dollars ($100,000) plus the
reasonable attorneys' fees and expenses incurred by Purchaser in enforcing the
Agreement against Seller and/or MI in respect of Seller's or MI's default. It is
understood and agreed that for purposes of this Section 10.1, if a default
results from a false representation or warranty, such default shall be deemed
cured if the events, conditions, acts or omissions giving rise to the falsehood
are cured within the applicable cure period even though, as a technical matter,
such representation or warranty was false as of the date actually made.
10.2 DEFAULT BY THE PURCHASER. IF THE PURCHASER SHALL HAVE MADE ANY
REPRESENTATION OR WARRANTY HEREIN WHICH SHALL BE UNTRUE OR MISLEADING IN ANY
MATERIAL RESPECT OR IF THE PURCHASER SHALL FAIL TO PERFORM ANY OF THE COVENANTS
AND AGREEMENTS CONTAINED HEREIN AND SUCH CONDITION OR FAILURE SHALL CONTINUE FOR
A PERIOD OF TEN (10) DAYS (OR SUCH ADDITIONAL PERIOD AS MAY BE REASONABLY
REQUIRED TO EFFECTUATE A CURE OF THE SAME; PROVIDED THAT NO SUCH EXTENSION OF
TIME SHALL APPLY TO PURCHASER'S FAILURE TO PAY THE PURCHASE PRICE AT CLOSING OR
OTHERWISE OPERATE TO EXTEND THE CLOSING DATE) AFTER NOTICE THEREOF FROM THE
SELLER, THE SELLER MAY, AS ITS SOLE AND EXCLUSIVE REMEDY, AT LAW, OR IN EQUITY,
TERMINATE THIS AGREEMENT, WHEREUPON, THE PURCHASER SHALL PAY TO THE SELLER, AS
LIQUIDATED DAMAGES AND NOT AS A PENALTY, THE SUM OF ONE HUNDRED THOUSAND DOLLARS
($100,000) (the "LIQUIDATED DAMAGES AMOUNT") PLUS THE REASONABLE ATTORNEYS' FEES
AND EXPENSES INCURRED BY SELLER IN ENFORCING THE AGREEMENT AGAINST PURCHASER IN
RESPECT OF PURCHASER'S DEFAULT.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
PURCHASER'S INITIALS SELLER'S INITIALS
<S><C>
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
- ----------------------------- -------------------------------------
CNL HEALTHCARE MARRIOTT SENIOR LIVING
PARTNERS, LP SERVICES, INC.
--------------------------------------------------------
MARRIOTT INTERNATIONAL, INC.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
It is understood and agreed that for purposes of this Section 10.2, if
a default results from a false representation or warranty, such default shall be
deemed cured if the events, conditions, acts or omissions giving rise to the
falsehood are cured within the applicable cure period even though, as a
technical matter, such representation or warranty was false as of the date
actually made.
10.3 Purchaser's Deposit. In order to secure Purchaser's performance
hereunder, including, without limitation, its obligation to pay liquidated
damages as provided in Section 10.2, Purchaser has heretofore provided, or will
provide immediately upon the execution and delivery of this Agreement, a cash
deposit in the amount of the Liquidated Damages Amount (said deposit is herein
referred to as the "Deposit") to the Escrow Agent. The Escrow Agent shall hold
and disburse the Deposit pursuant to the terms of the Escrow Agreement entered
into among Seller, Purchaser and Escrow Agent of even date herewith, a true copy
of which is attached hereto as Schedule P (the "Escrow Agreement").
If Purchaser defaults on its obligations hereunder such that Seller
becomes entitled to the Liquidated Damages Amount as provided in Section 10.2,
Seller shall be immediately entitled to the entire Deposit as such liquidated
damages. If Purchaser elects to terminate this Agreement pursuant to Sections
2.3 or 8.4, or if Seller elects to terminate this Agreement pursuant to the
provisions of Section 3.3, Purchaser shall be entitled to the prompt return of
the Deposit and the parties shall so direct the Escrow Agent to pay the Deposit
to Purchaser and thereupon shall have no further obligations hereunder in
respect of the Property except any obligations which expressly survive a
termination of this Agreement. In the event Seller becomes entitled to the
Deposit hereunder, the Escrow Agent shall promptly disburse the Deposit to
Seller in the manner provided for in the Escrow Agreement.
The Deposit shall be held by Escrow Agent in an interest-bearing
account and Escrow Agent shall be authorized to deliver the interest accrued
thereon from time to time to Purchaser. In the event that Closing is consummated
hereunder, the Deposit shall be returned to Purchaser promptly following the
occurrence of the Closing.
SECTION 11. MISCELLANEOUS.
11.1 Agreement to Indemnify.
(a) Subject to any express provisions of this Agreement to the
contrary, from and after the Closing, (i) the Seller and MI shall indemnify,
defend and hold harmless the Purchaser from and against any and all obligations,
claims, losses, damages, liabilities, and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and disbursements)
arising out of (v) any termination of employment of employees at the Property
prior to or upon the Closing resulting from the termination of employment of
such employees by Seller or its operator and/or the failure of Tenant to hire
such employees (including, without limitation, severance pay, wrongful discharge
claims, and claims and/or fines under federal, state or local statutes or
regulations, including without limitation the Worker Adjustment and Retraining
Notification Act), (w) the employment of such individuals prior to the Closing
Date, including, without limitation, employment-related claims; COBRA-related
claims; disability claims; vacation; sick leave; wages; salaries; payments due
(or allocable) to any medical, pension, and health and welfare plans, and any
other employee benefit plan established for the employees at the Property; and
employee-related tax obligations such as, but not limited to, social security
and unemployment taxes accrued as of the Closing Date, (x) events, acts, or
omissions of the Seller that occurred in connection with its ownership or
operation of the Property prior to the Closing Date or obligations accruing
prior to the Closing Date under any Contract of Seller (except to the extent of
any adjustment made in respect of such Contract at Closing), (y) any material
breach of a representation or warranty made by Seller and MI under Section 6 (as
such representations and warranties may be modified pursuant to said Section 6
and subject to the one-year limitation period set forth therein), or (z) any
claim against Purchaser for damage to property of others or injury to or death
of any person or any debts or obligations of or against Seller and arising out
of any event occurring on or about or in connection with the Property or any
portion thereof, at any time or times prior to the Closing Date, and (ii) the
Purchaser and, if Purchaser is not CHCLP, CHCLP shall indemnify, defend and hold
harmless the Seller from and against any and all obligations, claims, losses,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' and accountants' fees and disbursements) arising out of (x) events,
acts, or omissions of the Purchaser that occur in connection with its ownership
or operation of the Property from and after the Closing Date or obligations
accruing from and after the Closing Date under any Contract (except to the
extent of any adjustment made in respect of such Contract at Closing), (y) any
material breach of a representation or warranty made by Purchaser and, if
Purchaser is not CHCLP, CHCLP under Section 7 (and subject to the one year
limitation period set forth therein), or (z) any claim against Seller for damage
to property of others or injury to or death of any person or any claims for any
debts or obligations of or against Seller and arising out of any event occurring
on or about or in connection with the Property or any portion thereof, at any
time or times from and after the Closing Date. The provisions of this Section
11.1 shall not apply to any liabilities or obligations with respect to hazardous
substances, the liabilities of the parties with respect thereto being governed
by the representation and warranty of Seller set forth in Section 6.13.
(b) Whenever it is provided in this Agreement that an obligation will
continue after Closing as an obligation of Purchaser or be assumed by Purchaser
after the Closing, the Purchaser and, if Purchaser is not CHCLP, CHCLP shall be
deemed to have also agreed to indemnify and hold harmless the Seller and MI and
their respective successors and assigns from and against all claims, losses,
damages, liabilities, costs, and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) arising from any
failure of the Purchaser to perform the obligation so continued or assumed after
the Closing (but not with respect to any act or omission which occurred prior to
Closing).
(c) Whenever either party shall learn through the filing of a claim or
the commencement of a proceeding or otherwise of the existence of any liability
for which the other party is or may be responsible under this Agreement, the
party learning of such liability shall notify the other party promptly and
furnish such copies of documents (and make originals thereof available) and such
other information as such party may have that may be used or useful in the
defense of such claims and shall afford said other party full opportunity to
defend the same in the name of such party and shall generally cooperate with
said other party in the defense of any such claim.
(d) The provisions of this Section 11.1 shall survive the Closing
hereunder and the termination of this Agreement. All representations and
warranties made in this Agreement shall survive the Closing for a period of one
year. Any action, suit or proceeding with respect to the truth, accuracy or
completeness of any such representation or warranty shall be commenced, if at
all, on or before the date which is twelve (12) months after the date of the
Closing and served promptly (but in no event later than sixty (60) days after
commencement) and, if not commenced on or before such date and so served,
thereafter shall be void and of no force or effect.
11.2 Brokerage Commissions. Each of the parties hereto represents to
the other party that it dealt with no broker, finder or like agent in connection
with this Agreement or the transactions contemplated hereby, and that it
reasonably believes that there is no basis for any other person or entity to
claim a commission or other compensation for bringing about this Agreement or
the transactions contemplated hereby. The Seller shall indemnify and hold
harmless the Purchaser and its successors and assigns from and against any loss,
liability or expense, including, reasonable attorneys' fees, arising out of any
claim or claims for commissions or other compensation for bringing about this
Agreement or the transactions contemplated hereby made by any broker, finder or
like agent, if such claim or claims are based in whole or in part on dealings
with the Seller. The Purchaser shall indemnify and hold harmless the Seller and
its successors and assigns from and against any loss, liability or expense,
including, reasonable attorneys' fees, arising out of any claim or claims for
commissions or other compensation for bringing about this Agreement or the
transactions contemplated hereby made by any broker, finder or like agent, if
such claim or claims are based in whole or in part on dealings with the
Purchaser. Nothing contained in this section shall be deemed to create any
rights in any third party. The provisions of this Section 11.2 shall survive the
Closing hereunder and any termination of this Agreement.
11.3 Publicity. The parties agree that no party shall, with respect to
this Agreement and the transactions contemplated hereby, contact or conduct
negotiations with public officials, make any public pronouncements, issue press
releases or otherwise furnish information regarding this Agreement or the
transactions contemplated hereby to any third party without the consent of the
other party, which consent shall not be unreasonably withheld, conditioned or
delayed, except as may be required by law or as may be reasonably necessary, on
a confidential basis, to inform any rating agencies, potential sources of
financing, financial analysts, or to entities involved with a sale of a
controlling interest in the Seller, the Purchaser or any of their affiliates or
to receive legal, accounting and/or tax advice; provided, however, that, if such
information is required to be disclosed by law, the party so disclosing the
information will use reasonable efforts to give notice to the other party as
soon as such party learns that it must make such disclosure.
11.4 Notices.
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this Agreement
shall be deemed adequately given if in writing and the same shall be delivered
either in hand, by telecopier with written acknowledgment of receipt, or by mail
or Federal Express or similar expedited commercial carrier, addressed to the
recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a Business Day or is
required to be delivered on or before a specific day which is not a Business
Day, the day of receipt or required delivery shall automatically be extended to
the next Business Day.
(c) All such notices shall be addressed,
if to the Seller to:
Marriott International, Inc
10400 Fernwood Road, Dept. 52/924.94
Bethesda, Maryland 20817
Attn: Treasury
Telecopier No. (301) 380-5067
with a copy to:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/923.24
Bethesda, Maryland 20817
Attn: Kevin E. Montano, Esquire
Law Department
Telecopier No. (301) 380-6727
and
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attn: Joseph M. Fries, Esq.
Telecopier No. (202) 857-6395
If to the Purchaser, to:
CNL Health Care Partners, LP
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801-3336
Attn: Mr. Phillip M. Anderson or Chief Operating Officer
Telecopier No. (407) 835-3232
with a copy to:
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
215 North Eola Drive
Post Office Box 2809
Orlando, Florida 32802
Attn: David G. Williford, Esq.
Telecopier No. (407) 843-4444
If to MI:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/924.04
Bethesda, Maryland 20817
Attn: Treasury
Telecopier No. (301) 380-5067
with a copy to:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/923.24
Bethesda, Maryland 20817
Attn: Kevin E. Montano, Esquire
Law Department
Telecopier No. (301) 380-6727
and
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Attn: Joseph M. Fries, Esq.
Telecopier No. (202) 857-6395
(d) By notice given as herein provided, the parties hereto and their
respective successors and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America.
11.5 Waivers, Etc. Any waiver of any term or condition of this
Agreement, or of the breach of any covenant, representation or warranty
contained herein, in any one instance, shall not operate as or be deemed to be
or construed as a further or continuing waiver of any other breach of such term,
condition, covenant, representation or warranty or any other term, condition,
covenant, representation or warranty, nor shall any failure at any time or times
to enforce or require performance of any provision hereof operate as a waiver of
or affect in any manner such party's right at a later time to enforce or require
performance of such provision or any other provision hereof. This Agreement may
not be amended, nor shall any waiver, change, modification, consent or discharge
be effected, except by an instrument in writing executed by or on behalf of the
party against whom enforcement of any amendment, waiver, change, modification,
consent or discharge is sought.
11.6 Assignment; Successors and Assigns. This Agreement and all rights
and obligations hereunder shall not be assignable by any party without the
written consent of the other party, except that the Purchaser may assign this
Agreement to any entity wholly owned, directly or indirectly, by CHCLP provided,
however, that, in the event this Agreement shall be assigned to any entity
wholly owned, directly or indirectly, by CHCLP, CHCLP shall remain fully and
primarily liable for the obligations of the "Purchaser" hereunder. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement is
not intended and shall not be construed to create any rights in or to be
enforceable in any part by any other persons.
11.7 Severability. If any provision of this Agreement shall be held or
deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
11.8 Counterparts, Etc. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and shall supersede and take the place of any other
instruments purporting to be an agreement of the parties hereto relating to the
subject matter hereof. This Agreement may not be amended or modified in any
respect other than by the written agreement of all of the parties hereto.
11.9 Governing Law. This Agreement shall be interpreted,
construed, applied and enforced in
accordance with the laws of the State of Maryland.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located in
the State of Maryland as is provided by law; and the parties consent to the
jurisdiction of said court or courts located in the State of Maryland and to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.
11.10 Performance on Business Days. In the event the date on which
performance or payment of any obligation of a party required hereunder is other
than a Business Day, the time for payment or performance shall automatically be
extended to the first Business Day following such date.
11.11 Attorneys' Fees. If any lawsuit or arbitration or other legal
proceeding arises in connection with the interpretation or enforcement of this
Agreement, the prevailing party therein shall be entitled to receive from the
other party the prevailing party's costs and expenses, including reasonable
attorneys' fees, incurred in connection therewith, in preparation therefor and
on appeal therefrom, which amounts shall be included in any judgment therein.
11.12 Relationship. Nothing herein contained shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or joint venture between
the parties hereto, it being understood and agreed that no provision contained
herein, nor any acts of the parties hereto shall be deemed to create the
relationship between the parties hereto other than the relationship of seller
and purchaser.
11.13 Section and Other Headings. The headings contained in
this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement
11.14 Disclosure. From and after Closing and at the written request of
Purchaser, Seller shall provide such financial statements in respect of the
Seller's operations relating to the Property from the date of Seller's
commencement of business to the date of the Closing to the extent such financial
statements are required by applicable securities laws and regulations and the
SEC's interpretation thereof; provided, however, that (i) Seller reserves the
right, in good faith, to challenge, and require Purchaser to use commercially
reasonable efforts to challenge, any assertion by the SEC, any other applicable
regulatory authority, or Purchaser's independent public accountants that
applicable law or regulations require the provision of such financial
statements, (ii) Purchaser shall not, without Seller's consent (which consent
shall not be unreasonably withheld, delayed or conditioned), acquiesce to any
such challenged assertion until Purchaser has exhausted all reasonable available
avenues of administrative review, and (iii) Purchaser shall consult with Seller
in pursuing any such challenge and will allow Seller to participate therein if
and to the extent that Seller so elects. Any and all costs and expenses incurred
by Seller, including without limitation reasonable attorneys fees and expenses,
in connection with providing such financial statements to Purchaser or in
connection with any challenge to an SEC assertion (including Seller's
consultation or participation with Purchaser in respect of same) shall be
reimbursed to Seller by Purchaser within ten (10) days following written demand
by Seller.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as a sealed instrument as of the date first above written.
SELLER:
MARRIOTT SENIOR LIVING SERVICES, INC.
By: /s/ Timothy J. Grisius
Timothy J. Grisius
Agent
PURCHASER:
CNL HEALTH CARE PARTNERS, L.P.
By: CNL Health Care GP Corp.,
a Delaware corporation
its general partner
By: /s/ Phillip M. Anderson
Phillip M. Anderson
Executive Vice President
MI:
MARRIOTT INTERNATIONAL, INC.
By: /s/ Timothy J. Grisius
Timothy J. Grisius
Agent
<PAGE>
The undersigned, CNL Health Care Properties, Inc., joins herein for the purpose
of evidencing its agreement to enter into and deliver the Guaranty of Landlord's
Obligations pursuant to the terms of the foregoing Agreement.
CNL HEALTH CARE PROPERTIES, INC.
By: /s/ Phillip M. Anderson
Phillip M. Anderson
Executive Vice President
and Chief Operating Officer
<PAGE>
The undersigned, First American Title Insurance Company, joins herein
for the purpose of evidencing its agreement to enter into and deliver the Escrow
Agreement, attached hereto at Schedule P.
FIRST AMERICAN TITLE
INSURANCE COMPANY
By: /s/ Brian A. Lobuts
Brian A. Lobuts
Vice President
<PAGE>
EXHIBIT 10.12
Lease Agreement between
CNL Health Care Partners, LP
and BG Orland Park, LLC
<PAGE>
LEASE AGREEMENT
DATED AS OF APRIL 20, 2000
BY AND BETWEEN
CNL HEALTH CARE PARTNERS, LP,
a Delaware limited partnership,
AS LANDLORD,
AND
BG ORLAND PARK, LLC,
AS TENANT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1.........................................................................................................1
<S><C>
ARTICLE 2.........................................................................................................4
2.1 Leased Property............................................................................................4
2.2 Condition of Leased Property...............................................................................4
2.3 Fixed Term.................................................................................................4
2.4 Extended Term..............................................................................................4
ARTICLE 3.........................................................................................................4
3.1 Rent.......................................................................................................4
3.2 Late Payment of Rent, Etc..................................................................................4
3.3 Net Lease..................................................................................................4
3.4 Security for Tenant's Performance..........................................................................4
ARTICLE 4.........................................................................................................4
4.1 Permitted Use..............................................................................................4
4.2 Compliance with Legal/Insurance Requirements, Etc..........................................................4
4.3 Environmental Matters......................................................................................4
ARTICLE 5.........................................................................................................4
5.1 Maintenance and Repair.....................................................................................4
5.2 Tenant's Personal Property.................................................................................4
5.3 Yield Up...................................................................................................4
ARTICLE 6.........................................................................................................4
6.1 Improvements to the Leased Property........................................................................4
6.2 Salvage....................................................................................................4
6.3 Equipment Leases...........................................................................................4
ARTICLE 7.........................................................................................................4
ARTICLE 8.........................................................................................................4
ARTICLE 9.........................................................................................................4
9.1 General Insurance Requirements.............................................................................4
9.2 Waiver of Subrogation......................................................................................4
9.3 General Provisions.........................................................................................4
9.4 Blanket Policy.............................................................................................4
9.5 Indemnification of Landlord................................................................................4
ARTICLE 10........................................................................................................4
10.1 Insurance Proceeds........................................................................................4
10.2 Damage or Destruction.....................................................................................4
10.3 Damage Near End of Term...................................................................................4
10.4 Tenant's Property.........................................................................................4
10.5 Restoration of Tenant's Property..........................................................................4
10.6 No Abatement of Rent......................................................................................4
10.7 Waiver....................................................................................................4
ARTICLE 11........................................................................................................4
11.1 Total Condemnation, Etc...................................................................................4
11.2 Partial Condemnation......................................................................................4
11.3 Disbursement of Award.....................................................................................4
11.4 Abatement of Rent.........................................................................................4
11.5 Temporary Condemnation....................................................................................4
11.6 Allocation of Award.......................................................................................4
ARTICLE 12........................................................................................................4
12.1 Events of Default.........................................................................................4
12.2 Remedies..................................................................................................4
12.3 Waiver of Jury Trial......................................................................................4
12.4 Application of Funds......................................................................................4
12.5 Landlord's Right to Cure Tenant's Default.................................................................4
12.6 Security Deposit..........................................................................................4
12.7 Good Faith Dispute........................................................................................4
ARTICLE 13........................................................................................................4
ARTICLE 14........................................................................................................4
14.1 Landlord Notice Obligation................................................................................4
14.2 Landlord's Default........................................................................................4
14.3 Special Remedies for Landlord Funding Default.............................................................4
14.4 Special Remedy under Section 10.1 and 11.3................................................................4
ARTICLE 15........................................................................................................4
15.1 Transfer of Leased Property...............................................................................4
15.2 Conditions of Transfer....................................................................................4
15.3 Transfer of Interest in Landlord..........................................................................4
ARTICLE 16........................................................................................................4
16.1 Subletting and Assignment.................................................................................4
16.2 Required Sublease Provisions..............................................................................4
16.3 Permitted Sublease and Assignment.........................................................................4
16.4 Sublease Limitation.......................................................................................4
ARTICLE 17........................................................................................................4
17.1 Estoppel Certificates.....................................................................................4
17.2 Financial Statements......................................................................................4
17.3 General Operations........................................................................................4
ARTICLE 18........................................................................................................4
ARTICLE 19........................................................................................................4
19.1 Negotiation...............................................................................................4
19.2 Arbitration...............................................................................................4
ARTICLE 20........................................................................................................4
20.1 Landlord May Grant Liens..................................................................................4
20.2 Subordination of Lease....................................................................................4
20.3 Notices...................................................................................................4
ARTICLE 21........................................................................................................4
21.1 Conduct of Business.......................................................................................4
21.2 Maintenance of Accounts and Records.......................................................................4
21.3 Certain Debt Prohibited...................................................................................4
21.4 Special Purpose Entity Requirements.......................................................................4
21.5 Distributions, Payments to Affiliated Persons, Etc........................................................4
21.6 Compliance with Operating Agreement.......................................................................4
ARTICLE 22........................................................................................................4
22.1 Limitation on Payment of Rent.............................................................................4
22.2 No Waiver.................................................................................................4
22.3 Remedies Cumulative.......................................................................................4
22.4 Severability..............................................................................................4
22.5 Acceptance of Surrender...................................................................................4
22.6 No Merger of Title........................................................................................4
22.7 Conveyance by Landlord....................................................................................4
22.8 Quiet Enjoyment...........................................................................................4
22.9 Memorandum of Lease.......................................................................................4
22.10 Notices..................................................................................................4
22.11 Construction; Nonrecourse................................................................................4
22.12 Counterparts; Headings...................................................................................4
22.13 Applicable Law, Etc......................................................................................4
22.14 Right to Make Agreement..................................................................................4
22.15 Disclosure of Information................................................................................4
22.16 Trademarks, Trade Names and Service Marks................................................................4
22.17 Competing Facilities.....................................................................................4
</TABLE>
<PAGE>
EXHIBITS
A - Minimum Rent
B - The Land
C - Property Expenses
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into as of this 20th day of April,
2000, by and between CNL HEALTH CARE PARTNERS, LP, a Delaware limited
partnership, as landlord ("Landlord"), and BG ORLAND PARK, LLC, a Delaware
limited liability company, as tenant ("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord has acquired fee simple title to the Leased Property
(this and other capitalized terms used and not otherwise defined herein having
the meanings ascribed to such terms in Article 1) which is improved by a 120 bed
assisted living and dementia facility; and
WHEREAS, Landlord desires to lease the Leased Property to Tenant and
Tenant desires to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article shall have the meanings assigned to them in this Article and include the
plural as well as the singular, (ii) all accounting terms not otherwise defined
herein shall have the meanings assigned to them in accordance with GAAP, (iii)
all references in this Agreement to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Accounting Period" shall mean each four (4) week accounting period of
Tenant, except that an Accounting Period may, from time to time, include five
(5) weeks in order to conform Tenant's accounting system to Tenant's Fiscal
Year. If Tenant shall, for a bona fide business reason, change its Accounting
Period during the Term, appropriate adjustments, if any, shall be made with
respect to the timing of certain accounting and reporting requirements of this
Agreement; provided, however, that, in no event shall any such change or
adjustment alter the amount or frequency of payment of Minimum Rent within any
Fiscal Year, or alter the frequency of payment of Percentage Rent to less than
four (4) times within any Fiscal Year, or otherwise increase or reduce any
monetary obligation under this Agreement. In the event that the Commencement
Date is not the first day of Tenant's four (4) week accounting periods, the
first Accounting Period under this Lease shall consist of the first four (4)
week accounting period of Tenant commencing after the Commencement Date and the
period from the Commencement Date until the commencement of such first four (4)
week accounting period.
"Accounting Year" shall mean each period of thirteen (13) Accounting
Periods of which the first Accounting Period shall commence on the first day of
the first full Accounting Period and ending upon the expiration of twelve (12)
Accounting Periods after such first Accounting Period. Each successor Accounting
Period shall be each period of thirteen (13) Accounting Periods thereafter.
"Additional Charges" shall have the meaning given such term in Section
3.1.3.
"Affiliated Person" shall mean, with respect to any Person, (a) in the
case of any such Person which is a partnership, any partner in such partnership,
(b) in the case of any such Person which is a limited liability company, any
member of such company, (c) any other Person which is a Parent, a Subsidiary, or
a Subsidiary of a Parent with respect to such Person or to one or more of the
Persons referred to in the preceding clauses (a) and (b), (d) any other Person
who is an officer, director, trustee or employee of, or partner in, such Person
or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any
other Person who is a member of the Immediate Family of such Person or of any
Person referred to in the preceding clauses (a) through (d); provided, however,
that, notwithstanding the foregoing, in no event shall Host Marriott Corporation
or Sodexho Marriott Services, Inc., or any of their Affiliated Persons, be
deemed an Affiliated Person as to Tenant or the Guarantor.
"Agreement" shall mean this Lease Agreement, including all Exhibits
hereto, as it and they may be amended from time to time as herein provided.
"Applicable Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to injury to, or the protection of, real or personal property or human health
(except those requirements which, by definition, are solely the responsibility
of employers) or the Environment, including, without limitation, all valid and
lawful requirements of courts and other Government Agencies pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pesticides,
petroleum or petroleum products, pollutants, contaminants or hazardous or toxic
substances, materials or wastes whether solid, liquid or gaseous in nature, into
the Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature.
"Applicable Percentage" shall mean, with respect to any Accounting
Period, or portion thereof, (i) one percent (1%) with respect to the period
beginning on the Commencement Date and ending on the last day of the fourth
(4th) full Accounting Year, (ii) two percent (2%), with respect to the fifth
(5th) through eighth (8th) full Accounting Years, (iii) three percent (3%) with
respect to the ninth (9th) through twentieth (20th) full Accounting Years, and
(iv) with respect to each Accounting Year thereafter, three and one-half percent
(3.5%).
"Award" shall mean all compensation, sums or other value awarded, paid
or received by virtue of a total or partial Condemnation of the Leased Property
(after deduction of all reasonable legal fees and other reasonable costs and
expenses, including, without limitation, expert witness fees, incurred by
Landlord, in connection with obtaining any such award).
"Base Facility Revenues" shall mean, when used with reference to any
Lease Year, Total Facility Revenues for the Base Year and, when used with
reference to the first, second or third Fiscal Quarters of any Fiscal Year, 3/13
of Total Facility Revenues for the Base Year and, when used with reference to
the fourth Fiscal Quarter of any Fiscal Year, 4/13 of Total Facility Revenues
for the Base Year.
"Base Year" shall mean the first period of four (4) consecutive Fiscal
Quarters in which the Facility achieves an average (on a daily basis) occupancy
of at least ninety-three percent (93%) of the beds in the Facility. For purposes
hereof, a bed shall be deemed occupied for an entire month if Tenant receives
payment of an occupancy fee for such entire month notwithstanding the fact that
such bed was not occupied for the entire period during such month.
"Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the State of Florida or the State of
Maryland are authorized by law or executive action to close.
"Capital Expenditure" shall mean any expenditure with respect to the
Leased Property treated as capital in nature in accordance with GAAP.
"Case Goods" shall mean furniture and furnishings used in the Facility
including, without limitation: chairs, beds, chests, headboards, decks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"Cash Available for Lease Payments" shall mean the remainder of (i)
Total Facility Revenues during the applicable calculation period less (ii)
Property Expenses for the same calculation period.
"CHCLP" shall mean CNL Health Care Partners, LP, a Delaware limited
partnership.
"CHCLP and CHCP Guaranty" shall mean the guaranty agreement, dated as
of the date hereof, made by CHCLP and CHCP for the benefit of Tenant, as may be
amended from time to time.
"CHCP" shall mean CNL Health Care Properties, Inc., a Maryland
corporation.
"Claim" shall have the meaning given such term in Article 8.
"Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.
"Commencement Date" shall mean the date of this Agreement.
"Competitor" shall mean a Person that owns or has an equity interest in
an assisted living facility brand, tradename, system or chain (a "Brand") which
is comprised of at least ten (10) assisted living facilities; provided that such
Person shall not be deemed a Competitor if it holds its interest in a Brand
merely as a mere passive investor that has no control or influence over the
business decisions of the Brand at issue, such as a mere limited partner in a
partnership, a mere shareholder in a corporation or a mere payee of royalties
based on a prior sale transaction. A mere passive investor that is represented
by a Mere Director on the board of directors of a Competitor shall not be deemed
to have control or influence over the business decisions of that Competitor.
"Condemnation" shall mean (a) the exercise of any governmental power
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting the
Leased Property, whether or not the same shall have actually been commenced.
"Condemnor" shall mean any public or quasi-public authority, or Person
having the power of Condemnation.
"Controlling Interest" shall mean (a) as to a corporation shall mean
the right to exercise, directly or indirectly, more than fifty percent (50%) of
the voting rights attributable to the shares of the Entity (through ownership of
such shares or by contract), and (b) as to an Entity not a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the Entity.
"Corporate Transfer" shall have the meaning given such term in Section
16.1.
"Date of Taking" shall mean the date the Condemnor has the right to
possession of the Leased Property, or any portion thereof, in connection with a
Condemnation.
"Default" shall mean any event or condition existing which with the
giving of notice and/or lapse of time would ripen into an Event of Default.
"Disbursement Rate" shall mean an annual rate of interest equal to the
greater of, as of the date of determination, (i) the Interest Rate and (ii) the
per annum rate for ten (10) year U.S. Treasury Obligations as published in The
Wall Street Journal (or successor publication) plus three hundred (300) basis
points.
"Distribution" shall mean (a) any declaration or payment of any
dividend (except dividends payable in common stock of Tenant) on or in respect
of any shares of any class of capital stock of Tenant, if Tenant is a
corporation, or any cash distributions in respect of any partnership or
membership interests in Tenant, if Tenant is a partnership or limited liability
company, (b) any purchase, redemption retirement or other acquisition of any
shares of any class of capital stock of Tenant, if Tenant is a corporation, or
any purchase, redemption, retirement or other acquisition of any partnership or
membership interests in Tenant, if Tenant is a partnership or limited liability
company, (c) any other distribution on or in respect of any shares of any class
of capital stock of Tenant, if Tenant is a corporation, or any other
distribution in respect of any partnership or membership interests in Tenant, if
Tenant is a partnership or a limited liability company, or (d) any return of
capital to shareholders of Tenant, if Tenant is a corporation, or any return of
capital to partners or members in Tenant, if Tenant is a partnership or limited
liability company.
"Encumbrance" shall have the meaning given such term in Section 20.1.
"Entity" shall mean any corporation, general or limited partnership,
limited liability company, limited liability partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, cooperative, any government or agency or political
subdivision thereof or any other entity.
"Environment" shall mean soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.
"Environmental Notice" shall have the meaning given such term in
Section 4.3.1.
"Environmental Obligation" shall have the meaning given such term in
Section 4.3.1.
"Event of Default" shall have the meaning given such term in Section
12.1.
"Excess Facility Revenues" shall mean, with respect to any Lease Year
or Fiscal Quarter, or portion thereof, as applicable, the amount of Total
Facility Revenues for such period, in excess of Base Facility Revenues for the
equivalent period.
"Extended Terms" shall have the meaning given such term in Section 2.4.
"Facility" shall mean the assisted living and dementia facility being
operated on the Leased Property.
"Facility Mortgage" shall mean any Encumbrance placed upon the Leased
Property in accordance with Article 20.
"Facility Mortgagee" shall mean the holder of any Facility Mortgage.
"FAS" shall mean all items included within "Property and Equipment"
under the Uniform System of Accounts, including, but not limited to, linen,
china, glassware, tableware, uniforms and similar items, whether used in
connection with public space or guest rooms.
"Fiscal Quarter" shall mean, with respect to the first, second and
third quarter of any Fiscal Year, Accounting Periods one (1) through three (3),
four (4) through six (6) and seven (7) through nine (9), respectively, of such
Fiscal Year and, with respect to the fourth quarter of any Fiscal Year,
Accounting Periods ten (10) through thirteen (13) of such Fiscal Year.
"Fiscal Year" shall mean each fiscal year of Tenant, each such fiscal
year to consist of thirteen Accounting Periods. If Tenant shall, for a bona fide
business reason, change its Fiscal Year during the Term, appropriate
adjustments, if any, shall be made with respect to the timing of certain
accounting and reporting requirements of this Agreement; provided, however,
that, in no event shall any such change or adjustment increase or reduce any
monetary obligation under this Agreement.
"Fixed Term" shall have the meaning given such term in Section 2.3.
"FF&E" means furniture, furnishings, fixtures, Soft Goods, Case Goods,
vehicles and equipment (including, but not limited to, telephone sysems,
facsimile machines, communications and computer systems hardware) but shall not
include FAS or any Software.
"Fixtures" shall have the meaning given such term in Section 2.1(d).
"Force Majeure Event" means any act of God, act of war, civil
disturbance, governmental action (including the revocation or refusal to grant
licenses or permits, where such revocation or refusal is not due to the fault of
the party whose performance is to be excused for reasons of Force Majeure),
strikes, lockouts, fire, unavoidable casualties or any other causes beyond the
reasonable control of either party.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Government Agencies" shall mean any court, agency, authority, board
(including, without limitation, environmental protection, planning and zoning),
bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit of the United States
or the State or any county or any political subdivision of any of the foregoing,
whether now or hereafter in existence, having jurisdiction over Tenant or the
Leased Property or any portion thereof or the Facility operated thereon.
"Guarantor" shall mean Marriott International, Inc., a Delaware
corporation, its successors and assigns.
"Hazardous Substances" shall mean any substance:
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state or
local statute, regulation, rule, ordinance, order, action or policy; or
(b) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or
"contaminant" under any present or future federal, state or local
statute, regulation, rule or ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. et seq.) and the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the
regulations promulgated thereunder; or
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous
and is or becomes regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of the United
States, any state of the United States, or any political subdivision
thereof; or
(d) the presence of which on the Leased Property causes or
materially threatens to cause an unlawful nuisance upon the Leased
Property or to adjacent properties or poses or materially threatens to
pose a hazard to the Leased Property or to the health or safety of
persons on or about the Leased Property; or
(e) without limitation, which contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated
biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive
particles, waves or material; or
(h) without limitation, constitutes materials which are now or
may hereafter be subject to regulation pursuant to the Material Waste
Tracking Act of 1988, or any Applicable Laws promulgated by any
Government Agencies.
"Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.
"Impositions" shall mean collectively, all taxes (including, without
limitation, all taxes imposed under the laws of the State, as such laws may be
amended from time to time, and all ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or similar taxes as the same relate
to or are imposed upon Landlord, Tenant or the business conducted upon the
Leased Property), assessments (including, without limitation, all assessments
for public improvements or benefit, whether or not commenced or completed prior
to the date hereof), water, sewer or other rents and charges, excises, tax
levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or the business
conducted thereon by Tenant (including all interest and penalties thereon due to
any failure in payment by Tenant), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in respect of or be
a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein, or (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with the Leased Property
or the leasing or use of the Leased Property or any part thereof by Tenant;
provided, however, that nothing contained herein shall be construed to require
Tenant to pay (i) any tax based on net income, net worth or capital imposed on
Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee or other
tax imposed with respect to the sale, exchange or other disposition by Landlord
of the Leased Property or the proceeds thereof, (iv) any single business, gross
receipts tax (from any source other than the rent received by Landlord from
Tenant), or similar taxes as the same relate to or are imposed upon Landlord,
except to the extent that any tax, assessment, tax levy or charge that would
otherwise be an Imposition under this definition which is in effect at any time
during the Term hereof is totally or partially repealed, and a tax, assessment,
tax levy or charge set forth in clause (i) or (ii) preceding is levied, assessed
or imposed expressly in lieu thereof, (v) any interest or penalties imposed on
Landlord as a result of the failure of Landlord to file any return or report
timely and in the form prescribed by law or to pay any tax or imposition, except
to the extent such failure is a result of a breach by Tenant of its obligations
pursuant to Section 3.1.3, (vi) any Impositions imposed on Landlord that are a
result of Landlord not being considered a "United States person" as defined in
Section 7701(a)(30) of the Code, (vii) any Impositions that are enacted or
adopted by their express terms as a substitute for any tax that would not have
been payable by Tenant pursuant to the terms of this Agreement or (viii) any
Impositions imposed as a result of a breach of covenant or representation by
Landlord in any agreement entered into by Landlord governing Landlord's conduct
or operation or as a result of the negligence or willful misconduct of Landlord.
"Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.
"Index" shall mean the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All-Cities, All Items (November 1996 = 100), as published by
the Bureau of Labor Statistics or, in the event publication thereof ceases, by
reference to whatever index then published by the United States Department of
Labor at that time is most nearly comparable as a measure of general changes in
price levels for urban areas, as reasonably determined by Landlord and Tenant.
"Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any such policy
and all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.
"Interest Rate" shall mean ten percent (10%) per annum.
"Inventories" shall mean "Inventories" as defined by GAAP such as
provisions in storerooms, refrigerators, pantries and kitchens; medical
supplies; other merchandise intended for sale; fuel; mechanical supplies;
stationery; and other expensed supplies and similar items.
"Land" shall have the meaning given such term in Section 2.1(a).
"Landlord" shall have the meaning given such term in the preambles to
this Agreement and shall include its permitted successors and assigns.
"Landlord Default" shall have the meaning given such term in Section
14.2.
"Landlord Liens" shall mean liens on or against the Leased Property or
any payment of Rent (a) which result from any act of, or any claim against,
Landlord or any owner (other than Tenant) of a direct or indirect interest in
the Leased Property, or which result from any violation by Landlord of any terms
of this Agreement or the Purchase Agreement, or (b) which result from liens in
favor of any taxing authority by reason of any tax owed by Landlord or any fee
owner of a direct or indirect interest in the Leased Property; provided,
however, that "Landlord Lien" shall not include any lien resulting from any tax
for which Tenant is obligated to pay or indemnify Landlord against until such
time as Tenant shall have already paid to or on behalf of Landlord the tax or
the required indemnity with respect to the same.
"Landlord Rent" shall mean Minimum Rent and Percentage Rent
collectively.
"Lease Year" shall mean any Fiscal Year during the Term and any partial
Fiscal Year at the beginning or end of the Term.
"Leased Improvements" shall have the meaning given such term in Section
2.1(b).
"Leased Intangible Property" shall mean all Intangible Property (as
defined therein) acquired by Landlord with respect to the Leased Property
pursuant to the Purchase Agreement.
"Leased Personal Property" shall have the meaning given such term in
Section 2.1(e).
"Leased Property" shall have the meaning given such term in Section
2.1.
"Legal Requirements" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, and (b) all covenants,
agreements, declarations, restrictions and encumbrances contained in any
instruments at any time in force affecting the Leased Property as of the date
hereof, or to which Tenant has consented or required to be granted pursuant to
Applicable Laws, including those which may (i) require material repairs,
modifications or alterations in or to the Leased Property or (ii) in any way
materially and adversely affect the use and enjoyment thereof, but excluding any
requirements arising as a result of Landlord's or any Affiliated Person of
Landlord's status as a real estate investment trust.
"Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors.
"Limited Rent Guaranty" shall mean the limited rent guaranty agreement,
dated as of the date hereof, made by the Guarantor in favor of Landlord, as may
be amended from time to time.
"Major Capital Expenditures shall have the meaning given such term in
Section 5.1.3(a).
"Marriott Companies" shall mean Marriott International, Inc., a
Delaware corporation ("Marriott") and (i) any Subsidiary or Affiliated Person of
Marriott, (ii) a partnership in which Marriott, or any Subsidiary or Affiliated
Person of Marriott, is a general partner, and (iii) any limited liability
company in which Marriott or a any Subsidiary or Affiliated Person of Marriott
is a managing member.
"Marriott Retirement Community System" shall mean at any particular
time the entire system or group of Brighton Gardens retirement communities then
owned and/or operated or managed by Operator (or one or more of its Affiliated
Persons), under the "Marriott" name.
"Membership Interest Pledge Agreement" shall mean the Membership
Interest Pledge Agreement, of even date herewith, made by Marriott Senior Living
Services, Inc. in favor of Landlord, as may be amended from time to time.
"Mere Director" shall mean a Person who holds the office of director of
a corporation and who, as such director, has the right to vote not more than
twelve and one-half percent (12.5%) of the total voting rights on the board of
directors of such corporation, and who represents or acts on behalf of a mere
passive investor which neither (i) owns more than three percent (3%) of the
total voting rights attributable to all shares or ownership interests of a
Competitor, nor (ii) otherwise has the power to direct or cause the direction of
the management or policies of a Competitor.
"Minimum Rent" shall mean, with respect to each Accounting Period, the
sum set forth on Exhibit A, subject to adjustment pursuant to the terms of this
Agreement.
"Notice" shall mean a notice given in accordance with Section 22.10.
"Operating Agreement" shall mean the Operating Agreement, dated as of
the date hereof, between Tenant and Marriott Senior Living Services, Inc., a
Delaware corporation, with respect to the Facility, as amended and replaced from
time to time, subject to Landlord's consent if and to the extent Landlord's
consent is required pursuant to Section 21.6.
"Operator" shall mean the person designated by and acting as Operator
pursuant to the Operating Agreement.
"Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of (i) twelve percent (12%) or (ii) the maximum rate then
permitted under applicable law.
"Owner Agreement" shall mean the Owner Agreement pertaining to the
Leased Property, dated as of the date hereof, among Landlord, the Operator and
Tenant, as may be amended from time to time.
"Parent" shall mean, with respect to any Person, any Person which
directly, or indirectly through one or more Subsidiaries or Affiliated Persons,
(i) owns fifty-one percent (51%) or more of the voting or beneficial interest
in, or (ii) otherwise has the right or power (whether by contract, through
ownership of securities or otherwise) to control, such Person.
"Percentage Rent" shall have the meaning given such term in Section
3.1.2(a).
"Permitted Encumbrances" shall mean all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's or
leasehold title insurance policy issued to Landlord effective on or about the
date hereof, plus any other such encumbrances as may have been consented to in
writing by Landlord from time to time.
"Permitted Use" shall mean any use of the Leased Property permitted
pursuant to Section 4.1.1(a) or (b).
"Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Product Standard(s)" shall have the meaning given such term in Section
5.1.2(c).
"Property Expenses" is defined in Exhibit C attached hereto.
"Proprietary Information" shall mean (a) all computer software and
accompanying documentation (including all future upgrades, enhancements,
additions, substitutions and modifications thereof), other than that which is
commercially available, which are used by Tenant in connection with the property
management system, and all future electronic systems developed by Tenant or any
Affiliated Person of Tenant for use in the Facility, (b) all manuals, brochures
and directives used by Tenant at the Facility regarding the procedures and
techniques to be used in operating the Facility, (c) customer lists, and (d)
employee records which must remain confidential either under Legal Requirements
or under reasonable corporate policies of Tenant or any Affiliated Person as to
Tenant.
"Purchase Agreement" shall mean the Purchase and Sale Agreement, dated
as of March ___, 2000, by and between Landlord as purchaser, and Marriott Senior
Living Services, Inc., as seller, as may be amended from time to time.
"Rent" shall mean, collectively, the Minimum Rent, Percentage Rent and
Additional Charges.
"Request Notice" shall have the meaning given such term in Section
16.1.
"Reserve" shall have the meaning given such term in Section 5.1.2(a).
"Reserve Estimate" shall have the meaning given such term in Section
5.1.2(c).
"Response Notice" shall mean the meaning given such term in Section
16.1.
"SEC" shall mean the Securities and Exchange Commission.
"Security Deposit"shall have the meaning ascribed to it in Section 3.4.
"Soft Goods" shall mean all fabric, textile and flexible plastic
products (not including items which are classified as "Fixed Asset Supplies"
under the Uniform System of Accounts) which are used in furnishing the Facility,
including, without limitation: carpeting, drapes, bedspreads, wall and floor
coverings, mats, shower curtains and similar items.
"Software" means all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Operator in connection with its operations at the
Facility.
"State" shall mean the State of Illinois.
"Subsidiary" shall mean, with respect to any Person, any Entity in
which such Person directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, (a) owns fifty-one percent (51%) or more of the voting or
beneficial interest or (b) which such Person otherwise has the right or power to
control (whether by contract, through ownership of securities or otherwise); it
being understood and agreed that, as of the date hereof, (x) neither Host
Marriott Corporation or Sodexho Marriott Services Corporation is a Subsidiary of
the Guarantor and (y) the Guarantor is not a Subsidiary of Host Marriott
Corporation or Sodexho Marriott Services, Inc.
"Successor Landlord" shall have the meaning given such term in Section
20.2.
"System Standards" shall mean from time to time both the operational
standards (for example, staffing levels, resident care and health care policies
and procedures, and accounting and financial reporting policies and procedures)
and the physical standards (for example, quality of FF&E, frequency of FF&E
replacement) that are then generally and consistently (but not necessarily,
absolutely or without exception) applied at or to retirement communities in the
Marriott Retirement Community System which are of comparable type, size, age and
market orientation as the Facility.
"Tenant" shall have the meaning given such term in the preamble to this
Agreement and shall include its permitted successors and assigns.
"Tenant's Personal Property" shall mean all motor vehicles,
Inventories, FAS and any other tangible personal property of Tenant, if any,
acquired by Tenant at its election and with its own funds on and after the date
hereof and located at the Leased Property or used in Tenant's business at the
Leased Property and all modifications, replacements, alterations and additions
to such personal property installed at the expense of Tenant, other than any
items included within the definition of Proprietary Information.
"Term" shall mean, collectively, the Fixed Term and the Extended Terms,
to the extent properly exercised pursuant to the provisions of Section 2.4,
unless sooner terminated pursuant to the provisions of this Agreement.
"Total Facility Revenues" shall mean, for the applicable period of
time, all gross revenues and receipts of every kind derived by Tenant or any
Affiliate of Tenant from operating or causing the operation of the Leased
Property and parts thereof, including, but not limited to: income from both cash
and credit transactions (after reasonable deductions for bad debts and discounts
for prompt or cash payments and refunds) from monthly occupancy fees, entrance
fees, health care fees and ancillary services fees received pursuant to various
agreements with residents of the Facility; rental of space of every kind;
license, lease and concession fees and rentals (not including gross receipts
received directly by licensees, lessees and concessionaires); income from
vending machines and video machines; food and beverage sales; wholesale and
retail sales of merchandise (other than proceeds from the sale of furnishings,
fixture and equipment no longer necessary to the operation of the Facility,
which shall be deposited in the Reserve); service charges, to the extent not
distributed to the employees at the Facility as gratuities; and proceeds from
business interruption or other loss of income insurance (but only to the extent
that it reimburses Landlord or Tenant for lost income and not for additional or
other expenses), all determined in accordance with GAAP; provided, however, that
Total Facility Revenues shall not include the following: gratuities to Facility
employees; federal, state or municipal excise, sales, occupancy, use or similar
taxes collected directly from occupants, guests or invitees or included as part
of the sales price of any goods or services; insurance proceeds (other than as
aforesaid); Award proceeds (other than for a temporary Condemnation); any
proceeds from any sale of the Leased Property or from the refinancing of any
debt encumbering the Leased Property; proceeds from the disposition of
furnishings, fixture and equipment no longer necessary for the operation of the
Facility; interest which accrues on amounts deposited in the Reserve; any cash
refunds, rebates or discounts to residents of the Facility, or cash discounts
and credits of a similar nature given, paid or returned in the course of
obtaining Total Facility Revenues or components thereof; security deposits until
such time as the same are applied to current fees and other charges due and
payable; awards of damages, settlement proceeds and other payments received by
Landlord in respect of any litigation or administrative proceeding other than
any litigation or proceeding to collect fees due for services or goods provided
from the Facility; any "Shortfall Payment" made by Operator to Tenant or
Landlord pursuant to Section 4.03B of the Operating Agreement; and payments
under any policy of title insurance.
"Uniform System of Accounts" shall mean Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the Hotel
Association of New York City.
"Unsuitable for Its Permitted Use" shall mean a state or condition of
the Facility such that (a) following any damage or destruction involving the
Facility, the Facility cannot be operated in the reasonable judgment of Tenant
on a commercially practicable basis for its Permitted Use and it cannot
reasonably be expected to be restored to substantially the same condition as
existed immediately before such damage or destruction, and as otherwise required
by Section 10.2.4, within nine (9) months following such damage or destruction
or such shorter period of time as to which business interruption insurance is
available to cover Rent and other costs related to the Leased Property following
such damage or destruction, or (b) as the result of a partial taking by
Condemnation, the Facility cannot be operated, in the reasonable judgment of
Tenant on a commercially and economically practicable basis for its Permitted
Use in light of then existing circumstances.
"Work" shall have the meaning given such term in Section 10.2.4.
ARTICLE 2
LEASED PROPERTY AND TERM
2.1......Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord
all of Landlord's right, title and interest in and to all of the following
(collectively, the "Leased Property"):
(a) the land that is more particularly described in Exhibit B,
attached hereto and made a part hereof (the "Land");
(b) all buildings, structures and other improvements of every
kind including, but not limited to, the Facility, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines
(on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land
(collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances
relating to the Land and the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of
property, now or hereafter permanently affixed to or incorporated into
the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment,
all of which, to the maximum extent permitted by law, are hereby deemed
by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but
specifically excluding all items included within the category of
Tenant's Personal Property (collectively, the "Fixtures");
(e) all machinery, equipment, furniture, furnishings, moveable
walls or partitions, computers or trade fixtures located on or in the
Leased Improvements, and all modifications, replacements, alterations
and additions to such property, except items, if any, included within
the category of Fixtures, but specifically excluding all items included
within the category of Tenant's Personal Property (collectively, the
"Leased Personal Property"); and
(f) all of the Leased Intangible Property.
2.2 Condition of Leased Property. Tenant acknowledges receipt and
delivery of possession of the Leased Property and Tenant accepts the Leased
Property in its "as is" condition, subject to the rights of parties in
possession, the existing state of title, including all covenants, conditions,
restrictions, reservations, mineral leases, easements and other matters of
record or that are visible or apparent on the Leased Property, all applicable
Legal Requirements, the lien of any financing instruments, mortgages and deeds
of trust permitted by the terms of this Agreement, and such other matters which
would be disclosed by an inspection of the Leased Property and the record title
thereto or by an accurate survey thereof. TENANT REPRESENTS THAT IT HAS
INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING AND HAS FOUND THE
CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR
WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO,
EXCEPT AS EXPRESSLY SET FORTH HEREIN, AND TENANT WAIVES ANY CLAIM OR ACTION
AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. EXCEPT AS
EXPRESSLY SET FORTH HEREIN, LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF,
EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
To the maximum extent permitted by law, however, Landlord hereby assigns to
Tenant all of Landlord's rights to proceed against any predecessor in title,
contractors and materialmen for breaches of warranties or representations or for
latent defects in the Leased Property. Landlord shall fully cooperate with
Tenant in the prosecution of any such claims, in Landlord's or Tenant's name,
all at Tenant's sole cost and expense. Tenant shall indemnify, defend, and hold
harmless Landlord from and against any loss, cost, damage or liability
(including reasonable attorneys' fees) incurred by Landlord in connection with
such cooperation.
2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term")
shall commence on the Commencement Date and shall expire on the last day of the
Accounting Period in which occurs the fifteenth (15th) anniversary of the
Commencement Date.
2.4 Extended Term. Provided that no Event of Default shall have
occurred and be continuing, the Term of this Agreement shall be automatically
extended for four (4) renewal terms of five (5) years each (each such five year
renewal term being herein referred to as an "Extended Term"), unless Tenant
shall give Landlord Notice, in Tenant's sole and absolute discretion, not later
than two (2) years prior to the scheduled expiration of the then Fixed Term (in
the case of the first Extended Term) or the then existing Extended Term (in the
case of any Extended Term after the first Extended Term), that Tenant elects not
so to extend the Term of this Agreement (and time shall be of the essence with
respect to the giving of such Notice) in which case the Term of this Lease will
expire at the end of the then current Term. Each Extended Term shall commence on
the day succeeding the expiration of the Fixed Term or the preceding Extended
Term, as the case may be. All of the terms, covenants and provisions of this
Agreement shall apply to each such Extended Term, except that (a) Tenant shall
have no right to extend the Term beyond the expiration of the fourth (4th)
Extended Term, (b) the Minimum Rent payable during such Extended Term shall
equal one hundred two percent (102%) of the sum of (i) the Minimum Rent payable
by Tenant for the Accounting Period immediately preceding the commencement of
such Extended Term and (ii) one thirteenth (1/13th) of the Percentage Rent
payable by Tenant for the last Fiscal Year ending prior to the commencement of
such Extended Term, and (c) the Base Year for purposes of computing Percentage
Rent payable during such Extended Term shall mean the first Fiscal Year ending
after the commencement of such Extended Term. If Tenant shall give Notice that
it elects not to extend the Term, this Agreement shall automatically terminate
at the end of the Term then in effect and Tenant shall have no further option to
extend the Term of this Agreement. Otherwise, the extension of this Agreement
shall be automatically effected without the execution of any additional
documents; it being understood and agreed, however, that Tenant and Landlord
shall execute such documents and agreements as either party shall reasonably
require to evidence the same.
ARTICLE 3
RENT
3.1 Rent. Tenant shall pay, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Minimum Rent and Percentage Rent to Landlord and
Additional Charges to the party to whom such Additional Charges are payable,
during the Term. All payments to Landlord shall be made by wire transfer of
immediately available federal funds or by other means acceptable to Landlord in
its sole discretion.
3.1.1 Minimum Rent.
(a) Payment of Minimum Rent. Minimum Rent shall be
paid in advance on the first Business Day of each Accounting Period;
provided, however, that the first payment of Minimum Rent shall be
payable on the Commencement Date (and, if applicable, such payment
shall be prorated as provided in the following sentence of this
paragraph Section 3.1.1(a)). Minimum Rent for any partial Accounting
Period shall be prorated on a per diem basis.
(b) Adjustments of Minimum Rent Following
Disbursements Under Sections 5.1.4(b), 10.2 or 11.2. Effective on the
date of each disbursement to pay for the cost of any repairs,
maintenance, renovations or replacements pursuant to Sections 5.1.4(b),
10.2 or 11.2, the Minimum Rent shall be increased by an amount equal to
the quotient obtained by dividing (i) a per annum amount equal to the
Disbursement Rate, determined as of the date of Tenant's Notice to
Landlord identifying the amount of and requirement for the applicable
funds, times the amount so disbursed, by (ii) thirteen (13). If any
such disbursement is made during any Accounting Period on a day other
than the first day of an Accounting Period, Tenant shall pay to
Landlord on the first day of the immediately following Accounting
Period (in addition to the amount of Minimum Rent payable with respect
to such Accounting Period, as adjusted pursuant to this paragraph (b))
the amount by which Minimum Rent for the preceding Accounting Period,
as adjusted for such disbursement on a per diem basis, exceeded the
amount of Minimum Rent actually paid by Tenant for such preceding
Accounting Period.
3.1.2 Percentage Rent.
(a) Amount. For each Fiscal Year or portion thereof
commencing with the first full Accounting Period following the Base
Year, Tenant shall pay percentage rent ("Percentage Rent") with respect
to such Fiscal Year (or portion thereof), in an amount equal to seven
percent (7%) of Excess Facility Revenues for such Fiscal Year (or
portion thereof).
(b) Quarterly Installments. Installments of
Percentage Rent for each Fiscal Year or portion thereof shall be
calculated and paid each Fiscal Quarter in arrears. Payment of each
such installment shall be made within thirty (30) days after the end of
each Fiscal Quarter and shall be accompanied by a statement setting
forth the calculation of Percentage Rent due and payable for such
Fiscal Quarter, together with a statement by the controller of the
Facility that, to the best of his or her knowledge and belief, and
subject to year-end audit and adjustment, such statement of Percentage
Rent is true and correct in all material respects. Installments due
with respect to each Fiscal Quarter shall be equal to the Percentage
Rent for all Fiscal Quarters elapsed during the applicable Fiscal Year
less amounts previously paid with respect thereto by Tenant. If the
Percentage Rent for such elapsed Fiscal Quarters as shown on the last
quarterly statement is less than the amount previously paid with
respect thereto by Tenant, Tenant shall be entitled to offset the
amount of such difference against Rent next coming due under this
Agreement, such offset to be applied together with interest at the
Disbursement Rate accruing from the date of payment by Tenant until the
date the offset is applied.
(c) Reconciliation of Percentage Rent. In addition,
on or before March 31 of each year, commencing March 31 following the
Base Year, Tenant shall deliver to Landlord a statement setting forth
the Total Facility Revenues for such preceding Fiscal Year, together
with an audit of Total Facility Revenues for the preceding Fiscal Year,
conducted by Arthur Andersen LLP, or another so-called "Big Five" firm
of independent certified public accountants proposed by Tenant and
approved by Landlord (which approval shall not be unreasonably withheld
or delayed). Landlord shall reimburse Tenant for the reasonable cost of
such audit.
If the annual Percentage Rent for such preceding Fiscal Year as shown
in the annual statement exceeds the amount previously paid with respect
thereto by Tenant, Tenant shall pay such excess to Landlord at such
time as the annual statement is delivered, together with interest at
the Disbursement Rate, which interest shall accrue from the Accrual
Date (as hereinafter defined) until the date that such certificate is
required to be delivered (or, if sooner, the date Tenant pays such
excess to Landlord) and, thereafter, such interest shall accrue at the
Overdue Rate, until the amount of such difference shall be paid or
otherwise discharged. In the case of any underpayment of Percentage
Rent by Tenant arising out of incorrect reporting on any statement of
Percentage Rent, the Accrual Date therefor shall be the payment due
date for the respective installment of Percentage Rent with respect to
which the underpayment occurred. In the case of any underpayment of
Percentage Rent arising out of variation in Total Facility Revenues
from Fiscal Quarter to Fiscal Quarter, the Accrual Date shall be the
payment due date for the final installment of Percentage Rent for such
preceding Fiscal Year. If the annual Percentage Rent for such preceding
Fiscal Year as shown in the annual statement is less than the amount
previously paid with respect thereto by Tenant, Tenant shall be
entitled to offset the amount of such difference against Rent next
coming due under this Agreement, such payment or credit to be made
together with interest at the Disbursement Rate, which interest shall
accrue from the date of payment of Tenant until the date such offset is
applied. If such offset cannot be made because the Term has expired
prior to application in full thereof, Landlord shall pay the unapplied
balance of such offset to Tenant, together with interest at the
Disbursement Rate, which interest shall accrue from the date of payment
by Tenant until the date of payment by Landlord.
(d) Confirmation of Percentage Rent. Tenant shall
utilize, or cause to be utilized, an accounting system for the Leased
Property in accordance with its usual and customary practices and in
accordance with GAAP, which will accurately record all Total Facility
Revenues and Tenant shall retain, for at least three (3) years after
the expiration of each Lease Year, reasonably adequate records
conforming to such accounting system showing all Total Facility
Revenues for such Fiscal Year. Landlord, at its own expense except as
provided hereinbelow, shall have the right, exercisable by Notice to
Tenant given within one hundred eighty (180) days after receipt of the
applicable annual statement, by its accountants or representatives to
commence within such 180-day period an audit of the information set
forth in such annual statement referred to in subparagraph (c) above
and, in connection with such audit, to examine Tenant's books and
records with respect thereto (including supporting data and sales and
excise tax returns); provided, however, that if Landlord has credible
evidence that Tenant has intentionally misrepresented Total Facility
Revenues on any such annual statement, the said 180-day period shall
commence to run on the date Landlord obtained such credible evidence
that Tenant has intentionally misrepresented Total Facility Revenues on
any such annual statement. If Landlord does not commence an audit
within such one hundred eighty (180) day period, such annual statement
shall be deemed conclusively to be accepted by Landlord as correct and
Landlord shall have no further right to challenge the same. Landlord
shall use commercially reasonable efforts to complete any such audit as
soon as practicable. If any such audit discloses a deficiency in the
payment of Percentage Rent, and either Tenant agrees with the result of
such audit or the matter is otherwise determined, Tenant shall
forthwith pay to Landlord the amount of the deficiency, as finally
agreed or determined, together with interest at the Disbursement Rate,
from the date such payment should have been made to the date of payment
thereof. If such deficiency, as agreed upon or compromised as
aforesaid, is more than three percent (3%) of the Total Facility
Revenues reported by Tenant for such Fiscal Year and, as a result,
Landlord did not receive at least ninety-five percent (95%) of the
Percentage Rent payable with respect to such Fiscal Year, Tenant shall
pay the reasonable cost of such audit and examination. If any such
audit discloses that Tenant paid more Percentage Rent for any Fiscal
Year than was due hereunder, and either Landlord agrees with the result
of such audit or the matter is otherwise determined Tenant shall be
entitled to a credit equal to the amount of such overpayment against
Rent next coming due in the amount of such difference, as finally
agreed or determined, together with interest at the Disbursement Rate,
which interest shall accrue from the time of payment by Tenant until
the date such credit is applied or paid, as the case may be. If such a
credit cannot be made because the Term has expired before the credit
can be applied in full Landlord shall pay the unapplied balance of such
credit to Tenant, together with interest at the Disbursement Rate,
which interest shall accrue from the date of payment by Tenant until
the date of payment from Landlord.
3.1.3 Additional Charges. In addition to the Minimum Rent and
Percentage Rent payable hereunder, Tenant shall pay to the appropriate
parties and discharge as and when due and payable the
following (collectively, "Additional Charges"):
(a) Impositions. Subject to Article 8 relating to
permitted contests, Tenant shall pay, or cause to be paid, all
Impositions before any fine, penalty, interest or cost (other than any
opportunity cost as a result of a failure to take advantage of any
discount for early payment) may be added for non-payment, such payments
to be made directly to the taxing authorities where feasible, and shall
promptly, upon request, furnish to Landlord copies of official receipts
or other reasonably satisfactory proof evidencing such payments. If any
such Imposition may, at the option of the taxpayer, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Tenant may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such
Imposition) in installments and, in such event, shall pay such
installments during the Term as the same become due and before any
fine, penalty, premium, further interest or cost may be added thereto.
Landlord, at its expense, shall, to the extent required or permitted by
Applicable Law, prepare and file all tax returns and pay all taxes due
in respect of Landlord's net income, gross receipts (from any source
other than the Rent received by Landlord from Tenant), sales and use,
single business, ad valorem, franchise taxes and taxes on its capital
stock, and Tenant, at its expense, shall, to the extent required or
permitted by Applicable Laws, prepare and file all other tax returns
and reports in respect of any Imposition as may be required by
Government Agencies. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Tenant, the same shall
be paid over to or retained by Tenant. Landlord and Tenant shall, upon
request of the other, provide such data as is maintained by the party
to whom the request is made with respect to the Leased Property as may
be necessary to prepare any required returns and reports. In the event
Government Agencies classify any property covered by this Agreement as
personal property, Tenant shall file all personal property tax returns
in such jurisdictions where it may legally so file. Each party shall,
to the extent it possesses the same, provide the other, upon request,
with cost and depreciation records necessary for filing returns for any
property so classified as personal property. Where Landlord is legally
required to file personal property tax returns for property covered by
this Agreement and/or gross receipts tax returns for Rent received by
Landlord from Tenant, Landlord shall file the same with reasonable
cooperation from Tenant. Landlord shall provide Tenant with copies of
assessment notices in sufficient time for Tenant to prepare a protest
which Landlord shall file, at Tenant's written request. All Impositions
assessed against such personal property shall be (irrespective of
whether Landlord or Tenant shall file the relevant return) paid by
Tenant not later than the last date on which the same may be made
without interest or penalty.
Landlord shall give prompt Notice to Tenant of all Impositions payable
by Tenant hereunder of which Landlord at any time has knowledge;
provided, however, that Landlord's failure to give any such notice
shall in no way diminish Tenant's obligation hereunder to pay such
Impositions (except that Landlord shall be responsible for any interest
or penalties incurred as a result of Landlord's failure promptly to
forward the same).
(b) Utility Charges. Tenant shall pay or cause to be
paid all charges for electricity, power, gas, oil, water and other
utilities used in connection with the Leased Property.
(c) Insurance Premiums. Tenant shall pay or cause to
be paid all premiums for the insurance coverage required to be
maintained pursuant to Article 9.
(d) Other Charges. Tenant shall pay or cause to be
paid all other amounts, liabilities and obligations arising in
connection with the Leased Property except those obligations expressly
assumed by Landlord pursuant to the provisions of this Agreement or
expressly stated not to be an obligation of Tenant pursuant to this
Agreement. Without limitation, Tenant shall pay or cause to be paid all
amounts, liabilities and obligations arising in connection with the
Contracts, as defined in the Purchase Agreement.
(e) Reimbursement for Additional Charges. If Tenant
pays or causes to be paid property taxes or similar or other Additional
Charges attributable to periods after the end of the Term, whether upon
expiration or sooner termination of this Agreement, Tenant may, within
a reasonable time after the end of the Term, provide Notice to Landlord
of its estimate of such amounts. Landlord shall promptly reimburse
Tenant for all payments of such taxes and other similar Additional
Charges that are attributable to any period after the Term of this
Agreement.
3.2 Late Payment of Rent, Etc. If any installment of Minimum Rent,
Percentage Rent or Additional Charges (but only as to those Additional Charges
which are payable directly to Landlord) shall not be paid within ten (10) days
after its due date, Tenant shall pay Landlord, within five (5) days after
Landlord's written demand therefor, as Additional Charges, a late charge (to the
extent permitted by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of payment
thereof. To the extent that Tenant pays any Additional Charges directly to
Landlord or any Facility Mortgagee pursuant to any requirement of this
Agreement, Tenant shall be relieved of its obligation to pay such Additional
Charges to the Entity to which they would otherwise be due and Landlord shall
pay when due, or cause the applicable Facility Mortgagee to pay when due, such
Additional Charges to the Entity to which they are due. If any payment due from
Landlord to Tenant shall not be paid within ten (10) days after its due date,
Landlord shall pay to Tenant, on demand, a late charge (to the extent permitted
by law) computed at the Overdue Rate on the amount of such installment from the
due date of such installment to the date of payment thereof.
In the event of any failure by Tenant to pay any Additional
Charges when due, except as expressly provided in Section 3.1.3(a) with respect
to permitted contests pursuant to Article 8, Tenant shall promptly pay (unless
payment thereof is in good faith being contested and enforcement thereof is
stayed) and discharge, as Additional Charges, every fine, penalty, interest and
cost which may be added for non-payment or late payment of such items. Landlord
shall have all legal, equitable and contractual rights, powers and remedies
provided either in this Agreement or by statute or otherwise in the case of
non-payment of the Additional Charges as in the case of non-payment of the
Minimum Rent and Percentage Rent.
3.3 Net Lease. The Rent shall be absolutely net to Landlord so that
this Agreement shall yield to Landlord the full amount of the installments or
amounts of the Rent throughout the Term, subject to any other provisions of this
Agreement which expressly provide otherwise, including, without limitation,
those provisions for adjustment, refunding or abatement of such Rent and for the
funding of Landlord's obligations pursuant to Sections 5.1.4 and 14.3. This
Agreement is a net lease and, except to the extent otherwise expressly specified
in this Agreement, it is agreed and intended that Rent payable hereunder by
Tenant shall be paid without notice, demand, counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution or reduction
and that Tenant's obligation to pay all such amounts, throughout the Term and
all applicable Extended Terms is absolute and unconditional and except to the
extent otherwise expressly specified in this Agreement, the respective
obligations and liabilities of Tenant and Landlord hereunder shall in no way be
released, discharged or otherwise affected for any reason, including without
limitation: (a) any defect in the condition, merchantability, design, quality or
fitness for use of the Leased Property or any part thereof, or the failure of
the Leased Property to comply with all Applicable Laws, including any inability
to occupy or use the Leased Property by reason of such noncompliance; (b) any
damage to, removal, abandonment, salvage, loss, condemnation, theft, scrapping
or destruction of or any requisition or taking of the Leased Property or any
part thereof, or any environmental conditions on the Leased Property or any
property in the vicinity of the Leased Property; (c) any restriction, prevention
or curtailment of or interference with any use of the Leased Property or any
part thereof including eviction; (d) any defect in title to or rights to the
Leased Property or any lien on such title or rights to the Leased Property; (e)
any change, waiver, extension, indulgence or other action or omission or breach
in respect of any obligation or liability of or by any Person; (f) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceedings relating to Tenant or any other Person, or
any action taken with respect to this Agreement by any trustee or receiver of
Tenant or any other Person, or by any court, in any such proceeding; (g) any
right or claim that Tenant has or might have against any Person, including
without limitation Landlord (other than a monetary default) or any vendor,
manufacturer, contractor of or for the Leased Property; (h) any failure on the
part of Landlord or any other Person to perform or comply with any of the terms
of this Agreement, or of any other agreement; (i) any invalidity,
unenforceability, rejection or disaffirmance of this Agreement by operation of
law or otherwise against or by Tenant or any provision hereof; (j) the
impossibility of performance by Tenant or Landlord, or both; (k) any action by
any court, administrative agency or other Government Agencies; (l) any
interference, interruption or cessation in the use, possession or quiet
enjoyment of the Leased Property or otherwise; or (m) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing, whether foreseeable
or unforeseeable, and whether or not Tenant shall have notice or knowledge of
any of the foregoing; provided, however, that the foregoing shall not apply or
be construed to restrict Tenant's rights in the event of any act or omission by
Landlord constituting negligence or willful misconduct. Except as specifically
set forth in this Agreement, this Agreement shall be noncancellable by Tenant
for any reason whatsoever and, except as expressly provided in this Agreement,
Tenant, to the extent now or hereafter permitted by Applicable Laws, waives all
rights now or hereafter conferred by statute or otherwise to quit, terminate or
surrender this Agreement or to any diminution, abatement or reduction of Rent
payable hereunder. Except as specifically set forth in this Agreement, under no
circumstances or conditions shall Landlord be expected or required to make any
payment of any kind hereunder or have any obligations with respect to the use,
possession, control, maintenance, alteration, rebuilding, replacing, repair,
restoration or operation of all or any part of the Leased Property, so long as
the Leased Property or any part thereof is subject to this Agreement, and Tenant
expressly waives the right to perform any such action at the expense of Landlord
pursuant to any law.
3.4 Security for Tenant's Performance.
(a) Simultaneously with the execution of this Agreement,
Tenant shall deposit with Landlord the sum of Five Hundred Fifty-Three
Thousand Nine Hundred Fifty-Six Dollars ($553,956) (the "Security
Deposit"). Landlord may commingle the Security Deposit with other funds
of Landlord. All interest, if any, earned on the Security Deposit shall
be the sole property of Landlord and shall not be part of the Security
Deposit.
(b) Tenant acknowledges that the Security Deposit constitutes
security for the faithful observance and performance by Tenant of all
the terms, covenants and conditions of this Agreement by Tenant to be
observed and performed. If any Event of Default shall occur and be
continuing under this Agreement, Landlord may, at its option and
without prejudice to any other remedy which Landlord may have on
account thereof, appropriate and apply the amount of the Security
Deposit as may be necessary to compensate Landlord toward the payment
of the Rent or other sums due Landlord under this Agreement as a result
of such breach by Tenant. It is understood and agreed that the Security
Deposit is not to be considered as prepaid rent, nor shall damages be
limited to the amount of the Security Deposit. Upon the expiration or
sooner termination of this Agreement, any unapplied balance of the
Security Deposit shall be paid by wire transfer to Tenant.
ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use.
4.1.1 Permitted Use.
(a) Tenant shall, at all times during the Term and at
any other time that Tenant shall be in possession of the Leased
Property, continuously use and operate the Leased Property as an
assisted living facility, which may include a dementia facility and any
uses incidental thereto. Subject to Section 16.3, Tenant shall not use
the Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or
permitted to be made of the Leased Property and no acts shall be done
thereon which will cause the cancellation of any insurance policy
covering the Leased Property or any part thereof (unless another
adequate policy is available), nor shall Tenant sell or otherwise
provide or permit to be kept, used or sold in or about the Leased
Property any article which may be prohibited by law or by the standard
form of fire insurance policies, or any other insurance policies
required to be carried hereunder, or fire underwriter's regulations.
Tenant shall, at its sole cost (except as expressly provided in Section
5.1.4(b)), comply with all Insurance Requirements. Tenant shall not
take or omit to take any action, the taking or omission of which
materially impairs the value or the usefulness of the Leased Property
or any part thereof for its Permitted Use.
(b) Notwithstanding the foregoing, in the event that,
in the reasonable determination of Tenant, it shall no longer be
economically practical to operate the Leased Property as an assisted
living facility, Tenant shall give Landlord Notice thereof, which
Notice shall set forth in reasonable detail the reasons therefor.
Thereafter, Landlord and Tenant shall negotiate in good faith to agree
on an alternative use for the Leased Property, appropriate adjustments
to the Percentage Rent, the Reserve and other related matters;
provided, however, in no such event shall the Minimum Rent be reduced
or abated. Upon agreement by Landlord and Tenant on an alternative use,
Landlord shall use commercially reasonable efforts, at Tenant's cost
and expense, to obtain any approvals or waivers needed pursuant to
Legal Requirements. In the event that operating the Leased Property for
such alternative use shall be outside of Tenant's expertise as
reasonably determined by Tenant, Tenant may engage a third-party
Manager, reasonably acceptable to Landlord, for such purpose.
4.1.2 Necessary Approvals. Tenant shall proceed with all due
diligence and exercise commercially reasonable efforts to obtain and maintain
all approvals necessary to use and operate, for its Permitted Use, the Leased
Property and the Facility located thereon under applicable law. Landlord shall
cooperate with Tenant in this regard, including executing all applications and
consents required to be signed by Landlord in order for Tenant to obtain and
maintain such approvals.
4.1.3 Lawful Use, Etc. Tenant shall not use or suffer or
permit the use of the Leased Property or Tenant's Personal Property, if any, for
any unlawful purpose. Tenant shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility, nor shall Tenant cause or
permit any unlawful nuisance thereon or therein. Tenant shall not suffer nor
permit the Leased Property, or any portion thereof, to be used in such a manner
as (i) might reasonably impair Landlord's title thereto or to any portion
thereof, or (ii) may reasonably allow a claim or claims for adverse usage or
adverse possession by the public, as such, or of implied dedication of the
Leased Property or any portion thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Subject to the
provisions of Article 8, Tenant, at its sole expense, shall (i) comply with
Legal Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair, alteration and restoration of the Leased Property, and (ii)
comply with all appropriate licenses, and other authorizations and agreements
required for any use of the Leased Property and Tenant's Personal Property, if
any, then being made and which are material to the operation of the Leased
Property as an assisted living facility, and for the proper operation and
maintenance of the Leased Property or any part thereof.
4.3 Environmental Matters.
4.3.1 Restriction on Use, Etc. If, at any time prior to the
termination of this Agreement, Hazardous Substances (other than those maintained
in accordance with Applicable Laws) are discovered on the Leased Property,
subject to Tenant's right to contest the same in accordance with Article 8,
Tenant shall take all actions and incur any and all expenses, as may be
reasonably necessary and as may be required by any Government Agency, (i) to
clean up and remove from and about the Leased Property all Hazardous Substances
thereon, (ii) to contain and prevent any further release or threat of release of
Hazardous Substances on or about the Leased Property and (iii) to use good faith
efforts to eliminate any further release or threat of release of Hazardous
Substances on or about the Leased Property. Tenant shall promptly: (a) upon
receipt of notice or knowledge, notify Landlord in writing of any material
change in the nature or extent of Hazardous Substances at the Leased Property,
(b) transmit to Landlord a copy of any Community Right to Know report which is
required to be filed by Tenant with respect to the Leased Property pursuant to
SARA Title III or any other Applicable Law, (c) transmit to Landlord copies of
any citations, orders, notices or other governmental communications received by
Tenant or its agents or representatives with respect thereto (collectively,
"Environmental Notice"), which Environmental Notice requires a written response
or any action to be taken and/or if such Environmental Notice gives notice of
and/or presents a material risk of any material violation of any Applicable Law
and/or presents a material risk of any material cost, expense, loss or damage
(an "Environmental Obligation"), (d) observe and comply with all Applicable Laws
relating to the use, maintenance and disposal of Hazardous Substances and all
orders or directives from any official, court or agency of competent
jurisdiction relating to the use or maintenance or requiring the removal,
treatment, containment or other disposition thereof, and (e) pay or otherwise
dispose of any fine, charge or Imposition related thereto, unless Tenant shall
contest the same in good faith and by appropriate proceedings and the right to
use and the value of the Leased Property is not materially and adversely
affected thereby.
Tenant's liability and obligations pursuant to the terms of this Section 4.3.1
are subject to the provisions of Sections 5.1.3 and 5.1.4 and Landlord's
compliance with its funding obligations under Section 5.1.4.
4.3.2 Indemnification. Tenant and Landlord shall each protect,
indemnify and hold harmless the other, its trustees, directors, officers,
agents, employees and beneficiaries, and any of their respective successors or
assigns with respect to this Agreement (collectively, the "Indemnitees" and,
individually, an "Indemnitee") for, from and against any and all debts, liens,
claims, causes of action, administrative orders or notices, costs, fines,
penalties or expenses (including, without limitation, reasonable attorney's fees
and expenses) imposed upon, incurred by or asserted against any Indemnitee
resulting from, either directly or indirectly, the presence during the Term in,
upon or under the soil or ground water of the Leased Property or any properties
surrounding the Leased Property of any Hazardous Substances in violation of any
Applicable Law or otherwise, provided that any of the foregoing arises by reason
of the gross negligence or willful misconduct of the indemnifying party, except
to the extent the same arise from the gross negligence or willful misconduct of
the other party or any other Indemnitee. This duty includes, but is not limited
to, costs associated with personal injury or property damage claims as a result
of the presence prior to the expiration or sooner termination of the Term and
the surrender of the Leased Property to Landlord in accordance with the terms of
this Agreement of Hazardous Substances in, upon or under the soil or ground
water of the Leased Property in violation of any Applicable Law. Upon Notice
from the indemnified party and any other of the Indemnitees, the indemnifying
party shall undertake the defense, at its sole cost and expense, of any
indemnification duties set forth herein, in which event, the indemnifying party
shall not be liable for payment of any duplicative attorneys' fees incurred by
the other party or any Indemnitee.
4.3.3 Survival. As to conditions which exist prior to the
expiration or sooner termination of this Agreement, the provisions of this
Section 4.3 shall survive the expiration or sooner termination of this Agreement
for a period of one (1) year after such expiration or termination.
ARTICLE 5
MAINTENANCE AND REPAIRS
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations.
(a) Tenant shall, at its sole cost and expense
(except as expressly provided in Sections 5.1.2 and 5.1.3(b)), keep the
Leased Property and all private roadways, sidewalks and curbs located
thereon in good order and repair, reasonable wear and tear excepted,
and shall promptly make all necessary and appropriate repairs and
replacements thereto of every kind and nature, whether interior or
exterior, structural or nonstructural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing
prior to the commencement of the Term. All repairs shall be made in a
good, workmanlike manner, consistent with the System Standards and
industry standards for like assisted living facilities in like locales,
in accordance with all applicable federal, state and local statutes,
ordinances, by-laws, codes, rules and regulations relating to any such
work. Tenant's obligations under this Section 5.1.1(a) shall be limited
in the event of any casualty or Condemnation as set forth in Sections
10.2 and 11.2 and Tenant's obligations with respect to Hazardous
Substances are as set forth in Section 4.3.
5.1.2 Reserve.
(a) Tenant shall establish, or cause Operator to
establish, an interest bearing reserve account (the "Reserve") in a
bank designated by Landlord and reasonably approved by Tenant. All
interest earned on the Reserve shall be added to and remain a part of
the Reserve. Except as set forth in Section 5.1.2(e), Tenant shall be
the only party entitled to withdraw funds from the Reserve. The purpose
of the Reserve is to cover the cost of:
(i) Replacements, renewals and additions
to the Facility's FF&E;
(ii) Repairs, renovations, renewals,
additions, alterations, improvements or replacements and
maintenance to the Leased Property, all of which are routine
or non-major and which are normally capitalized under GAAP,
such as exterior and interior repainting, resurfacing
building walls, floors, roofs and parking areas, and
replacing folding walls and the like; and
(iii) At Tenant's option, lease payments for
communications equipment and one maintenance or shuttle
vehicle used in connection with the operation of the
Facility.
(b) Commencing with the Commencement Date and
continuing throughout the Term, Tenant shall transfer (as of the end of
each Accounting Period of the Term) into the Reserve an amount equal to
the Applicable Percentage of Total Facility Revenues for such
Accounting Period; provided, however, that for each of the Accounting
Years during the period commencing on the Commencement Date and ending
on the last day of the fourth (4th) full Accounting Year, the amount
transferred by Tenant into the Reserve shall not be less than Thirty
Thousand Dollars ($30,000) for each such Accounting Year. At the time
Tenant provides Landlord the documentation described in Section
3.1.2(c), Tenant shall also deliver to Landlord a statement setting
forth the total amount of deposits made to and expenditures from the
Reserve for the preceding Fiscal Year.
(c) On or before December 1 of each Lease Year,
Tenant shall prepare an estimate (the "Reserve Estimate") of Reserve
expenditures anticipated during the ensuing Fiscal Year and shall
submit such Reserve Estimate to Landlord for its review. Tenant shall
in good faith consider suggestions and comments to the Reserve Estimate
made by Landlord within thirty (30) days after delivery of the Reserve
Estimate to Landlord. All expenditures from the Reserve for the items
described in Section 5.1.2(a) shall be (as to both the amount of each
such expenditure and the timing thereof) (i) required, in Tenant's
reasonable judgment, to keep the Leased Property in a first-class,
competitive, efficient and economical operating condition or to keep
the Leased Property in a condition consistent with the standards set
forth in this Agreement or the Operating Agreement; or (ii) required by
reason of any Legal Requirement imposed by any Government Agency or
otherwise required (as determined by Tenant in its reasonable judgment)
for the continued safe and orderly operation of the Leased Property,
(subsections (i) and (ii) each individually, a "Product Standard" and,
collectively, the "Product Standards").
(d) Tenant shall from time to time make expenditures
from the Reserve as it deems necessary in accordance with Section
5.1.2(a) and (c). Tenant shall provide to Landlord, within forty (40)
Business Days after the end of each Accounting Period, a statement
setting forth Reserve expenditures made to date during the Fiscal Year.
Expenditures from the Reserve shall not be subject to Landlord's
approval.
(e) All funds in the Reserve, all interest earned
thereon and all property purchased with funds from the Reserve shall be
and remain the property of Landlord. Following expiration or earlier
termination of this Agreement and payment in full on all contracts
entered into prior to such expiration or termination for work to be
done or furniture, furnishings, fixtures and equipment to be supplied
in accordance with this Section 5.1.2 out of the Reserve, control over
the Reserve shall be transferred from Tenant to Landlord.
(f) It is understood and agreed that the Reserve
pursuant to this Agreement shall be maintained and used solely in
connection with the Leased Property.
(g) If Landlord wishes to grant a security interest
in or create another encumbrance on the Reserve, all or any part of the
existing or future funds therein, or any general intangible in
connection therewith, the instrument granting such security interest or
creating such other encumbrance shall expressly provide that such
security interest or encumbrance is subject to the rights of Tenant
with respect to the Reserve as set forth herein. The form and substance
of such provision shall be subject to Tenant's prior written approval,
which approval shall not be unreasonably withheld, delayed or
conditioned.
5.1.3 Major Capital Expenditures.
(a) On or before December 1 of each Lease Year,
Tenant shall deliver to Landlord, for Landlord's approval, an estimate
(the "Building Estimate") of the expenses necessary for repairs,
alterations, improvements, renewals, replacements and additions, all of
which are non-routine or major, to the Leased Improvements which are
not covered under Section 5.1.2(a) and which are normally capitalized
under GAAP such as repairs, alterations, improvements, renewals,
replacements and additions to the structure, the exterior facade, the
mechanical, electrical, heating, ventilating, air conditioning,
plumbing and vertical transportation elements of the Leased
Improvements ("Major Capital Expenditures"). Major Capital Expenditures
shall also include all costs associated with any removal or remediation
of Hazardous Substances (except those treated as Tenant's sole cost and
expense under Section 5.1.4(b)), regardless of whether such costs are
normally capitalized under GAAP. Landlord shall not withhold its
approval to such Major Capital Expenditures as are required, in
Tenant's reasonable judgment, for the Leased Property to comply with
the Product Standards or for costs associated with the removal or
remediation of Hazardous Substances. If Tenant does not receive Notice
of Landlord's disapproval of the Building Estimate within twenty (20)
Business Days after delivery of the Building Estimate to Landlord, then
Landlord shall be deemed to have approved the Building Estimate. In the
event Landlord disapproves the Building Estimate, Landlord's Notice
shall identify disputed items on a line item basis. Items not
identified as disputed in such Landlord's Notice shall be deemed
approved.
(b) In the event Major Capital Expenditures are
required as a result of the receipt by Tenant of an order from a
Government Agency or other circumstances described in subsection (ii)
of Section 5.1.2(c) (including costs associated with the removal or
remediation of Hazardous Substances), Tenant shall be authorized to
take appropriate remedial action without first receiving Landlord's
approval (i) due to an emergency threatening the Leased Property, its
guests, invitees or employees, or (ii) if the continuation of a given
condition will subject Tenant or Landlord to civil or criminal
liability. Major Capital Expenditures made pursuant to this Section
5.1.3(b) shall be deemed approved by Landlord.
(c) The cost of all approved, deemed approved or
non-approvable Major Capital Expenditures shall be borne by Landlord in
accordance with the provisions of Section 5.1.4(b).
(d) In the event Landlord timely disapproves any
Building Estimate or any item within any Building Estimate, then,
following the negotiation period specified in Section 19.1, Tenant may
submit the matter for resolution by arbitrators in accordance with the
provisions of Section 19.2, and the arbitrators shall determine whether
or not Tenant acted reasonably in determining that the disputed item or
items are needed for the Leased Property to comply with the Product
Standards or for the costs associated with the removal or remediation
of Hazardous Substances.
5.1.4 Landlord's Funding Obligations.
(a) Landlord shall not, under any circumstances, be
required to build or rebuild any improvement on the Leased Property, or
to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether
ordinary or extraordinary, structural or nonstructural, foreseen or
unforeseen, to maintain the Leased Property in any way, or, except as
provided in Section 5.1.4(b), to make any expenditure whatsoever with
respect thereto. Except as otherwise expressly provided in this
Agreement, Tenant hereby waives, to the maximum extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to
any law in effect on the date hereof or hereafter enacted. Landlord
shall have the right to give, record and post, as appropriate, notices
of nonresponsibility under any mechanic's lien laws now or hereafter
existing.
(b) If, at any time, funds in the Reserve shall be
insufficient or are reasonably projected by Tenant to be insufficient
for necessary and permitted expenditures thereof or funding is
necessary for approved, deemed approved or non-approvable Major Capital
Expenditures (other than costs related to Hazardous Substances under
Section 4.3 resulting from Tenant's gross negligence or willful
misconduct, which costs shall be Tenant's sole cost and expense),
Tenant may, at its election, give Landlord Notice thereof, which Notice
shall set forth, in reasonable detail, the nature of the required or
permitted action and the estimated cost thereof. Landlord shall, within
ten (10) Business Days after such Notice, or such later dates as Tenant
may direct by reasonable prior Notice, disburse such required funds to
Tenant (or, if Tenant shall so elect, directly to the Operator or any
other Person performing the required work) and, upon such disbursement,
the Minimum Rent shall be adjusted as provided in Section 3.1.1(b);
provided, however, that if the disbursement of funds relates to the
Hazardous Substances under Section 4.3 resulting from Landlord's gross
negligence or willful misconduct, there shall be no adjustment to the
Minimum Rent. If Landlord disputes its obligation to disburse such
funds, it shall give Tenant Notice of such dispute within such ten
(10)-Business Day period, and failure to give Tenant Notice of such
dispute shall be deemed a waiver of any right to dispute Landlord's
obligation to disburse such funds. In the event that any dispute shall
arise with respect to Landlord's obligation to disburse any funds
pursuant to this Section 5.1.4(b), then, following the negotiation
period specified in Section 19.1, either party may submit such dispute
for resolution by arbitrators in accordance with the provisions of
Section 19.2, and the arbitrators shall determine whether or not Tenant
acted reasonably in requesting such additional funds in order to
maintain the Leased Property in accordance with the Product Standards
or to cover costs associated with removal or remediation of Hazardous
Substances. To the extent reasonably possible, Landlord shall identify
disputed items on a line item basis. In no event shall Landlord be
entitled to dispute the request for funds for any expenditure which was
approved or deemed approved pursuant to the provisions of Section
5.1.3(a) and (b).
5.1.5 Nonresponsibility of Landlord, Etc. All materialmen,
contractors, artisans, mechanics and laborers and other persons contracting with
Tenant with respect to the Leased Property, or any part thereof, are hereby
charged with notice that liens on the Leased Property or on Landlord's interest
therein are expressly prohibited and that they must look solely to Tenant to
secure payment for any work done or material furnished by Tenant or for any
other purpose during the term of this Agreement. Nothing contained in this
Agreement shall be deemed or construed in any way as constituting the consent or
request of Landlord, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialmen for the performance of any
labor or the furnishing of any materials for any alteration, addition,
improvement or repair to the Leased Property or any part thereof or as giving
Tenant any right, power or authority to contract for or permit the rendering of
any services or the furnishing of any materials that would give rise to the
filing of any lien against the Leased Property or any part thereof nor to
subject Landlord's estate in the Leased Property or any part thereof to
liability under any Mechanic's Lien Law of the State in any way, it being
expressly understood Landlord's estate shall not be subject to any such
liability.
5.1.6 Limitation on Tenant's Obligations. Tenant's
obligations under Section 5.1 shall be limited in the event of any casualty or
Condemnation as set forth in Sections 10.2 and 11.2 and Tenant's obligations
with respect to Hazardous Substances are as set forth in Section 4.3.
5.2 Tenant's Personal Property. At the expiration or sooner termination
of the Term, Landlord may, in its sole and absolute discretion, elect either (i)
to give Tenant Notice that Tenant shall be required, within ten (10) Business
Days after such expiration or termination, to remove all FAS and Inventories
from the Leased Property or (ii) to purchase from Tenant at a purchase price
equal to Tenant's book value all such FAS and Inventories other than those that
Landlord does not have the right to use under Section 22.16. Failure of Landlord
to make such election shall be deemed an election to proceed in accordance with
clause (ii) preceding.
5.3 Yield Up. Upon the expiration or sooner termination of this
Agreement, Tenant shall vacate and surrender the Leased Property, to Landlord in
substantially the same condition in which the Leased Property was in on the
Commencement Date, except as repaired, replaced, rebuilt, restored, altered or
added to as permitted or required by the provisions of this Agreement,
reasonable wear and tear and Condemnation (and casualty damage, in the event
that this Agreement is terminated following a casualty in accordance with
Article 10) excepted, together with the FAS and Inventories then existing but
excluding any FAS and Inventories with Proprietary Marks (as defined in the
Operating Agreement) acquired by Tenant or the Operator.
In addition, as of the expiration or earlier termination of
this Agreement, Tenant shall, at Landlord's sole cost and expense, use its good
faith, commercially reasonable efforts to transfer to and cooperate with
Landlord or Landlord's nominee in connection with the processing of all
applications for licenses, operating permits and other governmental
authorizations and all contracts entered into by Tenant, including contracts
with governmental or quasi-governmental Entities which may be necessary for the
use and operation of the Facility as then operated, but excluding (i) all
insurance contracts and multi-property contracts not limited in scope to the
Collective Leased Properties, the Leases for which are being terminated
simultaneously,(ii) all contracts and leases with Affiliated Persons, (iii)
utility deposits and (iv) telephone numbers. Landlord shall indemnify and hold
Tenant harmless for all claims, costs and expenses (including reasonable
attorneys' fees) arising from acts or omissions by Landlord under such contracts
subsequent to the date of transfer thereof to Landlord; and Tenant shall
indemnify and hold Landlord harmless for all claims, costs and expenses
(including reasonable attorney's fees) arising from acts or omission by Tenant
under such contracts prior to the date of transfer thereof to Landlord.
ARTICLE 6
IMPROVEMENTS, ETC.
6.1 Improvements to the Leased Property. Tenant shall not finance the
cost of any construction by the granting of a lien on or security interest in
the Leased Property, or Tenant's interest therein, without the prior written
consent of Landlord, which consent may be withheld by Landlord in Landlord's
sole discretion. Any such improvements shall, upon the expiration or sooner
termination of this Agreement, remain or pass to and become the property of
Landlord, free and clear of all encumbrances other than Permitted Encumbrances.
6.2 Salvage. Other than Tenant's Personal Property, all materials which
are scrapped or removed in connection with the making of repairs, alterations,
improvements, renewals, replacements and additions pursuant to Article 5 shall
be disposed of by Tenant and the net proceeds thereof, if any, shall be
deposited in the Reserve.
6.3 Equipment Leases. Landlord shall enter into such leases of
equipment and personal property as Tenant may reasonably request from time to
time, provided that the form and substance thereof shall be reasonably
satisfactory to Landlord. Tenant shall prepare and deliver to Landlord all such
lease documents for which Landlord's execution is necessary and Landlord shall
promptly, upon approval thereof, execute and deliver such documents to Tenant.
Tenant shall, throughout the Term, be responsible for performing all of
Landlord's obligations under all such documents and agreements, including
without limitation, all Contracts, as defined in the Purchase Agreement.
ARTICLE 7
LIENS
Subject to Article 8, Tenant shall not, directly or indirectly, create
or allow to remain and shall promptly discharge, at its expense, any lien,
attachment, title retention agreement or claim upon the Leased Property or
Tenant's leasehold interest therein or any attachment, levy, claim or
encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b)
restrictions, liens and other encumbrances which are consented to in writing by
Landlord, (c) liens for those taxes of Landlord which Tenant is not required to
pay hereunder, (d) subleases permitted by Article 16, (e) liens for Impositions
or for sums resulting from noncompliance with Legal Requirements so long as (i)
the same are not yet due and payable, or (ii) are being contested in accordance
with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or
vendors incurred in the ordinary course of business that are not yet due and
payable (but will be paid in full by Tenant) or are for sums that are being
contested in accordance with Article 8, (g) any Facility Mortgages or other
liens which are the responsibility of Landlord pursuant to the provisions of
Article 20 and (h) Landlord Liens.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of any
Imposition, Legal Requirement, Insurance Requirement, Environmental Obligation,
lien, attachment, levy, encumbrance, charge or claim (collectively, "Claims") as
to the Leased Property, by appropriate legal proceedings, conducted in good
faith and with due diligence, provided that (a) the foregoing shall in no way be
construed as relieving, modifying or extending Tenant's obligation to pay any
Claims required hereunder to be paid by Tenant as finally determined, (b) such
contest shall not cause Landlord or Tenant to be in default under any mortgage,
deed of trust or other agreement encumbering the Leased Property or any part
thereof (Landlord agreeing that any such mortgage, deed of trust or other
agreement shall permit Tenant to exercise the rights granted pursuant to this
Article 8) or any interest therein or result in a lien attaching to the Leased
Property, unless such lien is fully bonded or is otherwise secured to the
reasonable satisfaction of Landlord, (c) no part of the Leased Property nor any
Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment
or loss, and (d) Tenant hereby indemnifies and holds harmless Landlord from and
against any cost, claim, damage, penalty or reasonable expense, including
reasonable attorneys' fees, incurred by Landlord in connection therewith or as a
result thereof. Landlord agrees to join in any such proceedings if required
legally to prosecute such contest, provided that Landlord shall not thereby be
subjected to any liability therefor (including, without limitation, for the
payment of any costs or expenses in connection therewith) unless Tenant agrees
to assume and indemnify Landlord with respect to the same. Tenant shall be
entitled to any refund of any Claims and such charges and penalties or interest
thereon which have been paid by Tenant or paid by Landlord to the extent that
Landlord has been reimbursed by Tenant. If Tenant shall fail (x) to pay or cause
to be paid any Claims when finally determined, (y) to provide reasonable
security therefor, or (z) to prosecute or cause to be prosecuted any such
contest diligently and in good faith, Landlord may, upon Notice to Tenant, pay
such charges, together with interest and penalties due with respect thereto, and
Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges.
ARTICLE 9
INSURANCE
9.1 General Insurance Requirements. Tenant shall, at all times during
the Term and at any other time Tenant shall be in possession of the Leased
Property, keep the Leased Property and all property located therein or thereon,
insured against the risks and in the amounts as follows:
(a) "All-risk" property insurance (and to the extent
applicable, Builder's Risk Insurance) on the Improvements and all items
of business personal property, including but not limited to signs,
awnings, canopies, gazebos, fences and retaining walls, and all FAS,
including without limitation, insurance against loss or damage from the
perils under "All Risk" (Special) form, including but not limited to
the following: fire, windstorm, sprinkler leakage, vandalism and
malicious mischief, water damage, explosion of steam boilers, pressure
vessels and other similar apparatus, and other hazards generally
included under extended coverage, all in an amount equal to one hundred
percent (100%) of the replacement value of the Improvements (excluding
excavation and foundation costs), business personal property and FAS,
without a co-insurance provision, and shall include an Agreed Value
endorsement and a Law and Ordinance endorsement;
(b) Ordinance or Law Coverage with limits of not less than
the Improvements for Coverage A (Loss to the undamaged portion of the
building), limits not less than $500,000 for Coverage B (Demolition
Cost Coverage), and limits not less than $500,000 for Coverage C
(Increased Cost of Construction Coverage);
(c) Business income insurance to be written on Special Form
(and on Earthquake and Flood forms if such insurance for those risks is
required) including Extra Expense, without a provision for
co-insurance, including an amount sufficient to pay at least twelve
(12) months of Landlord Rent for the benefit of Landlord, as its
interest may appear, and at least twelve (12) months of Cash Available
for Lease Payments less Landlord Rent for the benefit of Tenant;
(d) Occurrence form comprehensive general liability
insurance, including bodily injury and property damage, liquor
liability, fire legal liability, contractual liability and independent
contractor's hazard and completed operations coverage in an amount not
less than $1,000,000 per occurrence/$2,000,000 aggregate;
(e) Umbrella coverage which shall be on a following form for
the General Liability, Automobile Liability, Employers' Liability, and
Liquor Liability, with limits of not less than $50,000,000 per
occurrence/aggregate;
(f) Flood insurance (if the Leased Property is located in
whole or in part within an area identified as an area having special
flood hazards under the National Flood Insurance Program);
(g) Worker's compensation coverage for all persons employed
by Tenant on the Leased Property with statutory limits, and Employers'
Liability insurance in an amount of at least $1,000,000 per
accident/disease;
(h) To the extent applicable, business auto liability
insurance, including owned, non-owned and hired vehicles for combined
single limit of bodily injury and property damage of not less than
$1,000,000 per occurrence;
(i) To the extent applicable, garage keepers legal liability
insurance covering both comprehensive and collision-type losses with a
limit of liability in an amount not less than $1,000,000 per
occurrence; and
(j) Such additional insurance as may be reasonably required,
from time to time, by Landlord (including, without limitation,
insurance requirements in the Operating Agreement, any mortgage,
security agreement or other financing permitted hereunder and then
affecting the Leased Property, as well as any ground lease or easement
agreement) or any Facility Mortgagee, provided the same is customarily
carried by a majority of comparable high quality assisted living
facilities in the area.
9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect
to any property loss which is covered by insurance then being carried by
Landlord or Tenant, respectively, the party carrying such insurance and
suffering said loss releases the other of and from any and all claims with
respect to such loss; and they further agree that their respective insurance
companies shall have no right of subrogation against the other on account
thereof.
9.3 General Provisions. The individual Facility's allocated
chargeback/deductible for general liability insurance and workmen's compensation
insurance shall not exceed $100,000 unless such greater amount is agreeable to
both Landlord and Tenant. The individual Facility's property insurance
deductible shall not exceed $ 250,000 unless such greater amount is agreeable to
both Landlord and Tenant, or if a higher deductible for high hazard risks (i.e.,
wind or flood) is mandated by the insurance carrier; provided, however, that the
aforesaid figure of $250,000 shall be reduced to $25,000 if and during any
period of time that neither the Tenant nor the Operator is the Guarantor or any
successor Guarantor under the Limited Rent Guaranty dated as of the same date as
this Lease executed by Guarantor in favor of Landlord nor any Affiliated Person
as to Guarantor or any such successor Guarantor. All insurance policies pursuant
to this Article 9 shall be issued by insurance carriers having a general policy
holder's rating of no less than A-/VII in Best's latest rating guide, and shall
contain clauses or endorsements to the effect that (a) Landlord shall not be
liable for any insurance premiums thereon or subject to any assessments
thereunder, and (b) the coverages provided thereby will be primary and any
insurance carried by any additional insured shall be excess and non-contributory
to the extent of the indemnification obligation pursuant to Section 9.5 below.
All such policies described in Sections 9.1(a) through (d) shall name Landlord,
CNL Health Care Properties, Inc., CNL Health Care Corp. and any Facility
Mortgagee as additional insureds, loss payees, or mortgagees, as their interests
may appear and to the extent of their indemnity. All loss adjustments shall be
payable as provided in Article 10. Tenant shall deliver certificates thereof to
Landlord prior to their effective date (and, with respect to any renewal policy,
prior to the expiration of the existing policy), which certificates shall state
the nature and level of coverage reported thereby, as well as the amount of the
applicable deductible. Upon Landlord's request, original copies of said policies
shall be made available for Landlord's review at Tenant's corporate headquarters
during normal business hours. All such policies shall provide Landlord (and any
Facility Mortgagee if required by the same) thirty (30) days prior written
notice of any material change or cancellation of such policy. In the event
Tenant shall fail to effect such insurance as herein required, to pay the
premiums therefor or to deliver such certificates to Landlord or any Facility
Mortgagee at the times required, Landlord shall have the right, but not the
obligation, subject to the provisions of Section 12.5, to acquire such insurance
and pay the premiums therefor, which amounts shall be payable to Landlord, upon
demand, as Additional Charges, together with interest accrued thereon at the
Overdue Rate from the date such payment is made until (but excluding) the date
repaid.
9.4 Blanket Policy. Notwithstanding anything to the contrary contained
in this Article 9, Tenant's obligation to maintain the insurance herein required
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant or any Affiliated Person as to
Tenant.
9.5 Indemnification of Landlord. Except as expressly provided herein,
Tenant shall protect, indemnify and hold harmless Landlord for, from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and reasonable expenses (including, without limitation, reasonable
attorneys' fees), to the maximum extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of: (a) any accident, injury
to or death of persons or loss of or damage to property of third parties
occurring during the Term on or about the Leased Property or adjoining sidewalks
or rights of way under Tenant's control, and (b) any use, misuse, condition,
management, maintenance or repair by Tenant or anyone claiming under Tenant of
the Leased Property or Tenant's Personal Property during the Term or any
litigation, proceeding or claim by governmental entities to which Landlord is
made a party or participant relating to such use, misuse, condition, management,
maintenance, or repair thereof to which Landlord is made a party; provided,
however, that Tenant's obligations hereunder shall not apply to any liability,
obligation, claim, damage, penalty, cause of action, cost or expense arising
from any gross negligence or willful misconduct of Landlord, its employees,
agents, contractors or invitees. Tenant, at its expense, shall defend any such
claim, action or proceeding asserted or instituted against Landlord covered
under this indemnity (and shall not be responsible for any duplicative
attorneys' fees incurred by Landlord) or may compromise or otherwise dispose of
the same. Notwithstanding the foregoing, indemnification with respect to
Hazardous Substances is governed by Section 4.3. The obligations of Tenant under
this Section 9.5 shall survive the termination of this Agreement for a period of
three (3) years.
ARTICLE 10
CASUALTY
10.1 Insurance Proceeds. Except as provided in the last clause of this
sentence, all proceeds payable by reason of any loss or damage to the Leased
Property, or any portion thereof, and insured under any property policy of
insurance required by Article 9 (other than the proceeds of any business
interruption insurance, which shall be payable directly to Landlord and Tenant
as their interests may appear) shall be paid directly to Landlord, any Facility
Mortgagee, and Tenant, who shall all be required to deposit such proceeds with
an escrow agent reasonably satisfactory to them pursuant to a mutually agreed
upon form of escrow agreement (subject to the provisions of Section 10.2) and
all loss adjustments with respect to property losses payable to Tenant shall
require the prior written consent of Landlord; provided, however, that all such
proceeds less than or equal to (i) Five Hundred Thousand Dollars ($500,000)
(which amount shall be adjusted upward annually based on changes in the Index)
if the Leased Property is insured under Marriott International, Inc.'s insurance
program, or (ii) Two Hundred Fifty Thousand Dollars ($250,000) (which amount
shall be adjusted upward annually based on changes in the Index) if the Leased
Property is insured other than under Marriott International, Inc.'s insurance
program, shall be paid directly to Tenant and such losses may be adjusted
without Landlord's consent. If Tenant is required to reconstruct or repair the
Leased Property as provided herein, such proceeds shall be paid out by such
escrow agent from time to time for the reasonable costs of reconstruction or
repair of the Leased Property necessitated by such damage or destruction,
subject to and in accordance with the provisions of Section 10.2.4. Any
unexpended deductible amount and excess proceeds of insurance remaining after
the completion of the restoration shall be retained by Tenant or, if escrowed,
paid to Tenant. In the event that the provisions of Section 10.2.1 are
applicable, the insurance proceeds shall be retained by the party entitled
thereto pursuant to Section 10.2.1. All salvage resulting from any risk covered
by insurance shall belong to Landlord, provided any rights to the same have been
waived by the insurer.
10.2 Damage or Destruction.
10.2.1 Damage or Destruction of Leased Property. If, during
the Term, the Leased Property shall be totally or partially destroyed and the
Facility located thereon is thereby rendered Unsuitable for Its Permitted Use,
Tenant may, by the giving of Notice thereof to Landlord, terminate this
Agreement, whereupon, this Agreement shall terminate and Landlord shall be
entitled to retain the insurance proceeds payable on account of such damage.
10.2.2 Partial Damage or Destruction. If, during the Term,
the Leased Property shall be partially destroyed but the Facility is not
rendered Unsuitable for Its Permitted Use, Tenant shall, subject to Section
10.2.3, promptly restore the Facility as provided in Section 10.2.4.
10.2.3 Insufficient Insurance Proceeds. If the cost of the
repair or restoration of the Leased Property exceeds the sum of the deductible
and the amount of insurance proceeds received by Landlord and Tenant pursuant to
Article 9(a), (c), (d) or, if applicable, (e), Tenant shall give Landlord Notice
thereof which notice shall set forth in reasonable detail the nature of such
deficiency and whether Tenant shall pay and assume the amount of such deficiency
(Tenant having no obligation to do so, except that, if Tenant shall elect to
make such funds available, the same shall become an irrevocable obligation of
Tenant pursuant to this Agreement). In the event Tenant shall elect not to pay
and assume the amount of such deficiency, Landlord shall have the right (but not
the obligation), exercisable at Landlord's sole election by Notice to Tenant,
given within sixty (60) days after Tenant's notice of the deficiency, to elect
to make available for application to the cost of repair or restoration the
amount of such deficiency; provided, however, in such event, upon any
disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided
in Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect
to make such deficiency available for restoration, either Landlord or Tenant may
terminate this Agreement by Notice to the other, whereupon, this Agreement shall
terminate as provided in Section 10.2.1. It is expressly understood and agreed,
however, that, notwithstanding anything in this Agreement to the contrary,
Tenant shall be strictly liable and solely responsible for the amount of any
deductible.
10.2.4 Repairs. In the event Tenant is required to restore
the Leased Property pursuant to Section 10.2, Tenant shall commence promptly and
continue diligently to perform the repair and restoration of the Leased Property
(hereinafter called the "Work"), so as to restore the Leased Property in
compliance with all Legal Requirements and so that the Leased Property shall be,
to the extent practicable, substantially equivalent in value and general utility
to its general utility and value immediately prior to such damage or
destruction. Subject to the terms hereof, the escrow agent shall be required to
advance the insurance proceeds and any additional amounts payable by Landlord
pursuant to Section 10.2.3 to Tenant regularly during the repair and restoration
period so as to permit payment for the cost of any such restoration and repair.
Any such advances shall be made not more than monthly within ten (10) Business
Days after Tenant submits to Landlord a written requisition and substantiation
therefor on AIA Forms G702 and G703 (or on such other form or forms as may be
reasonably acceptable to Landlord). Landlord may, at its option, require, prior
to advancement of said insurance proceeds and other amounts by the escrow agent,
(i) approval of plans and specifications by an architect satisfactory to
Landlord (which approval shall not be unreasonably withheld or delayed), (ii)
general contractors' estimates, (iii) architect's certificates, (iv)
unconditional lien waivers of general contractors, if available, (v) evidence of
approval by all governmental authorities and other regulatory bodies whose
approval is required, (vi) deposit by Tenant of the applicable deductible amount
with the escrow agent, and (vii) such other terms as a Facility Mortgagee or
lender of Landlord may reasonably require. Tenant's obligation to restore the
Leased Property pursuant to this Article 10 shall be subject to the release of
available insurance proceeds by the applicable Facility Mortgagee to the escrow
agent or directly to Tenant and, in the event such proceeds are insufficient,
Landlord electing to make such deficiency available therefor (and placement of
such deficiency with the escrow agent).
10.3 Damage Near End of Term. Notwithstanding any provisions of Section
10.1 or 10.2 to the contrary, if damage to or destruction of the Leased Property
occurs during the last twenty-four (24) months of the then Term (including any
exercised Extended Term) and if such damage or destruction cannot reasonably be
expected to be fully repaired and restored prior to the date that is twelve (12)
months prior to the end of such Term (including any exercised Extended Term),
the provisions of Section 10.2.1 shall apply as if the Leased Property had been
totally or partially destroyed and the Facility rendered Unsuitable for its
Permitted Use.
10.4 Tenant's Property. All insurance proceeds payable by reason of any
loss of or damage to any of Tenant's Personal Property shall be paid solely to
Tenant and, to the extent necessary to repair or replace Tenant's Personal
Property in accordance with Section 10.5, Tenant shall hold such proceeds in
trust to pay the cost of repairing or replacing damaged Tenant's Personal
Property.
10.5 Restoration of Tenant's Property. If Tenant is required to restore
the Leased Property as hereinabove provided, Tenant shall either (i) restore all
alterations and improvements made by Tenant and Tenant's Personal Property, or
(ii) replace such alterations and improvements and Tenant's Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.
10.6 No Abatement of Rent. This Agreement shall remain in full force
and effect and Tenant's obligation to make all payments of Rent and to pay all
other charges as and when required under this Agreement shall remain unabated
during the Term notwithstanding any damage involving the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any cause of damage or destruction
to the Leased Property and, to the maximum extent permitted by law, no local or
State statute, laws, rules, regulation or ordinance in effect during the Term
which provide for such a contingency shall have any application in such case.
10.7 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc. If either (i) the whole of the Leased
Property shall be taken by Condemnation or (ii) a Condemnation of less than the
whole of the Leased Property renders the Leased Property Unsuitable for Its
Permitted Use, this Agreement shall terminate and Tenant and Landlord shall seek
the Award for their interests in the Leased Property as provided in Section
11.6.
11.2 Partial Condemnation. In the event of a Condemnation of less than
the whole of the Leased Property such that the Leased Property is not rendered
Unsuitable for Its Permitted Use, Tenant shall, to the extent of the Award and
any additional amounts disbursed by Landlord as hereinafter provided, commence
promptly and continue diligently to restore the untaken portion of the Leased
Improvements so that such Leased Improvements shall constitute a complete
architectural unit of the same general character and condition (as nearly as may
be possible under the circumstances) as the Leased Improvements existing
immediately prior to such Condemnation, in full compliance with all Legal
Requirements, subject to the provisions of this Section 11.2. If the cost of the
repair or restoration of the Leased Property exceeds the amount of the Award,
Tenant shall give Landlord Notice thereof which notice shall set forth in
reasonable detail the nature of such deficiency and whether Tenant shall pay and
assume the amount of such deficiency (Tenant having no obligation to do so,
except that if Tenant shall elect to make such funds available, the same shall
become an irrevocable obligation of Tenant pursuant to this Agreement). In the
event Tenant shall elect not to pay and assume the amount of such deficiency,
Landlord shall have the right (but not the obligation), exercisable at
Landlord's sole election by Notice to Tenant given within sixty (60) days after
Tenant's Notice of the deficiency, to elect to make available for application to
the cost of repair or restoration the amount of such deficiency; provided,
however, in such event, following any disbursement by Landlord thereof and upon
completion of such repairs, the Minimum Rent shall be adjusted as provided in
Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect to
make such deficiency available for restoration, either Landlord or Tenant may
terminate this Agreement and the entire Award shall be retained by Landlord.
11.3 Disbursement of Award. Subject to the terms hereof, Landlord,
Tenant and any Facility Mortgagee shall transfer any part of the Award received
by them, respectively, together with severance and other damages awarded for the
taken Leased Improvements and any deficiency Landlord or Tenant has agreed to
pay, to an escrow agent reasonably satisfactory to all parties pursuant to an
escrow agreement that is reasonably satisfactory to all parties, for the purpose
of funding the cost of the repair or restoration. Landlord may require, at its
option, prior to advancement of such Award and other amounts to the escrow
agent, (i) approval of plans and specifications by an architect satisfactory to
Landlord (which approval shall not be unreasonably withheld or delayed), (ii)
general contractors' estimates, (iii) architect's certificates, (iv)
unconditional lien waivers of general contractors, if available, and (v)
evidence of approval by all governmental authorities and other regulatory bodies
whose approval is required. Obligations under this Section 11.3 to disburse the
Award and such other amounts shall be subject to (x) the collection thereof and
(y) the release of such Award by the applicable Facility Mortgagee. Tenant's
obligation to restore the Leased Property shall be subject to the availability
of the Award to fund the cost of such repair or restoration upon its compliance
with this Section 11.3.
11.4 Abatement of Rent. Other than as specifically provided in this
Agreement, this Agreement shall remain in full force and effect and Tenant's
obligation to make all payments of Rent and to pay all other charges as and when
required under this Agreement shall remain unabated during the Term
notwithstanding any Condemnation involving the Leased Property. The provisions
of this Article 11 shall be considered an express agreement governing any
Condemnation involving the Leased Property and, to the maximum extent permitted
by law, no local or State statute, law, rule, regulation or ordinance in effect
during the Term which provides for such a contingency shall have any application
in such case.
11.5 Temporary Condemnation. In the event of any temporary Condemnation
of the Leased Property or Tenant's interest therein, this Agreement shall
continue in full force and effect and Tenant shall continue to pay, in the
manner and on the terms herein specified, the full amount of the Rent. Tenant
shall continue to perform and observe all of the other terms and conditions of
this Agreement on the part of the Tenant to be performed and observed. The
entire amount of any Award made for such temporary Condemnation allocable to the
Term, whether paid by way of damages, rent or otherwise, shall be paid to
Tenant. Tenant shall, promptly upon the termination of any such period of
temporary Condemnation, at its sole cost and expense, restore the Leased
Property to the condition that existed immediately prior to such Condemnation,
in full compliance with all Legal Requirements, unless such period of temporary
Condemnation shall extend beyond the expiration of the Term, in which event
Tenant shall not be required to make such restoration. For purposes of this
Section 11.5, a Condemnation shall be deemed to be temporary if the period of
such Condemnation is not expected to, and does not, exceed twelve (12) months.
11.6 Allocation of Award. Except as provided in Section 11.5 and the
second sentence of this Section 11.6, the total Award shall be solely the
property of and payable to Landlord. Any portion of the Award made for the
taking of Tenant's leasehold interest in the Leased Property, loss of business
during the remainder of the Term, the taking of Tenant's Personal Property, or
Tenant's removal and relocation expenses shall be the sole property of and
payable to Tenant (subject to the provisions of Section 11.2). In any
Condemnation proceedings, Landlord and Tenant shall each seek its own Award in
conformity herewith, at its own expense.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder:
(a) should Tenant fail to make any payment of Minimum Rent
or Percentage Rent within three (3) Business Days after Notice thereof,
or fail to make payment of any other Rent or any other sum (including,
but not limited to, funding of the Reserve), payable hereunder when due
and such failure shall continue for a period of ten (10) days after
Notice thereof; or
(b) should Tenant fail to maintain the insurance coverages
required under Article 9 and such failure shall continue for three (3)
Business Days after Notice thereof; or
(c) subject to Article 8 relating to permitted contests,
should Tenant default in the due observance or performance of any of
the terms, covenants or agreements contained herein to be performed or
observed by it (other than as specified in clauses (a) and (b) above)
and such default shall continue for a period of thirty (30) days after
Notice thereof from Landlord to Tenant; provided, however, that if such
default is susceptible of cure but such cure cannot be accomplished
with due diligence within such period of time and if, in addition,
Tenant commences to cure or cause to be cured such default within
fifteen (15) days after Notice thereof from Landlord and thereafter
prosecutes the curing of such default with all due diligence, such
period of time shall be extended to such period of time (not to exceed
one hundred eighty (180) days) as may be necessary to cure such default
with all due diligence; or
(d) should Tenant generally not be paying its debts as they
become due or should Tenant make a general assignment for the benefit
of creditors; or
(e) should any petition be filed by or against Tenant under
the Federal bankruptcy laws, or should any other proceeding be
instituted by or against Tenant seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for Tenant or
for any substantial part of the property of Tenant and such proceeding
is not dismissed within ninety (90) days after institution thereof, or
should Tenant take any action to authorize any of the actions set forth
above in this paragraph; or
(f) should Tenant cause or institute any proceeding for its
dissolution or termination; or
(g) should an event of default occur and be continuing under
any mortgage or deed of trust which is secured by Tenant's leasehold
interest hereunder or should the mortgagee under any such mortgage
accelerate the indebtedness secured thereby or commence a foreclosure
action in connection with said mortgage and such default shall continue
for a period of thirty (30) days after notice thereof from Landlord to
Tenant; provided, however, that if such default is susceptible of cure
but such cure cannot be accomplished with due diligence within such
period of time and if, in addition, Tenant commences to cure or cause
to be cured such default within fifteen (15) days after Notice thereof
from Landlord and thereafter prosecutes the curing of such default with
all due diligence, such period of time shall be extended to such period
of time as may be necessary to cure such default with all due
diligence; or
(h) unless Tenant shall be contesting such lien or attachment in good
faith in accordance with Article 8, should the estate or interest of
Tenant in the Leased Property or any part thereof be levied upon or
attached in any proceeding and the same shall not be vacated,
discharged or fully bonded or otherwise secured to the reasonable
satisfaction of Landlord within the later of (x) one hundred and twenty
(120) days after such attachment or levy, unless the amount in dispute
is less than $500,000 (as adjusted each year by increases in the
Index), in which case Tenant shall give notice to Landlord of the
dispute but Tenant may defend in any suitable way, and (y) thirty (30)
days after receipt by Tenant of Notice thereof from Landlord; it being
understood and agreed that Tenant may commence a contest of such matter
pursuant to Article 8 above following such Notice from Landlord; then,
and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement by giving Notice thereof
to Tenant and upon the expiration of the time fixed in such Notice but
in any event not less than seventy-five (75) days, this Agreement shall
terminate and all rights of Tenant under this Agreement shall cease.
Landlord shall have and may exercise all rights and remedies available
at law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
Landlord hereby agrees and consents to any cure of any Default or Event
of Default tendered or performed by the Guarantor (whether prior to or
after expiration of any guaranty provided by Guarantor) within the same
cure period afforded to Tenant herein.
12.2 Remedies. None of (a) the termination of this Agreement pursuant
to Section 12.1, (b) the repossession of the Leased Property or any portion
thereof, (c) the failure of Landlord to re-let the Leased Property or any
portion thereof, nor (d) the re-letting of all or any portion of the Leased
Property, shall relieve Tenant of its liability and obligations hereunder, all
of which shall survive any such termination, repossession or re-letting. In the
event of any such termination, repossession or re-letting, Tenant shall
forthwith pay to Landlord all Rent due and payable with respect to the Leased
Property through and including the date of such termination, repossession or
re-letting. Thereafter, Tenant, until the end of what would have been the Term
of this Agreement (assuming no extension beyond the then-current Term) in the
absence of such termination, repossession or re-letting, and whether or not the
Leased Property or any portion thereof shall have been re-let, shall be liable
to Landlord for, and shall pay to Landlord, as current damages, the Rent and
other charges which would be payable hereunder for the remainder of the Term had
such termination, repossession or re-letting not occurred, less the net
proceeds, if any, of any re-letting of the Leased Property, after deducting all
reasonable expenses in connection with such re-letting, including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such re-letting (such expenses being hereinafter
referred to as the "Re-letting Expenses"). Tenant shall pay such current damages
to Landlord monthly on the days on which the Minimum Rent would have been
payable hereunder if this Agreement had not been so terminated with respect to
such of the Leased Property.
At any time after such termination, repossession or
re-letting, in addition to Landlord's right to receive any Rent owing and due up
to and including the date of termination, repossession or re-letting under the
preceding paragraph, Tenant shall pay to Landlord, at Landlord's election, as
liquidated final damages incurred beyond the date of such termination,
repossession or re-letting and in lieu of Landlord's right to receive any
further damages due to the such termination, repossession or re-letting, the
Re-letting Expenses incurred to date (and not theretofore paid by Tenant) and an
amount equal to the present value (discounted at the Interest Rate) of the
excess, if any, of the Rent and other charges which would be payable hereunder
from the date of such termination, repossession or re-letting (assuming that,
for the purposes of this paragraph, annual payments by Tenant on account of
Impositions and Percentage Rent would be the same as payments required for the
immediately preceding thirteen Accounting Periods, or if less than thirteen
Accounting Periods have expired since the Commencement Date, the payments
required for such lesser period projected to an annual amount) for what would be
the then unexpired Term of this Agreement (assuming no extension beyond the
then-current Term) if the same remained in effect, over the fair market rental
for the same period; provided, however, that Tenant shall be entitled to a
credit from Landlord in the amount of any unapplied balance of the Security
Deposit applied by Landlord to its damages under this Agreement, whereupon
Landlord shall have no further obligation to pay the portion of the Security
Deposit so credited to Tenant. Nothing contained in this Agreement shall,
however, limit or prejudice the right of Landlord to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater than, equal to, or less than the amount of the loss or damages referred
to above.
In case of any Event of Default, re-entry, expiration or
dispossession by summary proceedings or otherwise, Landlord may (a) re-let the
Leased Property or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option, be equal to, less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant concessions or free rent to the extent that Landlord
considers advisable and necessary to re-let the same, and (b) may make such
reasonable alterations, repairs and decorations in the Leased Property or any
portion thereof as Landlord, in its sole and absolute discretion, considers
advisable and necessary for the purpose of re-letting the Leased Property; and
the making of such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Subject to
the last sentence of this paragraph, Landlord shall in no event be liable in any
way whatsoever for any failure to re-let all or any portion of the Leased
Property, or, in the event that the Leased Property is re-let, for failure to
collect the rent under such re-letting. To the maximum extent permitted by law,
Tenant hereby expressly waives any and all rights of redemption granted under
any present or future laws in the event of Tenant being evicted or dispossessed,
or in the event of Landlord obtaining possession of the Leased Property, by
reason of the occurrence and continuation of an Event of Default hereunder.
Landlord covenants and agrees, in the event of any such termination,
repossession or re-letting as a result of an Event of Default, to use reasonable
efforts to mitigate its damages.
12.3 Waiver of Jury Trial. Landlord and Tenant hereby waive, to the
maximum extent permitted by Applicable Laws, trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other or in respect of any matter whatsoever arising out of or in any way
connected with this Agreement, the relationship of Landlord and Tenant
hereunder, Tenant's occupancy of the Leased Property, and/or any claim for
injury or damage.
12.4 Application of Funds. Any payments received by Landlord under any
of the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default. If an Event of Default
shall have occurred and be continuing, Landlord, after Notice to Tenant (which
Notice shall not be required if Landlord shall reasonably determine immediate
action is necessary to protect person or property), without waiving or releasing
any obligation of Tenant and without waiving or releasing any Event of Default,
may (but shall not be obligated to), at any time thereafter, make such payment
or perform such act for the account and at the expense of Tenant, and may, to
the maximum extent permitted by law, enter upon the Leased Property or any
portion thereof for such purpose and take all such action thereon as, in
Landlord's sole and absolute discretion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Tenant. All reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest thereon (to
the extent permitted by law) at the Overdue Rate from the date such sums are
paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.
12.6 Security Deposit. Notwithstanding any term or provision to the
contrary herein, in the event that this Agreement is terminated pursuant to
Section 12.1 or 12.2, Landlord shall be entitled to credit any unapplied balance
of the Security Deposit (in accordance with Section 3.4(b)) to any claims or
damages to which Landlord is entitled and to the extent that any portion of the
Security Deposit remains after such credit, Landlord shall promptly refund such
portion of the Security Deposit to Tenant. Upon any expiration or other
termination of this Agreement, Landlord shall promptly refund any remaining
portion (that is, after crediting any unapplied balance of the Security Deposit
(in accordance with Section 3.4(b)), to any claims or damages to which Landlord
is entitled) of the Security Deposit to Tenant.
12.7 Good Faith Dispute. If Tenant shall in good faith dispute the
occurrence of any Default and Tenant, before the expiration of the applicable
cure period, shall give Notice thereof to Landlord, setting forth, in reasonable
detail, the basis therefor and, provided Tenant shall escrow disputed amounts,
if any, pursuant to an escrow arrangement reasonably acceptable to Landlord and
Tenant, no Event of Default shall be deemed to have occurred; provided, however,
that in the event of any eventual adverse determination, Tenant shall pay to
Landlord interest on any disputed funds at the Disbursement Rate, from the date
demand for such funds was made by Landlord until the date of final adverse
determination and, thereafter, at the Overdue Rate until paid.
ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration or sooner termination
of this Agreement shall be treated as a daily tenancy at sufferance at a rate
equal to one and one-half (1.50) times the Rent and other charges herein
provided (prorated on a daily basis). Tenant shall also pay to Landlord all
damages (direct or indirect) sustained by reason of any such holding over.
Otherwise, such holding over shall be on the terms and conditions set forth in
this Agreement, to the extent applicable. Nothing contained herein shall
constitute the consent, express or implied, of Landlord to the holding over of
Tenant after the expiration or earlier termination of this Agreement.
ARTICLE 14
LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT
14.1 Landlord Notice Obligation. Landlord shall give prompt Notice to
Tenant and the Manager of any materially adverse matters affecting the Leased
Property of which Landlord receives written notice or actual, conscious, present
knowledge and, to the extent Tenant otherwise has no notice or actual knowledge
thereof, Landlord shall be liable for any liabilities, costs, damages or claims
(including reasonable attorneys' fees) arising from the failure to deliver such
Notice to Tenant. Subject to Article 20, Landlord shall not enter into or amend
any agreement directly affecting the operation of Leased Property without
Tenant's prior written consent. As used in this Agreement, "Landlord's
knowledge" or words of similar import shall mean the actual (and not
constructive or imputed), conscious, present knowledge, without independent
investigation or inquiry of Phillip M. Anderson, Jr. or any subsequent officer
or employee of Landlord, or any Affiliated Person as to Landlord, having direct
oversight responsibility for the transactions contemplated in this Agreement.
14.2 Landlord's Default. Subject to Landlord's right to dispute its
obligation in accordance with Section 5.1.4(b), if (i) Landlord shall default in
the performance or observance of any of its covenants or obligations set forth
in this Agreement, or (ii) CHCLP and/or CHCP shall default in its obligations
under the CHCLP and CHCP Guaranty and any such default shall continue for a
period of ten (10) days after Notice thereof with respect to monetary defaults,
and thirty (30) days after Notice thereof with respect to non-monetary defaults,
from Tenant to Landlord and any applicable Facility Mortgagee, or such
additional period as may be reasonably required to correct the same, Tenant may
declare the occurrence of a "Landlord Default" by giving Notice of such
declaration to Landlord and to such Facility Mortgagee. Thereafter, Tenant may
(but shall have no obligation to) cure the same and, subject to the provisions
of the following paragraph, invoice Landlord for costs and expenses (including
reasonable attorneys' fees and court costs) incurred by Tenant in curing the
same, together with interest thereon from the date Landlord receives Tenant's
invoice, at the Overdue Rate. Except as otherwise expressly provided herein to
the contrary, Tenant shall have no right to terminate this Agreement for any
default by Landlord hereunder and no right, for any such default, to offset or
counterclaim against any Rent or other charges due hereunder.
If Landlord shall in good faith dispute the occurrence of
any Landlord Default and Landlord, before the expiration of the applicable cure
period, shall give Notice thereof to Tenant, setting forth, in reasonable
detail, the basis therefor, no Landlord Default shall be deemed to have occurred
and Landlord shall have no obligation with respect thereto until final adverse
determination thereof; provided, however, that in the event of any such adverse
determination, Landlord shall pay to Tenant interest on any disputed funds at
the Disbursement Rate, from the date demand for such funds was made by Tenant
until the date of final adverse determination and, thereafter, at the Overdue
Rate until paid. Notwithstanding the foregoing, the provisions of Section 14.3
shall control in the event of a default under Section 5.1.4(b).
14.3 Special Remedies for Landlord Funding Default. In the event of any
Landlord Default arising under Section 5.1.4(b), Tenant shall have the right, in
Tenant's sole discretion, in addition to all other remedies of Tenant hereunder,
to exercise any one or more of the following remedies:
(a) Tenant may fund the deficient amounts and offset the
aggregate amount thereof plus interest thereon from the date of funding
at the Disbursement Rate against any Rent payable by Tenant subsequent
to the date of advance pursuant to this Agreement until recouped;
(b) Tenant may, notwithstanding the provisions of Article
16, assign this Agreement or sublease all (but not less than all) of
the Leased Property to a Person who is not an Affiliated Person as to
Tenant; or
(c) Tenant may terminate this Agreement whereupon, (i) the
Limited Rent Guaranty shall terminate and (ii) Landlord shall refund to
Tenant any unapplied balance of the Security Deposit.
14.4 Special Remedy under Section 10.1 and 11.3. If Landlord or any
Facility Mortgagee shall fail to deposit insurance proceeds with an escrow agent
as required by Section 10.1 or if Landlord shall fail to deposit any Award or
any deficiency as required by Section 11.3 with an escrow agent as required by
Section 11.3, Tenant shall be entitled, in addition to all other remedies of
Tenant hereunder, to the remedies listed in Sections 14.3(a) through (d),
without the requirement of arbitration as described in Section 5.1.4(b).
ARTICLE 15
TRANSFERS BY LANDLORD
15.1 Transfer of Leased Property. Except for liens, encumbrances or
title retention agreements which are governed by Article 20, and except for
normal and customary easements reasonably required for the development and use
of the Leased Property for assisted living facility purposes and uses incidental
thereto, Landlord shall not, without the prior written consent of Tenant, which
consent may be given or withheld by Tenant in Tenant's sole and absolute
discretion, sell, assign, transfer, convey or otherwise dispose of (a
"Transfer") the Leased Property, or any portion thereof or interest therein,
directly or indirectly (other than an interest, directly or indirectly, in
Landlord which is governed by Section 15.3), to any Person which, in Tenant's
reasonable judgment: (i) is not a Person in which CHCP owns and holds, directly
or indirectly, a Controlling Interest and does not have sufficient financial
resources to fulfill Landlord's obligations hereunder; (ii) is known in the
community as being of bad moral character and/or is in control of or controlled
by Persons who have been convicted of felonies in any state or federal court;
(iii) itself is, or any of its Affiliated Persons is, a Competitor; or (iv)
fails expressly to assume, in writing, the obligations of Landlord under this
Agreement. For purposes of this Section 15.1, a Person shall not be deemed to be
a Competitor solely by virtue of (x) the ownership of assisted living
facilities, either directly or indirectly through Subsidiaries, Affiliated
Persons and Entities, or (y) holding a mortgage or mortgages secured by one or
more assisted living facilities. Otherwise, subject to the provisions of Section
15.2, Landlord may Transfer the Leased Property, or any portion thereof or
interest therein, to any Person without the consent of, but upon not less than
sixty (60) days prior Notice to, Tenant. Within five (5) days following any
request by Tenant, Landlord shall provide Tenant such information concerning the
proposed transferee's financial condition, affiliations, ownership, business
interests, and operations as may be reasonably necessary or appropriate in order
for Tenant to determine if such proposed Transfer is consistent with the above
provisions.
Notwithstanding anything to the contrary herein contained,
in the event of a transfer of Tenant's interest in this Agreement to any Entity
in which the Guarantor does not have a Controlling Interest, and if at any time
thereafter Landlord is, for any reason, not satisfied with the performance under
this Agreement by such transferee of Tenant, then Landlord may, upon not less
than sixty (60) days prior Notice to Tenant, elect to Transfer the Leased
Property, and the restriction set forth in subclause (iii) in clause (a) of
Section 15.1 (that is, a Transfer to any Person which, in Tenant's reasonable
judgment, itself is, or any of its Affiliated Persons is, a Competitor) shall
not apply to any such Transfer of the Leased Property; it being understood and
agreed, however, that nothing herein shall prejudice or preclude the Guarantor
from exercising any of its rights or remedies under Section 4 of the Owner
Agreement as a result of, or with respect to, any such Transfer of the Leased
Property.
15.2 Conditions of Transfer. Any Transfer of the Leased Property
permitted by Section 15.1 shall be subject to the prior or simultaneous
satisfaction of the following conditions:
(a) Landlord shall transfer its rights hereunder to the
Security Deposit to the successor landlord and the Security Deposit
with respect to the Leased Property shall continue to be held by the
successor landlord in accordance with the terms and conditions set
forth in Section 3.5;
(b) Any transferee of Landlord pursuant to this Article 15
shall expressly assume, in writing reasonably satisfactory to Tenant,
the obligations of Landlord under this Agreement, and the Owner
Agreement and, upon such assumption and so long as such transferee is
not an Affiliated Person of Landlord or CHCP, then Landlord shall be
released from all liabilities and obligations of the landlord hereunder
accruing after the date of the transfer, assignment and assumption;
(c) Any overpayments of Rent (to the extent determinable)
held by Landlord shall be refunded to Tenant prior to such Transfer;
(d) If the transferee is an Affiliated Person of Landlord or
CHCP, then Landlord and CHCP shall expressly guarantee in writing
reasonably satisfactory to Tenant, or confirm in writing reasonably
satisfactory to Tenant their continuing guarantee of, the obligations
of such transferee under this Agreement and the Owner Agreement; and
(e) Any amounts owed by Landlord to Tenant shall be paid in
full.
15.3 Transfer of Interest in Landlord. For purposes of this Article 15,
any sale, assignment, transfer or other disposition, for value or otherwise,
voluntary or involuntary, by merger, operation of law or otherwise, in a single
transaction or a series of transactions, of any interest in Landlord or any
Person having an interest in Landlord, directly or indirectly, shall be and
constitute a Transfer of the Leased Property; provided, however, that if the
proposed transferee is not, in Tenant's reasonable judgment, (i) known in the
community as being of bad moral character or in which any Person who has been
convicted of a felony in any state or federal court holds a Controlling
Interest, or (ii) itself a Competitor, and none of its Affiliated Persons is a
Competitor, then, so long as the interest to be transferred to such transferee
is less than a Controlling Interest, and so long as immediately following such
transfer CHCP, directly or indirectly, continues to own and hold a Controlling
Interest in Landlord, the other restrictions set forth in Section 15.1 shall not
apply to such transfer; and provided further, however, that the provisions of
Section 15.1 shall not apply to any transfer of interests in CHCP, directly or
indirectly, or in any Entity that has an interest in CHCP, directly or
indirectly, so long as CHCP is a publicly traded company (whether or not such
interests are traded on a public stock exchange), if and so long as such
transfer does not result, directly or indirectly, in a Competitor owning a
Controlling Interest in CHCP, nor shall the provisions of Section 15.1 apply to
any transfer of interests in Landlord, directly or indirectly (or in any Entity
that has an interest in Landlord, directly or indirectly), to any Person which
is not an Affiliated Person of Landlord or CHCP, if and so long as such transfer
does not result in or entail, directly or indirectly, either concurrent with the
transfer or subsequent thereto, CHCP or a wholly-owned Subsidiary of CHCP no
longer continuing to possess the sole power, as the sole general partner of
Landlord, to direct or cause the direction of the management and policies of
Landlord, whether such cessation of power occurs by contract, by conversion of
the general partner interest of CHCP or its wholly-owned Subsidiary in Landlord
to a limited partner interest, by conversion of Landlord to a corporation or
other Entity, or otherwise. Landlord shall deliver to Tenant at least sixty (60)
days prior Notice of any transfer of interests herein contemplated, other than
transfers of limited partner interests in Landlord (specifically excluding any
general partner interests in Landlord), and other than transfers of interests in
any publicly traded company (whether or not such interests are traded on a
public stock exchange).
Notwithstanding anything to the contrary herein contained, a
voluntary sale, assignment, transfer or other disposition, for value, by merger,
operation of law or otherwise, in a single transaction or a related series of
transactions, of all or substantially all of the interests in Landlord or CHCP,
or all or substantially all of the assets of Landlord or CHCP (in either event,
a "Sale of the Entity"), shall not be deemed a Transfer of the Leased Property;
it being understood and agreed, however, that nothing herein shall prejudice or
preclude the Guarantor from exercising any of its rights or remedies under
Section 4 of the Owner Agreement, as a result of, or with respect to, any such
Sale of the Entity. For purposes hereof, "substantially all of the interests in
Landlord" shall mean all of the general partner interests and not less than
ninety percent (90%) of the limited partner interests in Landlord;
"substantially all of the interests in CHCP" shall mean not less than ninety
percent (90%) of the outstanding capital stock of CHCP; and "substantially all
of the assets of Landlord or CHCP" shall mean not less than ninety percent (90%)
of the respective total assets owned by Landlord or CHCP, respectively.
ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment.
(a) Except as provided in Section 16.3 and in this Section
16.1, Tenant shall not, without Landlord's prior written consent,
assign, mortgage, pledge, hypothecate, encumber or otherwise transfer
this Agreement or sublease (which term shall be deemed to include the
granting of concessions, licenses and the like), all or any part of the
Leased Property or suffer or permit this Agreement or the leasehold
estate created hereby or any other rights arising under this Agreement
to be assigned, transferred, mortgaged, pledged, hypothecated or
encumbered, in whole or in part, whether voluntarily, involuntarily or
by operation of law, or permit the use or operation of the Leased
Property by anyone other than Tenant, or the Leased Property to be
offered or advertised for assignment or subletting; provided, however,
that Tenant may, without Landlord's consent, sell, transfer, assign or
convey its interest in this Agreement to a direct or indirect
Subsidiary of the Guarantor, which Subsidiary of the Guarantor shall
expressly assume the obligations of Tenant under this Agreement, and
the transferor Tenant shall thereupon be released from all liabilities
and obligations of Tenant accruing hereunder after the date of such
transfer by the transferor Tenant if either (i) the Membership Interest
Pledge Agreement has been terminated by reason of a transfer of the
Leased Property by Landlord which terminates the Membership Interest
Pledge Agreement or (ii) the owner of all of the direct ownership
interests in such Subsidiary of the Guarantor executes and delivers a
new Pledge Agreement to Landlord, in form which meets with Landlord's
reasonable satisfaction, that pledges all of the ownership interests of
such Subsidiary to Landlord upon substantive terms identical to the
Membership Interest Pledge Agreement. For purposes of this Section
16.1, an assignment of this Agreement shall be deemed to include the
following (for purposes of this Section 16.1, a "Corporate Transfer"):
any direct or indirect transfer of any interest in Tenant such that
Tenant shall cease to be a direct or indirect Subsidiary of the
Guarantor or any transaction pursuant to which Tenant is merged or
consolidated with another Entity which is not the Guarantor or a
Subsidiary of the Guarantor or pursuant to which all or substantially
all of Tenant's assets are transferred to any other Entity, as if such
change in control or transaction were an assignment of this Agreement
but shall not include any involuntary liens or attachments contested by
Tenant in good faith in accordance with Article 8.
(b) Notwithstanding the foregoing, Landlord's consent shall
not be required for a Corporate Transfer or a sale, transfer,
assignment or other conveyance of Tenant's interest in this Agreement
if, after giving effect to such Corporate Transfer, Tenant, or all or
substantially all of Tenant's assets, would be owned or controlled by a
Person who would, in connection therewith, acquire all or substantially
all of the assisted living facility business of the Guarantor and its
direct and indirect Subsidiaries.
(c) Notwithstanding the foregoing, Landlord's consent shall
not be required for a Corporate Transfer or a sale, transfer,
assignment or other conveyance of Tenant's interest in this Agreement
that occurs following the third (3rd) anniversary of the Commencement
Date so long as (i) the Leased Property will be operated by Guarantor
or a wholly-owned Subsidiary of Guarantor pursuant to an Operating
Agreement, the term of which shall coincide with the term of this
Agreement, including extensions; (ii) the party to whom such transfer
is made is not, in Landlord's reasonable judgment, known in the
community as being of bad moral character and/or is not in control of
or controlled by persons who have been convicted of felonies in any
state or federal court; (iii) following such transfer, the new Tenant
satisfies the requirements set forth in Section 21.4; and (iv) the
transferee of this Lease shall assume the obligations of Tenant under
this Lease accruing after the effective date of such transfer either by
an express written agreement or by operation of law. Upon a transfer
described in this Section 16.1(c), and so long as the transferee is not
an Affiliated Person of Tenant or Guarantor, the transferor Tenant and
all of its Affiliated Persons shall be released from all liabilities
and obligations of Tenant accruing hereunder after the date of such
transfer. Tenant shall deliver notice of any such proposed transfer to
Landlord at least thirty (30) days prior to any such transfer and
shall, within five (5) days following any request by Landlord, provide
Landlord such information as may be reasonably necessary or appropriate
in order for Landlord to determine if such proposed transfer is
consistent with the above provisions. Notwithstanding the foregoing,
this Section 16.1(c) shall not apply to any transfer that meets the
requirements of Section 16.1(b).
(d) If this Agreement is assigned or if the Leased Property
or any part thereof are sublet (or occupied by anybody other than
Tenant) Landlord may collect the rents from such assignee, subtenant or
occupant, as the case may be, and apply the net amount collected to the
Rent herein reserved, but no such collection shall be deemed a waiver
of the provisions set forth in the first paragraph of this Section
16.1, the acceptance by Landlord of such assignee, subtenant or
occupant, as the case may be, as a tenant, or a release of Tenant from
the future performance by Tenant of its covenants, agreements or
obligations contained in this Agreement.
(e) Except as set forth in Section 16.1(c), no subletting or
assignment shall in any way impair the continuing primary liability of
Tenant hereunder (unless Landlord and Tenant expressly otherwise agree
that Tenant shall be released from all obligations hereunder), and no
consent to any subletting or assignment in a particular instance shall
be deemed to be a waiver of the prohibition set forth in this Section
16.1. No assignment, subletting or occupancy shall affect any Permitted
Use. Any subletting, assignment or other transfer of Tenant's interest
under this Agreement in contravention of this Section 16.1 shall be
voidable at Landlord's option. Any assignee of this Lease shall assume
the obligations of Tenant under this Lease accruing after the effective
date of such assignment either by an express written agreement or by
operation of law.
(f) Following a transfer described in Section 16.1(c) above
by the original Tenant under this Agreement, when giving notice to the
transferee Tenant (the "New Tenant") with respect to any default under
the provisions of this Agreement, Landlord will also deliver a copy of
such notice to the original Tenant (the "Transferor"), and the
Transferor or the Operator will have the same period of time after the
giving of such notice in which to remedy or cure the default as is
given to the New Tenant under this Agreement; it being understood and
agreed that the Transferor and the Operator will have no duty or
obligation to remedy or cure such default. Further, any Subsidiary or
Affiliated Person of the Guarantor, including without limitation, the
Transferor if it is then a Subsidiary or Affiliated Person of the
Guarantor (in either case, a "Qualified Transferee"), may become the
Tenant under this Agreement, by an assignment from the New Tenant. If
prior to such assignment from the New Tenant, Landlord elects to
terminate this Agreement by virtue of such default, Landlord shall
deliver to the Transferor and the Manager written notice of Landlord's
election to so terminate this Agreement which notice shall be delivered
at least ten (10) Business Days prior to the effective date of such
termination or exercise. Within such ten (10)-Business Day period, a
Qualified Transferee may elect by written notice to Landlord to
immediately enter into a new lease of the Leased Property for a term of
thirty (30) days, at the Rent (payable on a prorated basis for said
30-day period in advance upon the full execution and delivery of the
new lease), and otherwise upon the covenants, terms and provisions
herein contained. Prior to the expiration of the said 30-day term of
the new lease, the Qualified Transferee may elect by written notice to
Landlord, accompanied by payment to Landlord of all amounts due
Landlord under this Agreement, to extend the term of the new lease for
the remainder of the Term which would have existed but for such
termination, at the Rent and upon the covenants, terms and provisions
herein contained. It is expressly understood and agreed that the rights
and privileges under this Section 16.1(f) shall not accrue to any
Tenant, except as to a Qualified Transferee which becomes the Tenant
under this Agreement.
16.2 Required Sublease Provisions. Any sublease of all or any portion
of the Leased Property entered into on or after the date hereof shall provide
(a) that it is subject and subordinate to this Agreement and to the matters to
which this Agreement is or shall be subject or subordinate; (b) that in the
event of termination of this Agreement or reentry or dispossession of Tenant by
Landlord under this Agreement, Landlord may, at its option, terminate such
sublease or take over all of the right, title and interest of Tenant, as
sublessor under such sublease, and, except as provided below, such subtenant
shall, at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord nor any Facility
Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such
mortgagee succeeds to that position, shall (i) be liable for any act or omission
of Tenant under such sublease, (ii) be subject to any credit, counterclaim,
offset or defense which theretofore accrued to such subtenant against Tenant,
(iii) be bound by any previous prepayment of more than one (1) Accounting
Period, (iv) be bound by any covenant of Tenant to undertake or complete any
construction work on the Leased Property or any portion thereof, (v) be required
to account for any security deposit of the subtenant other than any security
deposit actually delivered to Landlord by Tenant, (vi) be bound by any
obligation to make any payment to such subtenant or grant any credits, except
for services, repairs, maintenance and restoration provided for under the
sublease that are performed after the date of such attornment, (vii) be
responsible for any monies owing by Tenant to the credit of such subtenant, or
(viii) be required to remove any Person occupying any portion of the Leased
Property; and (c), in the event that such subtenant receives a written Notice
from Landlord or any Facility Mortgagee stating that an Event of Default has
occurred and is continuing, such subtenant shall thereafter be obligated to pay
all rentals accruing under such sublease directly to the party giving such
Notice or as such party may direct. All rentals received from such subtenant by
Landlord or the Facility Mortgagee, as the case may be, shall be credited
against the amounts owing by Tenant under this Agreement and such sublease shall
provide that the subtenant thereunder shall, at the request of Landlord, execute
a suitable instrument in confirmation of such agreement to attorn. An original
counterpart of each such sublease duly executed by Tenant and such subtenant
shall be delivered promptly to Landlord and Tenant shall remain liable for the
payment of the Rent and for the performance and observance of all of the
covenants and conditions to be performed by Tenant hereunder. The provisions of
this Section 16.2 shall not be deemed a waiver of the provisions set forth in
Section 16.1(a). No subtenant that is an Affiliated Person of Tenant shall be
required to attorn to Landlord as set forth above in this Section 16.2.
16.3 Permitted Sublease and Assignment. Notwithstanding the foregoing,
but subject to the provisions of Section 16.4 and any other express conditions
or limitations set forth herein, Tenant may, without Landlord's consent,
sublease space at the Leased Property so long as such subleases do not demise,
in the aggregate, in excess of six hundred (600) square feet of area. Any
sublease of space to any Affiliated Person of Tenant or Guarantor shall be on
commercially reasonable terms; provided, however, that any sublease of space to
or for use by Guarantor or any Affiliated Person of Guarantor for marketing
activities shall not be required to be on commercially reasonable terms.
16.4 Sublease Limitation. For so long as Landlord or any Affiliated
Person as to Landlord shall seek to qualify as a real estate investment trust,
anything contained in this Agreement to the contrary notwithstanding, Tenant
shall not sublet the Leased Property on any basis such that the rental to be
paid by any sublessee thereunder would be based, in whole or in part, on either
(a) the income or profits derived by the business activities of such sublessee,
or (b) any other formula such that any portion of such sublease rental would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates. At any time and from time to time, upon not
less than ten (10) Business Days prior Notice by either party, the party
receiving such Notice shall furnish to the other a certificate certifying that
this Agreement is unmodified and in full force and effect (or that this
Agreement is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, that to its knowledge
no Default or an Event of Default by the other party has occurred and is
continuing or, if a Default or an Event of Default shall exist, specifying in
reasonable detail the nature thereof, and the steps being taken to remedy the
same, and such additional information as the requesting party may reasonably
request. If such additional information reasonably requires more than ten (10)
Business Days to provide, the party furnishing such information shall be
entitled to such additional period to respond to such request as may be
reasonably required under the circumstances. Any such certificate furnished
pursuant to this Section 17.1 may be relied upon by the requesting party, its
lenders and any prospective purchaser or mortgagee of the Leased Property or the
leasehold estate created hereby.
17.2 Financial Statements. Within thirty (30) days after the end of
each Accounting Period, Tenant shall furnish to Landlord an unaudited operating
statement for the Facility, including until the first Accounting Period
commencing after the occurrence of the Base Year, occupancy percentages. In
addition, Tenant shall provide Landlord with information relating to Tenant and
its operation of the Leased Property that (a) may be required in order for
Landlord to prepare financial statements in accordance with GAAP or to comply
with applicable securities laws and regulations and the SEC's interpretation
thereof and (b) is of the type that the Guarantor and its Affiliated Persons
customarily prepare for other assisted living facility owners; provided,
however, that (i) Tenant reserves the right, in good faith, to challenge and
require Landlord to use commercially reasonable efforts to challenge any
assertion by the SEC, any other applicable regulatory authority, or Landlord's
independent public accountants that applicable law, regulations or GAAP require
the provision or publication of Proprietary Information, (ii) Landlord shall
not, without Tenant's consent (which consent shall not be unreasonably withheld,
delayed or conditioned), acquiesce to any such challenged assertion until
Landlord has exhausted all reasonable available avenues of administrative
review, and (iii) Landlord shall consult with Tenant in pursuing any such
challenge and will allow Tenant to participate therein if and to the extent that
Tenant so elects. Landlord acknowledges that the foregoing does not constitute
an agreement by Tenant either to join in any Landlord filing with or appearance
before the SEC or any other regulatory authority or to take or consent to any
other action which would cause Tenant to be liable to any third party for any
statement or information other than those statements incorporated by reference
pursuant to clause (a) above. Any and all costs and expenses incurred by Tenant,
including without limitation reasonable attorneys fees and expenses, in
connection with providing information to Landlord in connection with any
challenge to an SEC assertion (including Tenant's consultation or participation
with Landlord in respect of same) shall be reimbursed to Tenant by Landlord
within ten (10) days following written demand by Tenant. If Landlord fails to so
reimburse Tenant within said 10-day period Tenant shall be entitled to offset
against Rent thereafter coming due any such unreimbursed sums, together with
interest thereon at the Disbursement Rate from the date of such demand to the
date actually paid or offset.
Subject to any Facility Mortgagee entering into such
confidentiality agreement with Tenant as Tenant may reasonably require, Landlord
may at any time, and from time to time, provide any Facility Mortgagee with
copies of any of the foregoing statements.
In addition, Landlord shall have the right, from time to
time at Landlord's sole cost and expense, upon reasonable Notice, during
Tenant's customary business hours, to cause Tenant's books and records with
respect to the Leased Property to be audited by auditors selected by Landlord at
the place where such books and records are customarily kept, provided that,
prior to conducting such audit, Landlord shall enter into a confidentiality
agreement with Tenant, such agreement to be in form and substance reasonably
satisfactory to Landlord, Tenant and the Guarantor. The cost of any audit shall
be borne by Landlord.
17.3 General Operations. Tenant shall furnish to Landlord, not less
than seventy-five (75) days after the commencement of any Fiscal Year, proposed
annual budgets in a form consistent with the then standards for the same brand
of assisted living facilities as the Facility setting forth projected income and
costs and expenses projected to be incurred by Tenant in managing, leasing,
maintaining and operating the Facility during the then current Fiscal Year.
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
Tenant shall permit Landlord and its authorized representatives to
inspect the Leased Property at reasonable times of the day upon not less than
twenty-four (24) hours' Notice, and to make such repairs as Landlord is
permitted or required to make pursuant to the terms of this Agreement, provided
that any inspection or repair by Landlord or its representatives will not
unreasonably interfere with Tenant's use and operation of the Leased Property
and further provided that in the event of an emergency, as determined by
Landlord in its reasonable discretion, prior Notice shall not be necessary.
ARTICLE 19
ALTERNATIVE DISPUTE RESOLUTION
19.1 Negotiation. Any and all disputes or disagreements arising out of
or relating to Landlord's disapproval of any Building Estimate or any item
within any Building Estimate pursuant to Section 5.1.3 above, or Landlord's
obligations to disburse funds pursuant to Section 5.1.4(b), shall be resolved
through negotiations or, at the election of either party, if the dispute is not
so resolved within 30 days after Notice from either party commencing such
negotiations, through binding arbitration conducted in accordance with Section
19.2.
19.2 Arbitration.
(a) The party electing arbitration pursuant to Section 19.1
as a result of a dispute described in Section 5.1.3(d) or Section
5.1.4(b) shall give Notice to that effect to the other party and shall
in such Notice appoint an individual as arbitrator on its behalf.
Within 15 days after such Notice, the other party, by Notice to the
initiating party, shall appoint a second individual as arbitrator on
its behalf. The arbitrators thus appointed shall appoint a third
individual, and such three arbitrators shall as promptly as possible
determine such dispute; provided, however, that:
(i) if the second arbitrator shall not have been
appointed as aforesaid, the first arbitrator shall proceed
to determine such dispute; and
(ii) if the two (2) arbitrators appointed by the
parties shall be unable to agree, within 15 days after the
appointment of the second arbitrator, upon the appointment
of a third arbitrator, they shall give written Notice to the
parties of such failure to agree, and, if the parties fail
to agree upon the selection of a third arbitrator within 15
days after the arbitrators appointed by the parties give
Notice as aforesaid, then either of the parties upon Notice
to the other party may request such appointment by the then
Chief Judge of the United States District Court for the
District within the State in which the Leased Property is
located, or in such Judge's absence, refusal, failure or
inability to act, may apply for a court appointment of such
third arbitrator.
(b) Each arbitrator shall be a fit and impartial nationally
recognized consulting firm with at least ten years' experience in
consulting with owners, operators, lenders, and/or franchisors in the
operation of assisted living properties operated under nationally
recognized name brands.
(c) The arbitration shall be conducted within the State in
which the Leased Property is located and, to the extent consistent with
this Section 19.2, in accordance with the rules of the American
Arbitration Association. The arbitrators shall render their decision in
accordance with Section 5.1.3(d) or Section 5.1.4(b), as applicable,
upon the concurrence of at least two of their number, within 30 days
after the appointment of the third arbitrator (or, if only one
arbitrator, pursuant to 19.2(a)(i), then by such arbitrator within 45
days of his or her appointment). Such decision and award shall be in
writing and shall be final, binding and enforceable against the parties
and shall be non-appealable, and counterpart copies thereof shall be
delivered to each of the parties. In rendering such decision and award,
the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Agreement. Judgment may be had on the decision and
award of the arbitrator(s) so rendered in any court of competent
jurisdiction.
(d) Each party shall pay the fees and expenses of the one of
the two original arbitrators appointed by or for such party, and the
fees and expenses of the third arbitrator (or the one arbitrator, if
only one arbitrator is appointed pursuant to Section 19.2(a)(i)) and
all other expenses of the arbitration (other than the fees and
disbursements of attorneys or witnesses for each party) shall be borne
by the parties equally.
ARTICLE 20
FACILITY MORTGAGES
20.1 Landlord May Grant Liens.
(a) Without the consent of Tenant but subject to the
provisions of Section 20.1(b), Landlord may, subject to the terms and
conditions set forth in this Section 20.1, from time to time, directly
or indirectly, create or otherwise cause to exist any lien, encumbrance
or title retention agreement ("Encumbrance") upon the Leased Property,
or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing, provided that any
such Encumbrance shall not secure a maximum principal amount in excess
of the greater of seventy five percent (75%) of the fair market value
of Landlord's interest in the Leased Property, or seventy five percent
(75%) of the Purchase Price (as defined in the Purchase Agreement) for
the Leased Property pursuant to the Purchase Agreement. Any such
Encumbrance shall provide (subject to Section 20.2) that it is subject
to the rights of Tenant under this Agreement. Landlord shall not cross
collateralize the Leased Property with any other property. Landlord
agrees not to enter into any Encumbrance that would allow the Facility
Mortgagee to apply any insurance proceeds or Award to the debt secured
by the Encumbrance but may enter into an Encumbrance that allows the
Facility Mortgagee to hold and disburse insurance proceeds or any Award
to be used, pursuant to the terms of this Agreement, to repair, rebuild
or restore the Leased Property according to usual and customary
procedures (which procedures shall be subject to Tenant's reasonable
approval) for disbursement of construction loan proceeds. For purposes
hereof, the fair market value of Landlord's interest in the Leased
Property shall be based only on the valuation of the rental or other
income owing to Landlord pursuant to the terms of this Agreement,
assuming this Agreement will remain in place in perpetuity regardless
of the expiration date thereof. Tenant may dispute the determination of
the fair market value of Landlord's interest in the Leased Property, in
which case the fair market value of Landlord's interest in the Leased
Property shall be determined by mutual agreement between two (2)
appraisers, each with at least ten (10) years of professional
experience as an appraiser of comparable assisted living facilities,
one appointed by Landlord and the other appointed by Tenant promptly
following Tenant's notice of dispute. If the two (2) appraisers so
appointed are unable to agree upon such fair market value within
forty-five (45) days after their appointment, then they shall promptly
appoint a third appraiser with like qualifications who shall complete
his appraisal within thirty (30) days after appointment, and the
decision of the third appraiser shall be final and binding on Landlord
and Tenant. The fees and expenses of each of the first two (2)
appraisers shall be paid by the party appointing the appraiser, and the
fees and expenses of the third appraiser, if appointed, shall be shared
equally by Landlord and Tenant.
(b) Prior to creating or otherwise causing to exist any
Encumbrance on the Leased Property, Landlord shall give Notice to
Tenant of its proposal with regard to an Encumbrance including
reasonably adequate information for Tenant to determine whether the
loan to value limitations set forth in Section 20.1(a) will be
satisfied.
20.2 Subordination of Lease. Subject to Section 20.1 and this Section
20.2, upon Notice from Landlord, Tenant shall execute and deliver an agreement,
in form and substance reasonably satisfactory to Landlord and Tenant,
subordinating this Agreement to any Encumbrance permitted pursuant to Section
20.1; provided, however, that such subordination shall be on the express
condition that the terms of this Agreement shall be recognized by the mortgagee
or holder of the deed of trust and any purchaser of the Leased Property at any
foreclosure sale (a "Successful Purchaser") and that such mortgagee, holder or
Successful Purchaser shall honor and be bound by this Agreement and that,
notwithstanding any default by Landlord under such Encumbrance or any
foreclosure thereof, Tenant's possession of the Leased Property and rights and
obligations under this Agreement shall not be affected thereby and this
Agreement shall not be terminated other than in accordance with its terms. The
foregoing agreements shall be binding on any purchaser of the Leased Property at
foreclosure. Any mortgage or deed of trust to which this Agreement is, at the
time referred to, subject and subordinate, is herein called "Superior Mortgage"
and the holder, trustee or beneficiary of a Superior Mortgage is herein called
"Superior Mortgagee". Tenant shall have no obligations under any Superior
Mortgage other than those expressly set forth in this Section 20.2. If any
Superior Mortgagee or the nominee or designee of any Superior Mortgagee or any
Successful Purchaser, shall succeed to the rights of Landlord under this
Agreement (any such person, "Successor Landlord"), whether through possession or
foreclosure action or delivery of a new lease or deed, or otherwise, such
Successor Landlord shall recognize Tenant's rights under this Agreement as
herein provided and Tenant shall attorn to and recognize the Successor Landlord
as Tenant's landlord under this Agreement and Tenant shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment (provided that such instrument does not alter the terms
of this Agreement), whereupon, this Agreement shall continue in full force and
effect as a direct lease between the Successor Landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this Agreement, except
that the Successor Landlord (unless formerly the landlord under this Agreement
or its nominee or designee) shall not be (a) liable in any way to Tenant for any
act or omission, neglect or default on the part of any prior Landlord under this
Agreement, (b) responsible for any monies owing by or on deposit with any prior
Landlord to the credit of Tenant (except to the extent actually paid or
delivered to the Successor Landlord), (c) bound by any modification of this
Agreement subsequent to such Superior Mortgage, or by any previous prepayment of
Minimum Rent or Percentage Rent for more than one (1) month in advance of the
date due hereunder, which was not approved in writing by the Superior Mortgagee
thereto, (d) liable to Tenant beyond the Successor Landlord's interest in the
Leased Property and the rents, income, receipts, revenues, issues and profits
issuing from the Leased Property, or (e) required to remove any Person occupying
the Leased Property or any part thereof, except if such person claims by,
through or under the Successor Landlord; provided, however, that any offset
rights of Tenant pursuant to Section 14.3(a) that, prior thereto, accrued in
Tenant's favor shall continue and Tenant shall be entitled to offset the
remaining balance of such deficient amounts plus interest therein from the date
of funding at the Disbursement Rate against Rent payable by Tenant to such
Successor Landlord. Tenant agrees at any time and from time to time to execute a
suitable instrument in confirmation of Tenant's agreement to attorn, as
aforesaid and Landlord agrees to provide Tenant with an instrument of
nondisturbance and attornment from each such Superior Mortgagee in form and
substance reasonably satisfactory to Tenant. Notwithstanding the foregoing,
Landlord, any Successor Landlord and/or Superior Mortgagee shall be liable to
pay to Tenant any portions of insurance proceeds or Awards received by the
Landlord, Successor Landlord and/or Superior Mortgagee, respectively, and
required to be paid to Tenant or otherwise applied to the cost of repair,
restoration or rebuilding of the Leased Property pursuant to the terms of this
Agreement, and, as a condition to any mortgage, lien or lease in respect of the
Leased Property, and the subordination of this Agreement thereto, the mortgagee,
lienholder or lessor, as applicable, shall expressly agree, for the benefit of
Tenant, to make such payments, which agreement shall be embodied in an
instrument in form reasonably satisfactory to Tenant.
20.3 Notices. Subsequent to the receipt by Tenant of Notice from
Landlord as to the identity of any Facility Mortgagee which complies with
Section 20.1 (which Notice shall be accompanied by a copy of the applicable
mortgage or lease), no notice from Tenant to Landlord as to the Leased Property
shall be effective unless and until a copy of the same is given to such Facility
Mortgagee at the address set forth in the above described Notice, and the curing
of any of Landlord's defaults by such Facility Mortgagee shall be treated as
performance by Landlord.
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT
21.1 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property and activities incidental
thereto and shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect and in good standing its existence and its
rights and licenses necessary to conduct such business.
21.2 Maintenance of Accounts and Records. Tenant shall keep true
records and books of account of Tenant in which full, true and correct entries
will be made of dealings and transactions in relation to the business and
affairs of Tenant and the Facility in accordance with GAAP. Provided Landlord
shall give to Tenant at least ten (10) Business Days written notice of
Landlord's desire to audit such accounts and records, Landlord, at its expense,
shall have the right to audit such accounts and records during normal business
hours. Not more than one (1) such audit shall be conducted within any twelve
(12) month period. Landlord shall keep in confidence all information which it
might gain or gather from the examination or audit of Tenant's accounts and
records, unless required to disclose such information pursuant to Applicable
Laws.
21.3 Certain Debt Prohibited. Tenant shall not incur any
Indebtedness except the following:
(a) Indebtedness of Tenant to Landlord under this Agreement
or to Operator under the Operating Agreement;
(b) Indebtedness of Tenant in respect of loans, the proceeds
of which are used to pay amounts owed under this Agreement or the
Operating Agreement, and which are by their terms expressly subordinate
to the payment and performance of Tenant's obligations under this
Agreement;
(c) Indebtedness of Tenant for Impositions, to the extent
that payment thereof shall not at the time be required to be made in
accordance with the provisions of Article 8;
(d) Indebtedness of Tenant in respect of judgments or awards
(i) which have been in force for less than the applicable appeal period
and in respect of which execution thereof shall have been stayed
pending such appeal or review, or (ii) which are fully covered by
insurance payable to Tenant, or (iii) which are for an amount not in
excess of $750,000 in the aggregate at any one time outstanding and (x)
which have been in force for not longer than the applicable appeal
period, so long as execution is not levied thereunder or (y) in respect
of which an appeal or proceedings for review shall at the time be
prosecuted in good faith in accordance with the provisions of Article
8, and in respect of which execution thereof shall have been stayed
pending such appeal or review;
(e) unsecured borrowings of Tenant from its Affiliated
Persons which are by their terms expressly subordinate to the payment
and performance of Tenant's obligations under this Agreement; or
(f) Indebtedness for purchase money financing and other
indebtedness incurred in the ordinary course of Tenant's business,
including the leasing of personal property;
21.4 Special Purpose Entity Requirements. Following any transfer
described in Section 16.1(c) and continuing for so long as Tenant is not an
Affiliated Person of Guarantor, Tenant shall comply with the following:
(a) Tenant will be a special purpose entity, either a
corporation, a limited partnership, or a limited liability company
whose purpose will be limited to leasing and operating the Leased
Property.
(b) Tenant's organizational documents shall limit the
ability to incur any Indebtedness except as permitted by Section 21.3.
(c) Tenant's organizational documents will provide that the
favorable vote of an independent director shall be required for the
following matters: (i) filing, or consenting to the filing of, a
bankruptcy or insolvency petition or otherwise instituting insolvency
proceedings; (ii) dissolution, liquidation, consolidation, merger or
sale of all or substantially all of its controlling assets (unless such
entity is merged or consolidated with, acquired by, or its assets are
sold to, Guarantor or an Affiliated Person of Guarantor); (iii)
engaging in any unrelated business activities; and (iv) amending its
organizational documents in a way that would change any of the
requirements provided herein.
(d) Tenant shall observe and maintain its business and
affairs separate and independent of the business and affairs of any
Affiliated Person of Tenant, including without limitation: (i)
maintaining books and records separate from any Affiliated Person of
Tenant; (ii) maintaining its accounts separate from any Affiliated
Person of Tenant; (iii) not co-mingling its assets with those of any
Affiliated Person of Tenant; (iv) conducting its own business in its
own name; (v) not guaranteeing, or becoming obliged for, debts for any
other Person or holding out its credit as being available to satisfy
the obligations of any other Person (except to the extent of
indemnities and other obligations, if any, arising under any Operating
Agreement or credit arrangements for the Leased Property or arising in
the ordinary course of its business); and (vi) using separate
stationery, invoices and checks.
21.5 Distributions, Payments to Affiliated Persons, Etc. Tenant shall
not declare, order, pay or make, directly or indirectly, any Distributions if,
at the time of such proposed action, or immediately after giving effect thereto,
any Event of Default with respect to the payment of Rent shall have occurred and
be continuing; provided, however, that Tenant may resume making such
Distributions if (i) Landlord shall not commence, within ninety (90) days after
Notice by Landlord to Tenant of the occurrence of any such Event of Default, to
enforce its rights and remedies arising on account of such Event of Default with
respect to the payment of Rent, and diligently pursue enforcement of such rights
and remedies thereafter, and (ii) no other Event of Default (i.e., an Event of
Default arising from a cause other than the non-payment of Rent) has occurred as
to which Landlord has commenced enforcing and is continuously and diligently
pursuing the enforcement of its rights and remedies arising on account of any
such Event of Default.
21.6 Compliance with Operating Agreement. Tenant shall substantially
comply with all material terms and provisions of the Operating Agreement (or any
replacement thereof) to be complied with by Tenant, subject to Tenant's right to
pursue all available remedies, at law and in equity, with respect to any alleged
default by Tenant in the performance of its duties and obligations under the
Operating Agreement, or otherwise contest, in good faith and with due diligence,
any such alleged default by Tenant; provided, however, that in the event of any
casualty or condemnation or other event or circumstances, Tenant shall not be
obligated to expend its own funds in excess of such amounts that Tenant would be
obligated pursuant to the Lease to expend under such event or circumstances.
Unless required by Applicable Laws, Tenant shall not enter into any
modifications or amendments of the Operating Agreement, nor, except as otherwise
expressly set forth in this Agreement or the Owner Agreement, terminate the same
prior to the expiration thereof, without Landlord's prior written consent; nor
shall Tenant enter into any replacement of the Operating Agreement without
Landlord's prior written consent. To the extent required by this Section 21.6,
Landlord's consent shall not be unreasonably withheld or conditioned so long as
any such modification, amendment, termination or replacement of the Operating
Agreement does not materially and adversely affect the duties and obligations of
the parties thereunder. Notwithstanding the foregoing, in the event that the
Operating Agreement is terminated by reason of a default by the Operator
thereunder, Landlord shall not unreasonably withhold or condition its consent to
the selection by Tenant of another Operator with experience in the assisted
living facility business and the execution of a new Operating Agreement in form
and substance satisfactory to Tenant and such new Operator. To the extent Tenant
receives any notices, budgets, reports or other documents or materials from the
Operator that the Operator is required to provide to Tenant pursuant to the
Operating Agreement, Tenant will promptly forward a copy of the same to Landlord
if the Operator has not sent the same to Landlord.
ARTICLE 22
MISCELLANEOUS
22.1 Limitation on Payment of Rent. All agreements between Landlord and
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any other amounts payable to Landlord under this Agreement exceed the
maximum permissible under Applicable Laws, the benefit of which may be asserted
by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of
any provision of this Agreement, at the time performance of such provision shall
be due, shall involve transcending the limit of validity prescribed by law, or
if from any circumstances Landlord should ever receive as fulfillment of such
provision such an excessive amount, then, ipso facto, the amount which would be
excessive shall be applied to the reduction of the installment(s) of Minimum
Rent next due and not to the payment of such excessive amount. This provision
shall control every other provision of this Agreement and any other agreements
between Landlord and Tenant.
22.2 No Waiver. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the maximum extent permitted by law, no
waiver of any breach shall affect or alter this Agreement, which shall continue
in full force and effect with respect to any other then existing or subsequent
breach.
22.3 Remedies Cumulative. To the maximum extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord or Tenant,
now or hereafter provided either in this Agreement or by statute or otherwise,
shall be cumulative and concurrent and shall be in addition to every other
right, power and remedy and the exercise or beginning of the exercise by
Landlord or Tenant (as applicable) of any one or more of such rights, powers and
remedies shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all of such other rights, powers and remedies.
22.4 Severability. Any clause, sentence, paragraph, section or
provision of this Agreement held by a court of competent jurisdiction to be
invalid, illegal or ineffective shall not impair, invalidate or nullify the
remainder of this Agreement, but rather the effect thereof shall be confined to
the clause, sentence, paragraph, section or provision so held to be invalid,
illegal or ineffective, and this Agreement shall be construed as if such
invalid, illegal or ineffective provisions had never been contained therein.
22.5 Acceptance of Surrender. No surrender to Landlord of this
Agreement or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing by
Landlord and no act by Landlord or any representative or agent of Landlord,
other than such a written acceptance by Landlord, shall constitute an acceptance
of any such surrender.
22.6 No Merger of Title. It is expressly acknowledged and agreed that
it is the intent of the parties that there shall be no merger of this Agreement
or of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.
22.7 Conveyance by Landlord. If Landlord or any successor owner of all
or any portion of the Leased Property shall convey all or any portion of the
Leased Property in accordance with the terms of this Agreement (specifically
including Article 15) other than as security for a debt, and the grantee or
transferee of such of the Leased Property shall expressly assume all obligations
of Landlord hereunder arising or accruing from and after the date of such
conveyance or transfer, Landlord or such successor owner, as the case may be,
shall thereupon be released from all future liabilities and obligations of
Landlord under this Agreement with respect to such of the Leased Property
arising or accruing from and after the date of such conveyance or other transfer
and all such future liabilities and obligations shall thereupon be binding upon
the new owner.
22.8 Quiet Enjoyment. Provided that no Event of Default shall have
occurred and be continuing, Tenant shall peaceably and quietly have, hold and
enjoy the Leased Property for the Term, free of hindrance or molestation by
Landlord or anyone claiming by, through or under Landlord, but subject to (a)
any Encumbrance permitted under Article 20 or otherwise permitted to be created
by Landlord hereunder, (b) all Permitted Encumbrances, (c) liens as to
obligations of Landlord that are either not yet due or which are being contested
in good faith and by proper proceedings, provided the same do not materially
interfere with Tenant's ability to operate the Facility and (d) liens that have
been consented to in writing by Tenant. Except as otherwise provided in this
Agreement, no failure by Landlord to comply with the foregoing covenant shall
give Tenant the right to cancel or terminate this Agreement or abate, reduce or
make a deduction from or offset against the Rent or any other sum payable under
this Agreement, or to fail to perform any other obligation of Tenant hereunder.
22.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this
Agreement. However, Landlord and Tenant shall promptly, upon the request of the
other, enter into a short form memorandum of this Agreement, in form suitable
for recording under the laws of the State in which reference to this Agreement,
and all options contained herein, shall be made. The parties shall share equally
all costs and expenses of recording such memorandum; provided, however, that in
no event shall the non-requesting party's share of such recording costs and
expenses exceed $25,000.
22.10 Notices.
(a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted under
this Agreement shall be deemed adequately given if in writing and the
same shall be delivered either in hand, by telecopier with written
acknowledgment of receipt, or by mail or Federal Express or similar
expedited commercial carrier, addressed to the recipient of the notice,
postpaid and registered or certified with return receipt requested (if
by mail), or with all freight charges prepaid (if by Federal Express or
similar carrier).
(b) All notices required or permitted to be sent hereunder
shall be deemed to have been given for all purposes of this Agreement
upon the date of acknowledged receipt, in the case of a notice by
telecopier, and, in all other cases, upon the date of receipt or
refusal, except that whenever under this Agreement a notice is either
received on a day which is not a Business Day or is required to be
delivered on or before a specific day which is not a Business Day, the
day of receipt or required delivery shall automatically be extended to
the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
CNL Health Care Partners, LP
CNL Center at City Commons
450 South Orange Avenue
Orlando, FL 32801-3336
Attn: Mr. Phillip M. Anderson or Chief Operating Officer
Telecopier No. (407) 835-3232
with a copy to:
Lowndes Drosdick Doster Kantor and Reed, P.A.
215 North Eola Drive
P.O. Box 2809
Orlando, FL 32809
Attn: David G. Williford, Esq.
Telecopier No. (407) 843-4444
if to Tenant to:
c/o Marriott International, Inc.
10400 Fernwood Road, Dept. 52-924.04
Bethesda, Maryland 20817
Attn: Treasury
Telecopier No. (301) 380-5067
with a copy to:
Marriott International, Inc.
10400 Fernwood Road, Dept. 52/923.24
Bethesda, Maryland 20817
Attn: Kevin E. Montano, Esquire
Law Department
Telecopier No. (301) 380-6727
(d) By notice given as herein provided, the parties hereto
and their respective successors and assigns shall have the right from
time to time and at any time during the term of this Agreement to
change their respective addresses effective upon receipt by the other
parties of such notice and each shall have the right to specify as its
address any other address within the United States of America.
22.11 Construction; Nonrecourse. Anything contained in this Agreement
to the contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated except by an instrument in writing signed by
all the parties thereto. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns. Each term or provision of this Agreement to be
performed by Tenant shall be construed as an independent covenant and condition.
Time is of the essence with respect to the exercise of any rights of Tenant or
Landlord under this Agreement. Except as otherwise set forth in this Agreement,
any obligations arising prior to the expiration or sooner termination of this
Agreement of Tenant (including without limitation, any monetary, repair and
indemnification obligations) and Landlord shall survive the expiration or sooner
termination of this Agreement; provided, however, that each party shall be
required to give the other Notice of any such surviving and unsatisfied
obligations within one year after the expiration or sooner termination of this
Agreement. Except as otherwise expressly provided with respect to the Security
Deposit, nothing contained in this Agreement shall be construed to create or
impose any liabilities or obligations and no such liabilities or obligations
shall be imposed on any of the shareholders, beneficial owners, direct or
indirect, officers, directors, trustees, employees or agents of Landlord or
Tenant for the payment or performance of the obligations or liabilities of
Landlord or Tenant hereunder. Further, in the event Landlord shall be in default
under this Agreement, and if as a consequence of such default, Tenant shall
recover a money judgment against Landlord, such judgment shall be satisfied only
out of the proceeds of sale received upon execution of such judgment against the
right, title and interest of Landlord in the Leased Property; provided, however,
that nothing herein shall be construed or operate to affect or diminish in any
way whatsoever the liability of CHCLP and/or CHCP under the CHCLP and CHCP
Guaranty for such deficiency and/or the full performance of Landlord's
obligations under this Agreement.
22.12 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Headings in
this Agreement are for purposes of reference only and shall not limit or affect
the meaning of the provisions hereof.
22.13 Applicable Law, Etc. This Agreement shall be interpreted,
construed, applied and enforced in accordance with the laws of the State
applicable to contracts between residents of the State which are to be performed
entirely within the State, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required by this
Agreement is made or required to be made; or (iii) where any breach of any
provision of this Agreement occurs, or any cause of action otherwise accrues; or
(iv) where any action or other proceeding is instituted or pending; or (v) the
nationality, citizenship, domicile, principal place of business, or jurisdiction
of organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any
action to enforce, arising out of, or relating in any way to, any of the
provisions of this Agreement may be brought and prosecuted in such court or
courts located in the State as is provided by law; and the parties consent to
the jurisdiction of said court or courts located in the State and to service of
process by registered mail, return receipt requested, or by any other manner
provided by law.
22.14 Right to Make Agreement. Each party warrants, with respect to
itself, that neither the execution of this Agreement, nor the consummation of
any transaction contemplated hereby, shall violate any provision of any law, or
any judgment, writ, injunction, order or decree of any court or governmental
authority having jurisdiction over it; nor result in or constitute a breach or
default under any indenture, contract, other commitment or restriction to which
it is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.
22.15 Disclosure of Information.
(a) Any Proprietary Information obtained by Landlord with
respect to Tenant pursuant to the provisions of this Agreement shall be
treated as confidential, except that such information may be used,
subject to confidentiality safeguards mutually acceptable to Landlord
and Tenant, in any litigation between the parties and except further
that, subject to the terms of Section 22.16, Landlord may disclose such
information to its prospective lenders, provided that Landlord shall
direct and obtain the agreement of such lenders to maintain such
information as confidential.
(b) The parties hereto agree that the matters set forth in
this Agreement and any revenue, expense, net profit, fee rates and
occupancy information provided by Tenant or any of its Affiliated
Persons are strictly confidential and each party will make every effort
to ensure that the information is not disclosed to any Person that is
not an Affiliated Person as to any party (including the press) without
the prior written consent of the other party, except as may be required
by law and as may be reasonably necessary to obtain licenses, permits
and other public approvals necessary for the refurbishment or operation
of the Facility, or, subject to the restrictions of Section 22.15(c)
relative to the contents of any Prospectus, in connection with a
Landlord financing, a sale of the Facility, or a sale of a controlling
interest in Landlord, Tenant or the Guarantor.
(c) No reference to Tenant or any of its Affiliated Persons
will be made in any prospectus, private placement memorandum, offering
circular or offering documentation related thereto (collectively, the
"Prospectus"), issued by Landlord or any of its Affiliated Persons,
which is designed to interest potential investors in the Facility,
unless Tenant has previously received a copy of all such references. No
Prospectus shall include fee rate and occupancy data or revenue,
expense or net profit information pertaining to the Facility.
Regardless of whether Tenant so receives a copy of the Prospectus,
neither Tenant nor its Affiliated Persons will be deemed a sponsor of
the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state.
Unless Tenant agrees in advance, the Prospectus will not include any
trademark, symbols, logos or designs of Tenant or any of its Affiliated
Persons. Landlord shall indemnify, defend and hold Tenant harmless from
and against all loss, costs, liability and damage (including reasonable
attorneys' fees and expenses, and all cost of litigation) arising out
of any Prospectus or the offering described therein; and this
obligation of Landlord shall survive termination of this Agreement.
(d) The obligations of Tenant and Landlord contained in this
Section 22.15 shall survive the expiration or earlier termination of
this Agreement and shall supersede any previous agreement or letter
between the parties regarding the substance of this Section 22.15.
22.16 Trademarks, Trade Names and Service Marks.
(a) The names "Marriott" and "Brighton Gardens" (each of the
foregoing names, together with any combination thereof, collectively,
the "Trade Names") when used alone or in connection with another word
or words, and the Marriott and Brighton Gardens trademarks, service
marks, other trade names, symbols, logos and designs shall in all
events remain the exclusive property of Guarantor or its Affiliated
Persons, and nothing contained in this Agreement shall confer on
Landlord the right to use any of the Trade Names, or the Marriott or
Brighton Gardens trademarks, service marks, other trade names, symbols,
logos or designs other than in strict accordance with the terms of this
Agreement. Upon termination of this Agreement, any use of or right to
use any of the Trade Names, or any of the Marriott or Brighton Gardens
trademarks, service marks, other trade names, symbols, logos or designs
by Landlord shall be governed by the Operating Agreement and/or Owner
Agreement, upon termination of this Agreement, and, if the Operating
Agreement or a replacement Operating Agreement will not remain in
effect, Landlord shall promptly remove from the Facility any signs or
similar items which contain any of the Trade Names, trademarks, service
marks, other trade names, symbols, logos or designs. If Landlord has
not removed such signs or similar items within ten (10) Business Days
after termination of this Agreement, Tenant shall have the right to do
so at Landlord's expense. Included under the terms of this section are
all trademarks, service marks, trade names, symbols, logos or designs
used in conjunction with the Facility, whether or not the marks contain
the "Marriott" name or the "Brighton Gardens" name. The right to use
such trademarks, service marks, trade names, symbols, logos or designs
belongs exclusively to Tenant and its Affiliated Persons, and the use
thereof inures to the benefit of Tenant and its Affiliated Persons
whether or not the same are registered and regardless of the source of
the same. The provisions of this Section 22.16(a) shall survive
termination of this Agreement.
(b) Any computer software (including upgrades and
replacements) at the Facility owned by Tenant or any of its Affiliated
Persons, or the licensor of any of them is proprietary to Tenant or any
of its Affiliated Persons, or the licensor of any of them and shall in
all events remain the exclusive property of Tenant or any of its
Affiliated Persons or the licensor of any of them, as the case may be,
and nothing contained in this Agreement shall confer on Landlord the
right to use any of such software. Tenant shall have the right to
remove from the Facility without compensation to Landlord any computer
software (including upgrades and replacements), including, without
limitation, the system software, owned by Tenant or any of its
Affiliated Persons or the licensor of any of them. Further, upon
termination of this Agreement, Tenant shall be entitled to remove from
the Facility without compensation to Landlord any computer equipment
utilized as part of a centralized reservation system or owned by a
party other than the Landlord.
22.17 Competing Facilities. Neither this Agreement nor anything implied by the
relationship between Landlord and Tenant shall prohibit any of the Marriott
Companies from constructing, operating, promoting, and/or authorizing others to
construct, operate, or promote one or more assisted living facilities or any
other business operations of any type, at any location, including a location
proximate to the Land. Landlord acknowledges, accepts and agrees further that
the Marriott Companies retain the right, from time to time, to construct or
operate, or both, or promote or acquire, or authorize or otherwise license
others to construct or operate, or both, or promote or acquire any assisted
living facilities or other business operations of any type whatsoever,
including, but not by way of limitation, those listed above, at any location
including one or more sites which may be adjacent, adjoining or proximate to the
Land, which business operations may be in direct competition with the Leased
Improvements and that any such exercise may adversely affect the operation of
the Leased Improvements.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date above first written.
LANDLORD:
CNL HEALTH CARE PARTNERS, LP,
a Delaware limited partnership
By: CNL Health Care GP Corp.,
a Delaware corporation,
general partner
By: /s/ Phillip M. Anderson
Phillip M. Anderson
Executive Vice President
TENANT:
BG ORLAND PARK, LLC,
a Delaware limited liability company
By: Marriott Senior Living Services, Inc.,
its sole Member
By: /s/ Timothy J. Grisius
Timothy J. Grisius
Agent
<PAGE>
EXHIBIT 10.13
Revolving Line of Credit Agreement with
CNL Health Care Properties, Inc.,
CNL Health Care Partners, LP and Colonial Bank
<PAGE>
MASTER REVOLVING
LINE OF CREDIT
LOAN AGREEMENT
THIS MASTER REVOLVING LINE OF CREDIT LOAN AGREEMENT, dated April 20,
2000 (the "Master Loan Agreement"), is made by and between CNL HEALTH CARE
PROPERTIES, INC., a Maryland corporation and CNL HEALTH CARE PARTNERS, LP, a
Delaware limited partnership (collectively "Borrower"), with its offices at 450
S. Orange Avenue, Orlando, Florida 32801-3336, and COLONIAL BANK, a state
chartered bank organized and existing under the laws of the State of Alabama,
with its offices located at 201 East Pine Street, Suite 701, Orlando, Florida,
32801 ("Bank").
RECITALS
A. Borrower has applied to Bank for a $25,000,000.00 credit facility
to provide financing for various loans of differing amounts (hereinafter
individually referred to as a "Loan" or collectively as the "Loans"), to be
advanced by Bank pursuant to the terms hereof.
B. Borrower will use the proceeds of the Loans to acquire assisted
living facilities, independent congregate care living facilities and medical
office buildings including skilled nursing beds as part of a larger community
and related improvements or amenities ("SLFs"), which shall be leased to
acceptable credit tenants, as herein provided.
C. Borrower and Bank wish to enter into this Master Loan Agreement to
provide a format to be effective, to the extent possible, with respect to such
Loans as Bank has presently agreed to make or may, in the future, agree to make.
D. From time to time Borrower and Bank shall enter into a Funding
Agreement/Loan Summary for each Loan which shall set forth certain specific loan
information (the "Loan Summaries" or, individually, a "Loan Summary") pertaining
to individual Loans that may be approved by Bank as provided herein and agreed
upon between the parties, the terms of which shall be incorporated herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrower and Bank hereby agree as
follows:
ARTICLE I
Definitions
1.1 For the purposes hereof, for each Loan:
a. "Architect" or "Supervising Architect" means the architect, who will serve as
Borrower's architect, as identified in the Loan Summary. Borrower shall retain
an architect who will perform various services in connection with SLFs on behalf
of Borrower under an Architect's Contract (as hereinafter defined) with
Borrower. Bank's Consultant and Borrower's supervising architect shall not be
the same person or firm; b. "Assisted Living Facility" means any Land, building
and related structure designed for assisted living of residents with all related
Improvements, amenities, utilities, parking areas and other facilities
associated therewith that is managed, maintained and operated by an entity with
substantial senior living facility ownership and management experience. c.
"Closing Date" means the date upon which a Loan is closed pursuant to the terms
hereof; d. "Commitment" means Bank's commitment letter (and all amendments
thereto) to Borrower, if any, as described in the Loan Summary, the terms and
conditions of which are incorporated herein by reference, but in the event of
any conflict or discrepancy between the terms of this Master Loan Agreement and
the Commitment, the terms of this Master Loan Agreement shall control; e.
"Consultant" means the architectural or engineering firm which Bank shall
designate to perform various services on behalf of Bank. The services to be
performed by Bank's Consultant include inspections of the SLFs and all
utilities, services, systems or facilities used in conjunction therewith; f.
"Default" means a violation of any term, covenant, or condition hereunder or a
Default as defined under any of the Loan Documents which remains uncured after
the expiration of any applicable grace period or required notice, if any,
provided in the Loan Documents; g. "Default Condition" means the occurrence or
existence of an event or condition which, upon the giving of notice or the
passage of time, or both, would constitute a Default; h. "Financing Statements"
means the UCC financing statements filed in order to perfect Bank's lien on
certain leases, contract rights, personal property and fixtures as more
particularly described therein; i. "Governmental Authorities" means any local,
state, or federal governmental agency, regulatory body or office, or any
quasi-govern mental office (including health and environmental), or any officer
or official of any such agency, office, or body whose consent or approval is
required as a prerequisite to the commencement of the construction of the
Improvements, or to the operation and occupancy of the Improvements or the SLF,
or to the performance of any act or obligation or the observance of any
agreement, provision or condition of whatsoever nature herein contained; j.
"Improvements" means all improvements on the Land (as defined hereinbelow),
including without limitation the improvements described in the Loan Summary; k.
"Land" means all the real property upon which an SLF is located, including,
without limitation, all improvements and amenities associated therewith, and
shall include all easements, licenses, permits, approvals, drainage rights,
impact fee or use credits and all other hereditaments, right, title and interest
associated and used in conjunction with the SLF; l. "Loan Documents" means this
Master Loan Agreement, the Note, the Assignment of Leases and Rents, the
Agreement Not to Encumber, and the Financing Statements, and any other document
or writing executed in connection therewith or in furtherance thereof; m. "Note"
means a promissory note dated as of the Closing Date executed by Borrower in
favor of Bank evidencing a particular Loan for a particular SLF, as well as any
promissory note or notes issued by Borrower in substitution, replacement,
extension, future advance, amendment, assumption or renewal of the Note or any
such promissory note or notes; n. "Operator" means the manager of an SLF under
an operating agreement. o. "Operating Agreement" means an agreement between a
tenant under a Primary Lease and a licensed management company experienced in
the management of SLFs to the reasonable satisfaction of Bank. p. "Permitted
Encumbrances" means those liens, encumbrances, easement and other matters
specified in the Agreement Not to Encumber as "Permitted Encumbrances"; q.
"Plans" means plans and specifications for the Improvements prepared by the
Architect and identified by Bank, and including such amendments thereto as may
from time to time be made by Borrower and approved by Bank. r. "Primary Lease"
means a valid, binding executed and existing lease for the use of a SLF which is
for an initial term of more than three (3) years and is entered into between
Borrower and either (i) a tenant who is an experienced SLF manager which is
deemed to be creditworthy by the Bank or (ii) a tenant who retains an
experienced Operator pursuant to an Operating Agreement and such other terms as
are acceptable to Bank and Bank counsel. s. "Title Policy" means the owner's
title policy meeting the requirements of this Master Loan Agreement.
ARTICLE II
Line of Credit Guidance Facility
2.1 Loan Facility. Upon the execution of this Master Loan Agreement, and subject
to the terms hereof, the Bank has agreed to provide a credit facility to the
Borrower in an amount up to a maximum of $25,000,000.00 (the "Master Facility").
Borrower hereby acknowledges and agrees that the execution of this Master Loan
Agreement does not obligate Bank to make a future Loan for any specific future
SLF or any other loans, and that any future request by Borrower for an
additional Loan for a new SLF shall be made or denied by Bank in the exercise of
its sole discretion. Such decision may not be based on any specific financial
performance or other criteria of Borrower, or an SLF, or by prior actions,
agreements or loans by Bank to Borrower. Bank shall retain full and complete
discretion to review and approve or disapprove future loan requests under this
Master Loan Agreement as and when such requests are made by Borrower. Bank shall
make any decisions on future requests for a Loan for a future SLF, if any, based
solely upon its own underwriting and other decision making processes. Borrower's
proper compliance with the Loan Documents (including, without limitation, this
Master Loan Agreement) will not be determinative of whether any future Loans or
other loan requests are approved or granted. Bank and Borrower acknowledge and
agree that the structure of this Master Loan Agreement has been prepared in such
a way as to set out the terms of any future Loans and to structure the Loan
Documents to provide a format that may reduce or minimize costs in the event
future Loans are made by Bank to Borrower and Borrower acknowledges it has fully
consulted with its legal counsel in connection therewith, and has satisfied
itself as to the structure and format of the Loan Documents delivered and
reviewed by Borrower as of the date of this Master Loan Agreement in that
regard.
2.2 Term of Master Facility. The Master Facility shall be for a term of five (5)
years from the date of this Master Loan Agreement, subject to termination by
Bank within ninety (90) days of each anniversary date of this Master Loan
Agreement, in the event the Bank determines there has been a material
deterioration in the Loan or value of the collateral, as determined in Bank's
reasonable discretion, and such termination shall be effective upon written
notice to Borrower within such ninety (90) day period, whereupon the Master
Facility shall expire and terminate on the date so specified in the notice,
provided any outstanding Loan would mature on the maturity date as provided that
in the respective Note evidencing such Loan, and would remain unaffected by such
termination.
2.3 Terms of Future Loans. Upon the approval of any request by Borrower of a new
Loan for a new SLF, such Loan shall be made in accordance with the terms and
provisions of this Master Loan Agreement and the following terms:
a. Interest Rate: The outstanding principal balance shall bear interest at a
variable rate per annum equal to either (i) the Base Rate, or (ii) the LIBOR
Rate plus the number of basis points necessary as of the Closing Date for the
interest rate under a Note to equal the Base Rate as of the Closing Date, for
Loans on SLFs, as selected by Borrower at the time of making each loan (the
"Interest Rate"). The Interest Rate shall be adjusted daily in accordance with
fluctuations in the Base Rate or the LIBOR Rate, as applicable. "Base Rate"
shall mean the fluctuating rate of interest per annum established by Colonial
Bank as its base lending rate in effect from time to time whether or not such
rate shall be otherwise published. Such Base Rate is established by Colonial
Bank as an index or base rate and may or may not at any time be the best or
lowest rate of interest offered by Bank. The "LIBOR Rate" means a rate per annum
for U.S. dollar deposits for a 90 day maturity as reported on page 3750 (under
the caption "USD" of the Telerate Services, Incorporated, screen or such other
display as may replace such page) as of 11:00 a.m., London time, two London
Business Days before the relevant Interest Period begins (or if not so reported,
a then as determined by Lender from another recognized source or interbank
quotation). LIBOR shall be rounded to the next higher 1/1000 of one percent.
"London Business Day" means any business day on which commercial banks are open
for international business (including dealings in dollar deposits) in London.
Notwithstanding the foregoing, the Note in the amount of Nine Million Seven
Hundred Thousand and 00/100 Dollars ($9,700,000.00) representing the initial
advance hereunder shall bear interest at 8.75% fixed per annum for two (2) years
in accordance with the terms of the Note. Lender shall have no obligation to
offer any fixed or variable rate to Borrower for any other advance hereunder
other than as set forth above. b. Term: Sixty (60) months from the Closing Date
of the Loan for a specific SLF. c. Loan Commitment Fee: Borrower shall pay to
Bank a loan commitment fee equal to one-half of one percent (1/2%) of the actual
disbursements under each Loan, as provided herein. Borrower may borrow, repay
and re-borrow under the Loan and during the first two (2) years after the date
of this Agreement, Borrower shall pay the one-half of one percent (1/2%) fee
only on the amounts initially disbursed under each Note (but not on any amounts
re-borrowed under
<PAGE>
each Note) and in no event will Borrower be obligated to pay the commitment fee
on more than $25,000,000.00 disbursed under the Loan. Beginning on the second
anniversary of the date of this Agreement the one-half of one percent (1/2%) fee
shall be due on all disbursements thereafter.
2.4 Notes. The funds loaned under the Master Facility will be evidenced by
various Notes indicating the principal amount of each Loan made pursuant to the
line of credit; provided, however, that the amount actually due from Borrower to
Bank from time to time will be evidenced by the Bank's records (provided such
amounts are prepared and posted properly without arithmetic or mathematical
errors), and may increase and decrease from time to time, or be completely
repaid and again reborrowed, but in no event shall the total amount due exceed
$25,000,000.00.
2.5 Release by Borrower. Borrower waives and releases any claims, now or in the
future, known or unknown, that it may have to require or compel Bank to provide
future Loans other than as may be separately agreed by Borrower and Bank
pursuant to a subsequent commitment letter or other written agreement between
the parties, specifying the terms and conditions of such fundings. Any such
commitment or agreement shall be satisfactory to Bank, in its sole discretion.
In connection therewith, Borrower will execute such additional loan
documentation as Bank shall require including, without limitation, amendments
and modifications to the Loan Documents, together with the Loan Summary, which
will evidence and set forth the particular terms, conditions, restrictions,
agreements and covenants that pertain to the future Loans, as required by Bank.
Borrower acknowledges and agrees that the terms and conditions in any future
Loan Summary and related loan documentation shall be determined independently
from the terms of the Loan Documents and of any prior Loan Summary, if any, and
Borrower shall not rely upon the form and content of the terms of the Loan
Documents and of any prior Loan Summary as being determinative of what may be
included in a future Loan Summary.
2.6 Revolving Feature.The funds loaned under the Master Facility will be
evidenced by the various Notes; provided, however, that the amount actually due
from Borrower to Bank from time to time will be evidenced by Bank's records and
may increase and decrease form time to time or be completely repaid and again
reborrowed.
2.7 Disbursements Under Loans. The parties acknowledge and agree that the Bank
can make one or more disbursements of any Loan at the request of Borrower,
provided, however, the aggregate amount of such disbursements shall not exceed
the principal amount of the Note. Except to the extent previously satisfied in
the reasonable discretion of Bank, each disbursement of the Loan must satisfy
the conditions precedent set forth in Article IV of the Master Revolving Line of
Credit Loan Agreement and such other provisions of the Loan Documents as may
apply.
ARTICLE III
The Loans
As to each Loan made by Bank to Borrower:
3.1 Loan Terms. Subject to the terms and conditions of this Master Loan
Agreement, Bank will lend, and Borrower will borrow, such sums as Bank and
Borrower shall agree upon, as specified in the Loan Summary which borrowing
shall be evidenced by the Note. All of the terms, definitions, conditions, and
covenants of the Note, the Assignment of Leases and Rents, the Agreement Not to
Encumber, and any other documents executed in connection therewith or pursuant
thereto are expressly made a part of this Master Loan Agreement by reference in
the same manner and with the same effect as if set forth herein at length and
shall have the meaning set forth in such instrument(s) unless otherwise defined
herein.
3.2 Interest.The outstanding principal balance of the Loan shall bear interest
based on a 360 (actual) day year at the interest rate specified in the Note, and
principal and interest shall be due and payable in accordance with the terms of
the Note.
3.3 Disbursements. Bank agrees that it will, from time to time, and so long as
there shall exist no Default Condition or Default, disburse Loan proceeds to
Borrower pursuant to the Loan Documents. The conditions set forth in this
Article III hereof must be satisfied and the conditions set forth in Article IV
hereof must be satisfied before Bank will make the disbursement for each Loan
hereunder.
3.4 Draw Requests. At least three (3) days prior to each Loan disbursement by
Bank, Borrower must submit to Bank a Request for Disbursement on a form
acceptable to Bank, which shall include:
a. Request for Disbursement. A completed Request for Disbursement signed by
Borrower in a format acceptable and certified to Bank, setting forth the amount
of Loan proceeds desired, together with such certifications and additional
information as Bank may require.
b. Owner's Affidavit. A notarized affidavit from Borrower shall be submitted
which certifies that Owner is or shall upon application of the Disbursement
immediately become fee simple title holder to the SLF.
c. Equity Compliance. Copies of paid invoices or other acceptable documentation
indicating Borrower's investment of Borrower's own funds in the SLF for those
items and in the amounts indicated on the certified Cost Breakdown, attached as
an exhibit to the Funding Agreement/Loan Summary.
3.5 Disbursement Amounts. Following receipt of a Request for Disbursement and
receipt and review of the report of the Consultant, Bank shall determine the
amount of the disbursement it will make in accordance with the Bank's
underwriting policies adopted from time to time by the Bank.
3.6 Equity Requirements. If Bank determines that costs of acquisition of a SLF
exceed the amount specified on the Loan Summary, which includes certain
specified amounts of "up front" equity and deferred equity to be paid by
Borrower, or if Bank at any time determines in its reasonable discretion that
the Loan proceeds plus the amount of all equity investments made are not
sufficient to meet the Bank's underwriting policies, and to pay all other sums
due, then Bank shall, upon written Notice to Borrower, have the option of
requiring Borrower to deposit with Bank additional funds from some other source
(or submit evidence to Bank of equity investments previously made) in amounts
sufficient to cover the anticipated or resulting deficit before Bank will
disburse any additional Loan proceeds.
ARTICLE IV
Conditions Precedent to Disbursement of Each Loan
Bank shall not be obligated to make the Loan disbursement with respect
to each Loan until all of the following conditions precedent have been satisfied
as to such Loan by proper evidence, execution, and/or delivery to Bank of the
following items, all in form and substance reasonably satisfactory to Bank and
Bank's counsel:
4.1 Note. The original Note, properly executed, shall have been
delivered to Bank.
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4.2 Assignment of Leases and Rents, Security Agreement and Agreement Not to
Encumber. The Assignment of Leases and Rents, covering the SLF, which with the
Security Agreement shall be a validly perfected first priority lien, and with
the Agreement Not to Encumber shall have been delivered to Bank, and which shall
contain, among other provisions, the following provisions:
a. That upon any sale, conveyance, assignment or transfer of all or any
part of the SLF or any interest therein, Bank may, at Bank's option,
declare the Loan to be immediately due and payable without notice or
demand. Bank may, in Bank's sole discretion decide not to exercise
said option, in which event Bank's forbearance may be predicated on
such terms and conditions as Bank may, in Bank's sole discretion
require, including, but not limited to, Bank's approval of the
transferee's creditworthiness and management ability, the execution
and delivery to Bank by the transferee, prior to the sale, transfer,
assignment or conveyance, of a written assumption agreement containing
such terms as Bank may require, including, but not limited to, a
payment of a part of the principal amount of the Note, an increase in
the rate of interest payable on the Note, the payment of an assumption
fee, a modification of the term of the Note, and such other terms or
conditions as Bank may require, or Bank may make any such adjustments
in the terms of the Loan without requiring an assumption by such
transferee;
b. That Borrower shall not, without the prior written consent of Bank,
mortgage, pledge, hypothecate or otherwise encumber (other than by a
lease or leases of the property which shall be in compliance with the
terms hereof) all or any portion of the SLF, even if such pledge or
mortgage is subordinate to Bank's lien position, and any violation of
this prohibition shall give Bank the right immediately to accelerate
the maturity of the Loan without notice or demand;
c. That Borrower shall provide evidence that all ad valorem or other
applicable taxes and insurance premiums have been paid when due.
d. That all income, profits, rents, insurance proceeds or other incomes
from leases or any other source relating to the SLF are assigned to
the benefit of the Bank including but not limited to the Primary
Lease, all as more particularly set forth in the Assignment of Leases
and Rents.
e. Any and all Leases assigned to the Bank or tenant estoppel letters
pursuant hereto shall be required to contain a provision which
requires the tenant to give written notice to Bank of any and all
defaults of landlord and provides the Bank opportunity to cure the
same, such provision to be in a form and substance deemed adequate by
Bank and Bank's counsel.
f. That the Assignment of Leases and Rents and Security Agreement shall
be cross-defaulted with respect to any other indebtedness or
obligations from Borrower to Bank under the Loan.
4.3 Assignment of FF&E Account. An Assignment of FF&E Account (or provisions in
the Security Agreement), properly executed by Borrower and delivered to the
Bank.
4.4 Indemnity. A Hazardous Substance Certificate and Indemnification Agreement,
properly executed by Borrower, shall have been delivered to Bank.
4.5 Financing Statements. The Financing Statements on forms approved for filing
in the appropriate state and local filing offices shall have been properly
executed.
4.6 Title Policy.The Title Policy (or a satisfactory commitment or binder
therefore), as to each SLF from First American Title Insurance Company or such
other company or companies acceptable to Bank (the "Title Company"), and on such
form, approved by Bank issued by the Title Company to the Borrower in the amount
equal to or greater than the amount of the Loan insuring that the Borrower is
the fee simple owner of the SLF subject only to the Permitted Encumbrances.
4.7 Title Exceptions. Copies of all documents creating exceptions
to the Title Policy.
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4.8 Survey. Three (3) copies of a recent survey of the Land (the "Survey")
prepared by a registered land surveyor acceptable to Bank and certified to Bank,
the Title Company, and Borrower. Such survey shall show: (a) all boundaries of
the Land with courses and distances indicated including chord bearings and arc
and chord distances for all curves, (b) dimensions and locations of all existing
improvements and of all easements, private drives, roadways, encroachments,
utility and transmission lines, governmental regulation and jurisdictional
lines, building set back lines established by zoning regulations or private
covenants and restrictions, whether recorded or unrecorded, (c) the distances
to, and names of the nearest intersecting streets, (d) a narrative metes and
bounds legal description of the boundary of the Land, (e) the area of the Land
and the SLF and any Improvements thereon, (f) a certification as to the
applicable flood zone(s) for the Land; and if the subject property contains more
than one Flood Zone Designation, the boundary line(s) between the Flood Zone
Designated Areas, (g) a statement as to access to or from the SLF, (h) the date
of the survey and the surveyor's registration number and seal, (i) other facts
in any way affecting the Land, j) a certification that the survey was made in
accordance with the requirements for an ALTA land survey and in accordance with
applicable state law, and (k) such other details as the Bank may request.
4.9 Flood Hazards. Evidence as to whether or not the Land is located within an
area identified as having "special flood hazards" as such term is used in the
Federal Flood Disaster Protection Act of 1973. Such evidence can be the
certification that is required in connection with the survey required herein.
4.10 Flood Hazard Insurance. If all or any part of the Improvements is to be
located in an area having "special flood hazard", a flood insurance policy
naming Bank as a loss payee must be submitted to Bank.
Satisfactory evidence of premium payments must be provided.
4.11 Liability Insurance. Evidence of premium payments of Liability Insurance
meeting the requirements set forth in the Lease shall be provided to the Bank in
accordance with the terms set forth herein and in the Security Agreement. All
Liability Insurance shall be evidenced by policies complying with the terms of
the Lease. Each such policy is hereinafter referred as an "Insurance Policy".
The liability Insurance Policy shall list Bank as an additional insured.
Borrower agrees to cause the Land to be insured by property casualty insurance
in an amount not less than the appraised value of the Improvements. Borrower
agrees to notify Bank in the event that it receives any notice of termination of
the property casualty Insurance Policy. At such time as Bank may obtain a
mortgage on the Land, pursuant to the terms of the Loan Documents, Borrower
shall within five (5) days after notice from Bank cause Bank to be added as an
additional insured and mortgagee loss payee to the property casualty Insurance
Policy. During the time that Bank does not hold a mortgage encumbering the Land,
Borrower agrees not to exercise any of its rights to direct the application of
any proceeds under the property casualty Insurance Policy without the prior
written consent of the Bank. In the event that Borrower fails to comply with any
of the terms hereof, Bank may in addition to any other remedies it may have,
procure the requisite insurance at the cost and expense of Borrower and the same
shall be immediately due and payable within ten (10) days after notice from Bank
to Borrower. Failure of Borrower to timely pay such invoice shall be a default
under the Loan Documents. Copies of duly executed certificates of insurance for
all Insurance Policies shall be delivered to the Bank no more than ten (10) days
after the effective date of the Lease and upon the annual anniversary date
thereof and thereafter as may be reasonably requested by the Bank.
4.12 Property Insurance. Evidence of Property Insurance covering damages to each
SLF and all personal property and Improvements associated therewith and meeting
the requirements as set forth in the Security Agreement shall be provided to
Bank in accordance with the same terms as set forth in the requirements for
Casualty Insurance in Section 4.11 above.
4.13 Borrower's Organizational Documents And Resolutions. (i) A certified copy
from the appropriate governmental body of organizational documents of Borrower,
certifying that Borrower is duly organized, validly existing, and in good
standing under the state of its existence, (ii) evidence that Borrower has the
authority under such documents and laws to enter into the Loan as contemplated
by the Loan Documents, and (iii) if applicable, evidence that Borrower has made
all appropriate filings, including without limitation, qualification to do
business in the state where the Land is located, the state of its organization
or domicile, and Florida, necessary to enter into the Loan and execute the Loan
Documents. Additionally, Borrower shall provide (i) certified resolutions or
other corporate documents of Borrower evidencing that Borrower has taken all
requisite corporate action, and received all corporate approvals necessary to
enter into the Loan and execute the Loan Documents, and (ii) such other
documents or writings as Bank may reasonably request.
4.14 Fictitious Name Certificate. If Borrower utilizes or intends to utilize a
fictitious name, a copy of the Fictitious Name Certificate of the Borrower
issued by the Florida Secretary of State and any other jurisdiction in which
such filing is necessary.
4.15 Attorney's Opinion. The written opinions of counsel to Borrower (with
respect to the laws of Florida and the state where the Land is located, if
different), addressed to Bank, acceptable to Bank and Bank's counsel, as to
those matters required by Bank. The attorneys opinion, with respect to the
enforceability of remedies provided in the Loan Documents and related instrument
may be made subject to or as affected by, applicable bankruptcy, moratorium,
reorganization, insolvency or similar laws from time to time in effect affecting
the rights of creditors generally. As to matters of fact, such opinions may be
qualified to the extent of the knowledge of such counsel based upon due inquiry
and reasonable investigation.
4.16 Compliance with Laws and Matters of Record. Satisfactory documentary
evidence that the Land with Improvements, and the intended uses of the Land, are
in compliance with all applicable laws, regulations and ordinances and private
covenants, easements, and conditions of record. Such evidence is subject to
approval by Bank and Bank's counsel and may include letters, licenses, permits,
certificates and other correspondence from the appropriate Governmental
Authorities, opinions of Borrower's counsel or other counsel, and opinions or
certifications from the Architect, or the Engineer. The laws, regulations and
ordinances with which compliance should be evidenced include without limitation
the following: health and environmental protection laws, laws related to or
regulating water management districts, hazardous materials and substances and
storm water drainage, erosion control ordinances, tree and landscaping
ordinances, building codes, land use requirements, threshold building consultant
requirements, the development of regional impact Statutes, doing business and/or
licensing laws and zoning laws (the evidence submitted as to zoning should
include the zoning designation made for the Land, the permitted uses of the Land
under such zoning designation and zoning requirements as to parking, lot size,
ingress, egress and building setbacks).
4.17 Taxes. Evidence that each SLF is, or will be, separately assessed for tax
purposes and information as to tax parcel identification numbers, tax rates,
estimated tax values and the identities, of- the taxing authorities.
4.18 Utilities. Evidence of the availability and suitability of the water,
sewer, telephone, electrical, natural gas, and other utilities needed to
properly service the SLF in its intended use.
4.19 Plans and Specifications. With respect to SLFs, evidence of the Plans which
include architectural, structural, mechanical, plumbing, electrical and site
development (including storm drainage, utility lines, erosion control and
landscaping).
4.20 Permits. A copy certified by Borrower of evidence of all applicable permits
including, without limitation, the building permit and all permits pursuant
thereto, land use permits, dredge and stormwater discharge permits (federal and
state), and any other permits required for use and occupation of the SLF.
4.21 Engineers Report. Copies of the report signed by Borrower's Engineer
detailing the results of the engineers inspection of the SLF, certified to the
Borrower and Bank.
4.22 Soil Tests. Evidence of a prior report as to soil borings made on the Land
by a soil testing firm satisfactory to Bank or certification in the Engineers
Report as to such soil borings. The report and/or certification shall include
the conclusions and findings of the soil testing firm as to the suitability of
the soil for adequately supporting the improvements.
4.23 Environmental Assessment.
a. An environmental assessment of the Land and Improvements performed at
Borrower's expense by a licensed engineer or other environmental consultant
satisfactory to Bank stating whether:
(i) the Land is located within any area designated as a hazardous
substance site by any of the Governmental
Authorities;
(ii) hazardous or toxic wastes or other materials or substances,
regulated, controlled, or prohibited by any federal, state or
local environmental laws, including but not limited to
asbestos, are located on the Land or Improvements; and
(iii) the Land has been cited or investigated in the past for any
violation of any such laws, regulations, or ordinances.
b. Receipt of any acceptable environmental audit is a condition precedent to
Bank's obligation under the Commitment and hereunder. If the environmental
assessment shall reveal any condition unacceptable to Bank, Bank may elect to be
relieved of any obligation under the Commitment after providing written notice
to Borrower. If Bank does not elect to terminate the Commitment, Borrower shall
obtain a Phase II audit or conduct other additional testing, at its sole cost
and expense, and Borrower shall promptly conduct such additional audits and
testing and/or complete such remedial action. Bank may require Borrower to
provide evidence that all necessary actions have been taken to remove any
hazardous substance contamination and/or to restore the site to a condition
acceptable to Bank and state and federal governmental agencies.
c. Bank shall use best efforts to keep and maintain matters set forth in the
Environmental Assessment confidential by and among the Bank's employees, agents,
representatives and assigns; excepting, however, when required by operation of
Law to report any matters contained therein to any governmental agency.
4.24 Leases. Copies of the then existing lease between the tenant for the SLF
(the "Tenant") and Borrower (the "Tenant Lease"), certified by Borrower and the
respective Tenant to be accurate, complete, unaltered, and binding.
4.25 Taxpayer Identification Number. Borrower's federal taxpayer identification
number.
4.26 Borrower's Affidavit. An affidavit of Borrower regarding the absence of any
other parties in possession of the SLF, other than the tenant under the Primary
Lease and the residents of the SLF (but merely in their capacity as residents)
and such other matters as may be requested by Bank;.
4.27 Fee. Subject to the terms of Paragraph 2.3(c) hereof, a fee equal to
one-half of one percent (1/2%) of the actual disbursements under each Loan shall
be due and payable by Borrower to the Bank at closing or subsequent
disbursement.
4.28 Notice. To the extent Property is located in Florida, a copy of a recorded
notice stating that all leases affecting the SLF, or any portion thereof,
prohibit the attachment of Tenant related liens.
4.29 Appraisal. A signed copy of an appraisal by an MAI certified appraiser
approved by Bank reflecting the value of the SLF to be not less than the amount
specified in the Loan Summary.
4.30 Comprehensive Plan. Documentary evidence, satisfactory to Bank and its
counsel, that use and operation of the SLF are consistent with concurrency
requirements and other applicable provisions of the local comprehensive plan,
local land development regulations, and any other similar requirements
("Comprehensive Plan"). Such evidence may include a certificate from Borrower's
Architect, on a form satisfactory to Bank, certifying to Bank that the use and
operation of the SLF are consistent with the Comprehensive Plan.
4.31 Facilities for Handicapped. Bank shall have received and approved evidence,
satisfactory to Bank, that the Improvements comply with all legal requirements
regarding access and facilities for handicapped or disabled persons, including,
without limitation, and to the extent applicable, Part V of the Florida Building
Construction Standards Act entitled "Accessibility by Handicapped Persons"
Chapter 553, Fla Stat. (or similar law in other jurisdictions, if applicable);
the Federal Architectural Barriers Act of 1988 (42 U.S.C. 4151, et. seq.), the
Fair Housing Amendment Act of 1988 (42 U.S.C. 3601, et. seq.), The Americans
With Disabilities Act of 1990 (42 U.S.C. 12101 et. seq.), and The Rehabilitation
Act of 1973 (29 U.S.C. 794)
4.32 Reports and Analysis. Such reports and analysis as reasonably requested by
the Bank to establish the financial feasibility of the development, use and
operation of the SLF as contemplated by the Loan.
4.33 No Defaults. No Default Condition or Default shall exist under the Loan
Documents.
4.34 Request. Bank shall have received Borrower's Request for Disbursement.
4.35 Tenant Estoppel Certificates and Subordination Agreements. Any tenant
occupying the SLF, or any portion thereof, or which will occupy the SLF, or any
portion thereof, shall execute and deliver to Bank a tenant estoppel certificate
and, if requested by Bank, subordination agreement in a form satisfactory to
Bank. In such event, the tenant shall also agree to provide the Bank notice and
opportunity to cure any and all defaults of landlord prior to tenant seeking any
remedy. The tenant estoppel certificate shall certify, among other things, the
date the tenant accepted occupancy of the leased premises (if applicable), the
absence of any lease defaults by landlord, the date the tenant commenced rent
payments (if applicable), the lease's material terms, and such other matters as
may be requested by Bank. The subordination agreement shall provide, among other
things, that the tenant's right, title and interest under the lease is
subordinate to the lien of Bank's Assignment of Leases and Rents, Security
Agreement and Assignment of FF&E Account.
4.36 Miscellaneous. All other Loan Documents or items that are customarily
provided in loan transactions of this type required by Bank and all other loan
documents or items set forth in the Commitment.
ARTICLE V
Borrower's Covenants and Agreements As To Each Loan
5.1 Payment and Performance. Borrower will pay when due all sums owing to Bank
under all of the Note(s), this Master Loan Agreement, the Assignment of Rents
and the other Loan Documents, and perform all obligations as outlined or
referenced therein.
5.2 Organization; Powers. CNL Health Care Properties, Inc. has been duly formed
and is validly existing as a corporation under the laws of the State of Maryland
and CNL Health Care Partners, L.P. has been duly formed and is validly existing
as a limited partnership under the laws of the State of Delaware and each has
all requisite power and authority to execute, deliver and perform its
obligations under this Agreement and other Loan Documents and to carry on its
business as now conducted and as proposed to be conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a material adverse effect.
5.3 Authorization; Enforceability. The Loan is within the Borrower's powers and
has been duly authorized by all necessary action. The Security Agreement and the
other Loan Documents have been duly executed and delivered by the Borrower and
constitute the legal, valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent, conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
5.4 Further Assurances. Borrower will promptly do any act and execute any
additional documents reasonably required by Bank to secure the Loan, to confirm
or perfect the lien of the Assignment of Leases and Rents or any other Loan
Documents or to comply with the Commitment, including, but not limited to,
additional financing statements or continuation statements, new or replacement
notes and/or Loan Documents and agreements supplementing, extending or otherwise
modifying the Loan Documents and certificates as to the amount of the
indebtedness evidenced by the Note from time to time.
5.5 Inspection. Borrower will permit Bank and its authorized agents to enter
upon the SLF during normal working hours and as often as Bank desires, for the
purpose of inspecting the SLF or the Improvements. Failure of Bank or its
authorized agents to discover deficiencies in the Improvements shall not make
Bank or its agent liable to Borrower or to any other person on account of such
failure, nor shall any prior failure constitute a waiver of Bank's rights.
Borrower specifically acknowledges that all inspections undertaken by Bank or
its agent shall be for the sole benefit of Bank and not for Borrower, or any
third party. The costs of all inspections shall be at Borrowers expense;
provided, however, that as long as there is no Default, such cost shall not
exceed $500.00 for each Loan. Notwithstanding anything herein to the contrary,
Bank agrees that its rights to inspect the Land and Improvements are subject to
the tenant's right under the Primary Lease. Borrower hereby assigns to Bank and
Bank's inspector for its benefit any and all rights of entry and inspection that
Borrower has under the Primary Lease.
5.6 Fees and Expenses. Whether or not the Loan is made, or all Loan proceeds
disbursed hereunder, Borrower agrees to pay all expenses incurred by Bank, or by
Borrower in order to meet Bank's requirements, in connection with the Loan,
including without limitation, commitment and renewal fees or deposits to bank,
fees for appraisal, reappraisal survey, recording, title insurance, builder's
risk and other insurance premiums, property taxes, intangible taxes, documentary
stamp taxes, the design architects and Architect's fees, the Engineer's fees,
the Consultant's fees, and such reasonable legal fees and costs incurred by Bank
in connection with the making of the Loan, the enforcement of bank's rights
under the Loan Documents, or in connection with litigation or threatened
litigation by a third party which arises because Bank made this Loan, Any such
amounts paid by Bank shall constitute part of the debt which is secured by the
Loan Documents, and shall be due and payable upon demand.
5.7 Use of Loan Funds. Borrower shall use all Loan proceeds initially disbursed
to Borrower under any Note solely in payment of costs incurred in connection
with acquiring the applicable SLF, in accordance with the applicable Loan
Summary. Initially disbursements of Loan funds under any Note with regard to one
SLF project shall not be utilized for any other project under this Master Loan
Agreement; provided, however, that if the initial Loan Funds under any Note are
paid down and subsequently re-borrowed under such Note, then such re-borrowed
proceeds may be used for the acquisition of another SLF under this Master Loan
Agreement.
5.8 Insurance. Borrower covenants to maintain or caused to be maintained
insurance as required herein and in the Security Agreement.
5.9 Taxes and Insurance. Upon the request of Bank, Borrower shall submit to Bank
such receipts and other statements which shall evidence, to the satisfaction of
Bank, that all taxes, assessments and insurance premiums have been paid in full.
5.10 Availability of Utilities. All utility services necessary for the
Improvements and the operation thereof for their intended purposes are presently
available through presently existing public or unencumbered private easements or
rights-of-ways in accordance with validly executed and enforceable utility
service agreements between Borrower and the provider of each of such services
(the "Utility Service Agreements") at the boundaries of the Land, including but
not limited to, water, storms and sanitary sewer, gas, electric and telephone
facilities, and all such utilities are non-interruptible.
5.11 Additional Construction. Except for construction by tenant permited in the
Primary Lease, Borrower shall not construct or permit the construction of any
improvements on the Land other than those Improvements approved in writing by
Bank.
5.12 Financial Statements. Borrower shall submit annual audit reports and
semi-annual unaudited company prepared financial statements to the Bank. Such
statements shall include, at a minimum: a balance sheet; an income and expense
statement; a statement showing contingent liabilities; detailed cash flow
statements for each project or entity in which Borrower has an interest and on
which Bank has advanced funds under a Loan; and any supporting schedules or
documentation which Bank may require. Detailed cash flow statements shall
include, as applicable: the project name; location; percentage of Borrower's
ownership interest; leasing status; net operating income; current loan balance;
debt service; source of any operating deficit; amount and beneficiary of any
cash distributions; and the amount of cash invested in or received from that
enterprise. In addition detailed cash flow projects for the next fiscal year
(twelve month period) for each SLF or entity shall be submitted. Each unaudited
statement must contain a certification to Bank of the statement's accuracy and
completeness signed by the highest ranking financial officer of the Borrower.
Annual statements of business entities (including corporation and partnership)
shall be audited and bear the unqualified opinion of an acceptable certified
public accountant. The annual statements shall be submitted no later than April
30th of each year of the Loan term.
Interim statements shall be submitted within 30 days of Bank's request.
5.13 Appraisals. In addition to the appraisals required by Bank prior to closing
of the Loan, updated appraisals shall be prepared at Borrower's expense when
requested by Bank or when required in connection with any extension options in
the Note. Such appraisals shall be prepared in accordance with written
instructions from Bank and by a professional appraiser selected and engaged by
Bank. Borrower shall cooperate fully with the appraisal process and shall allow
the appraiser reasonable access to the SLF and its tenants. Bank agrees that it
shall not require appraisals more frequently than annually unless Borrower is in
default or unless required of Bank by any banking agency or regulation.
5.14 Hazardous Substances. Concurrently with the execution hereof, Borrower
warrants and represents to Bank that, to the best of Borrowers knowledge, the
SLF and all real property, now or previously owned by Borrower during the period
of Borrowers ownership, and are not now being used in violation of any federal,
state or local environmental law, ordinance or regulation; that no proceedings
have been commenced, or notices(s) received, concerning any alleged violation of
any such environmental law, ordinance or regulation. Borrower covenants that it
shall not permit any such materials to be brought onto the SLF or any other real
property owned by Borrower, or if so brought or found located thereon, shall be
immediately removed with proper disposal, and all required environmental cleanup
procedures shall be diligently undertaken pursuant to all applicable laws,
ordinances and regulations. Borrower herein indemnifies and holds Bank harmless
against any loss, claim or costs incurred by Bank in connection with the
warranties granted herein. Borrowers obligations hereunder shall survive any
proceeding to enforce Bank's rights under the Loan Documents.
If the Bank has reasonable belief of the existence of an environmental
problem or if required by any banking regulation, but no more frequently than
once each calendar year, the Bank may in its reasonable discretion, at its
election, obtain one or more environmental assessments of the Land prepared by a
geohydrologist, an independent engineer, or other qualified consultant or expert
approved by Bank evaluating or confirming (i) whether any Hazardous Substances
are present in the soil or water at the Land and (ii) whether the use and
operation of the Land complies with all applicable Environmental Laws relating
to air quality, environmental control, release of oil, hazardous materials,
hazardous wastes and hazardous substances, and any and all other applicable
environmental laws. Environmental assessments may include detailed visual
inspection as to the Land including, without limitation, any and all storage
areas, storage tanks, drains, dry wells, and leasing areas and the taking of
soil samples, surface water samples, and ground water samples, as well as such
other investigations or analyses as are necessary or appropriate for a complete
determination of the compliance of the Land and the use and operation thereof
with all applicable Environmental Laws. Such environmental assessment shall be
the sole cost and expense of Borrower.
In the event that it is determined that additional tests and/or
remediation are necessary as a result of the aforesaid assessments, or in the
event such additional testing or remediation is recommended by the aforesaid
assessments, Borrower agrees to immediately perform the tests or undertake the
remediation as recommended. In the event contamination or other environmental
problem is found on the Land and Borrower does not promptly undertake the
remediation as recommended, Borrower shall be in default hereunder.
Bank shall use best efforts to keep and maintain matters set forth in
any hazardous substances notices and/or environmental assessments confidential
by and among the Bank's employees, agents, representatives and assigns;
excepting, however, when required by operation of law to report any such matters
contained therein to any governmental agency.
5.15 Leases Affecting SLF. Borrower shall not, without the express prior written
consent of Bank, enter into any lease affecting the SLF or any part thereof
(including the Primary Lease), or amend, modify, extend, terminate or cancel,
accept the surrender of any portion of the SLF which is the subject of a lease
(except by expiration of such lease in accordance with its terms), subordinate,
accelerate the payment of rent as to, or change the terms of any renewal option
of any lease now existing or hereafter created, or permit or suffer an
assignment or sublease thereof, except as set out herein. Any lease or any
modification, extension, or renewal of any lease, affecting or relating to all
or any portion of a SLF shall be subject to Bank's prior written approval.
Copies of all leases or modifications, renewals, or extensions thereto, approved
by the Bank shall be certified as accurate and complete by Borrower and Tenant
and delivered to the Bank within fifteen (15) days of execution.
5.16 Assignment of Contracts. As additional security for the Loan and for the
performance by Borrower of all of its obligations hereunder Borrower hereby
collaterally assigns to Bank all of Borrower's interest in any and all
contracts, agreements, permits, licenses, approvals, or other documents or
writing relating to the leasing, management or operation of the Improvements.
This assignment shall not, however, be deemed to impose upon Bank any of
Borrowers obligations under any such contract. Borrower will fulfill the
obligations of Borrower under all contracts, enforce the performance thereof and
give immediate notice to Bank of any material default by the other party to such
contract. Further, Borrower, will not, without the prior written consent of Bank
(i) materially modify, or amend the terms of any material contract, or (ii)
waive or release the performance of any-material obligation to be performed by
the other party to any such contract.
5.17 Subordinate Financing. Borrower shall not permit there to exist nor shall
Borrower obtain any subordinate financing of the SLF, or any part thereof, or
any other property granted as security for the Loan.
5.18 Transfer of Property or Borrower. Borrower shall not permit any change in
its ownership, or the ownership of its general partners, the nature and
operation of its business or the nature and character of Borrower or the SLF,
nor shall Borrower sell, assign, transfer, hypothecate or dispose of all or any
portion of the SLF except as permitted hereby, without the prior written consent
of Bank, which consent shall be withheld or granted in Bank's sole and absolute
discretion. Notwithstanding the foregoing, the sale or disposition of shares or
units of Borrower sold or transferred pursuant to a registration made with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934 shall be deemed a permissible transaction.
5.19 Americans With Disabilities Act. Borrower covenants and agrees that, during
the term of the Loan, the SLF will be in full compliance with the Americans With
Disabilities Act ("ADA" of July 26, 1990, 42 U.S.C Section 12191, et. seq.) as
amended from time to time, and the regulations promulgated pursuant thereto.
Borrower shall be solely responsible for all ADA compliance costs including
without limitation, reasonable attorneys fees and litigation costs, which
responsibility shall survive the repayment of the Loan and foreclosure of the
SLF.
ARTICLE VI
Borrower's Representations and Warranties As to Each Loan
6.1 Representations and Warranties. Borrower hereby represents and warrants to
Bank that:
a. Representations and Warranties in Loan Documents. All of the representations
and warranties contained in the Assignment of Leases and Rents, the Agreement
Not to Encumber and the other Loan Documents are true and correct and are
incorporated herein by reference as if set out in full.
b. Other Financing. Borrower has not (i) received any other financing for the
acquisition of the SLF existing as of the date of the Loan for such SLF, or (ii)
received any other financing of Improvements, equipment or other facilities used
in conjunction with each SLF.
c. Governmental Requirements and Other Requirements, To Borrowers knowledge,
after due inquiry, the use and operation of the SLF does and shall comply with
all covenants, conditions and restrictions affecting the Land or any portion
thereof; and do and shall comply with all Governmental Requirements.
d. Use of the SLF. To Borrower's knowledge there is no (i) plan, study or effort
by any Governmental Authority or any nongovernmental person or agency which may
adversely affect the current or planned use of the SLF, or (ii) any intended or
proposed Governmental Requirement (including, but not limited to, zoning
changes) which may adversely affect the current or planned use of the SLF.
e. Moratorium. Other than applicable government regulations for new SLFs with
respect to which Borrower is in compliance, there is no moratorium or like
governmental order or restriction now in effect with respect to the operation of
the SLF and, to the best of Borrower's knowledge, no moratorium or similar
ordinance or restriction is now contemplated.
f. Permits. To Borrower's knowledge, after due inquiry, prior to the closing on
each Loan, all permits, approvals and consents of Governmental Authorities and
public and private utilities having jurisdiction necessary in connection with
such SLF shall have been issued and be in good standing.
g. Condition of SLF. To Borrower's knowledge, after due inquiry, at time of
closing of each Loan, (i) no defect or condition of the SLF Improvements, Land
or the soil, ground water or geology of or under the Land and (ii) no other
agreement, arrangement, understanding or conditions whatsoever, exists which
will delay or impair the use, or the operation of SLF for its intended purpose.
h. Surveys. The Survey, and all plot plans and other documents heretofore
furnished by Borrower to Bank with respect to Land and Improvements are accurate
and complete as of their respective dates. To Borrower's knowledge, after due
inquiry (which inquiry will consist of review of the Survey and an inspection of
the Land) there are no encroachments onto the Land and no Improvements on the
Land encroach onto any adjoining property.
i. Sale of Securities. Borrower has not instituted, caused to be instituted or
been a party to and, to the best of Borrower's knowledge, there has not been any
public offering with respect to the Land and Improvements, or either, within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934
("Securities Laws") unless the same comply with all Laws, Including but not
limited to the Securities laws, and Borrower promptly and timely provides a copy
of all materials filed with any Governmental Authority in conjunction therewith.
j. Reliance on Representations. Borrower acknowledges that Bank has relied upon
the Borrowers representations and is not charged with any knowledge contrary
thereto that may be received by an examination of the public records wherein the
Land is located or that may have been received by any officer, director, agent,
employee of shareholder of Bank.
ARTICLE VII
Events of Default
7.1 Default. The occurrence of any one or more of the following events (time
being of the essence as to this Master Loan Agreement and all of its provisions)
with respect to one or more Loans constitutes a "Default" by Borrower under this
Master Loan Agreement, and at the option of Bank, under the other Loan Documents
for the respective Loan or any other Loan:
a.Scheduled Payment. Borrower's failure to make any payment required under
any of the Note(s) when due.
b. Monetary Default. Borrower's failure to make any other payment required by
this Master Loan-Agreement or the other Loan Documents, within ten (10) days of
the due date, which payment is not received by Bank within fifteen (15) days of
receipt of written notice of such failure from Bank.
c. Other. Borrower's failure to perform any other obligation imposed upon
Borrower by this Master Loan Agreement or any other Loan Document within the
time period specified, or as may be specified by Bank, if in the reasonable
opinion of Bank such Default is curable, should such failure not be cured by
Borrower within thirty (30) days of receipt of written notice from the Bank,
except when a shorter or longer period is specifically provided in any provision
of the Loan Documents. This provision shall not be construed to provide Borrower
with any grace period in complying with any obligations imposed on Borrower by
the terms of the Loan Documents.
d. Representation. Any representation or warranty of Borrower contained in this
Master Loan Agreement or in any certificate delivered pursuant hereto, or in any
other instrument or statement furnished in connection herewith, proves to be
incorrect or misleading in any adverse respect as of the time when the same
shall have been made, including, without limitation, any and all financial
statements, operating statements, and schedules attached thereto, furnished by
Borrower to Bank or pursuant to any provision of this Master Loan Agreement,
provided such representation or warranty is made accurate by Borrower within
thirty (30) days of receipt of written notice from Bank. e. Bankruptcy.Borrower
or any general partner of Borrower or any affiliate (i) files a voluntary
petition in bankruptcy or a petition or answer seeking or acquiescing in any
reorganization or for an arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for itself pursuant to the United States
Bankruptcy Code or any similar law or regulation, federal or state, relating to
any relief for debtors, now or hereafter in effect; or (ii) makes an assignment
for the benefit of creditors or admits in writing its inability to pay or fails
to pay its debts as they become due; or (iii) suspends payment of its
obligations or take any action in furtherance of the foregoing; or (iv) consents
to or acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator or other similar official of Borrower, a general partner
of Borrower, for all or any part of the SLF or other assets of such party, or
either; or (v) has filed against it an involuntary petition, arrangement,
composition, readjustment, liquidation dissolution, or an answer proposing an
adjudication of it as a bankruptcy or insolvent, or is subject to reorganization
pursuant to the United States Bankruptcy Code, an action seeking to appoint a
trustee, receiver, custodian, or conservator or liquidator, or any similar law,
federal or state, now or hereinafter in effect, and such action is approved by
any court of competent jurisdiction and the order approving the same shall not
be vacated or stayed within sixty (60) days from entry; or (vi) consents to the
filing of any such petition or answer, or shall fail to deny the material
allegations of the same in a timely manner.
f. Judgments. (1) A final judgment other than a final judgment in connection
with any condemnation, and including any judgment or other final determination
of any contest permitted by the Assignment of Rent, is entered against Borrower,
any Guarantor, or any general partner of Borrower, that (i) adversely affects
the value, use or operation of any SLF, or any portion thereof, in Bank's sole
judgment, or (ii) materially adversely affects, or may materially adversely
affect, the validity, enforceability or priority of the lien or security
interest created by the Loan Document in Bank's sole judgment, or both; or (2)
execution or other final process issues thereon with respect to any SLF, or any
portion thereof, and (3) Borrower or any general partner of Borrower, does not
discharge the same or provide for its discharge in accordance with its terms, or
procure a stay of execution thereon, in any event within thirty (30) days from
entry, or Borrower shall not, within such period or such longer period during
which execution on such judgment shall have been entered, and cause its
execution to be stayed during such appeal, or if on appeal such order, decree or
process shall be affirmed and Borrower shall not discharge such judgment
provided for its discharge in accordance with its terms within sixty (60) days
after the entry of such order or decree or affirmance, or if any stay of
execution on appeal is released or otherwise discharged.
g. Liens. Any federal, state or local tax lien or any claim of lien for labor or
materials in an amount in excess of $100,000.00 or any other lien or
encumbrances of any nature whatsoever is recorded against Borrower or any SLF,
or any part thereof, and is not removed by payment or transferred to substitute
security in the manner provided by law, within thirty (30) days after it is
recorded in accordance with applicable law, or is not contested by Borrower in
the manner permitted by loan Documents.
h. Leases. Borrower's default in the performance of its obligations as lessor
under any lease of all or any portion of the SLF, including the Primary Lease,
which default could result, in Bank's sole judgment, in the termination of said
lease provided such default is not cured by Borrower within thirty (30) days
after receipt of written notice from Bank.
i. Other Notes or Mortgages. Borrower's default in the performance or payment of
Borrowers obligations under any other note or under any mortgage encumbering all
or any part of the SLF, if the other mortgage is permitted by the Bank, whether
such other note or mortgage is held by Bank or by any other party, provided such
default is not cured by Borrower within thirty (30) days after receipt of
written notice from the Bank.
j. Borrower Default Under Loan Documents. Borrower's default in the payment or
performance of any of Borrowers obligations under any of the Loan Documents
pertaining to any Loan, including this Master Loan Agreement and any amendments,
riders or Loan Summaries attached hereto, provided such default is not cured by
Borrower within thirty (30) days of receipt of written notice from Bank,
excepting, however, if this thirty (30) day period should conflict with any
other notice and opportunity to cure provision contained in the Loan Documents.
k. Borrower's Continued Existence. Borrower shall cease to exist or to be
qualified to do or transact business in the state in which the SLF is located or
shall be dissolved or shall be a party to a merger or consolidation, or shall
sell all or substantially all of its assets without providing thirty (30) days
written notice to the Bank in the event of any voluntary dissolution, mergers or
consolidations or after thirty (30) days written notice from Bank in the event
of involuntary merger, dissolution or consolidation.
l. Stock in Borrower/Change in Partners. If any legal or beneficial interest,
including, but not limited to, shares of stock of Borrower are issued, sold
transferred, conveyed, assigned, mortgaged, pledged, or otherwise disposed of so
as to result in change of control of Borrower, whether voluntarily or by
operation of law, other than a sale by CNL Health Care Partners, LP of limited
partnership interests in itself and whether with or without consideration, or
any agreement for any of the foregoing is entered into; or, of any general
partnership interest or other equity interest in Borrower is sold, transferred,
assigned, conveyed, mortgaged, pledged, or otherwise disposed of, whether
voluntarily or by operation of law, and whether with or without consideration,
or any agreement for any of the foregoing is entered into, or any general
partner of Borrower withdraws from the partnership; unless otherwise permitted
or approved by the Bank.
m. Transfer of Property or Ownership. Any sale, conveyance, transfer,
assignment, or other disposition of all or any part of any SLF.
n. False Statement. Any statement or representation of Borrower contained in the
loan application or any financial statements or other materials furnished to
Bank or any other lender prior or subsequent to the making of the Loan secured
hereby are discovered to have been false or incorrect or incomplete, which
statement or representation is not made accurate within thirty (30) days of
receipt of written notice from Bank.
o. Default Under Indemnity. Borrower shall default under any obligation imposed
by any indemnity whether contained within any of the Loan Documents, (including,
without limitation, the Hazardous Substance Certificate and Indemnification
Agreement), or otherwise, which default is not cured by Borrower within thirty
(30) days of receipt of written notice from Bank.
p. Cross Default. Any default by Borrower under any other documents or
instruments evidencing any other loans by Bank to Borrower (or any one if more
than one Borrower) or in any mortgages or other collateral documents securing
such loans, which default is not cured by Borrower within thirty (30) days of
receipt of written notice from Bank.
q. Non-Compliance with the Plans and Specifications. Failure of any of the
Improvements to comply with the requirements of any Governmental authority
unless Borrower, after thirty (30) days notice, undertakes and diligently
pursues the correction of such failure.
r. Non-Payment of Debts. Borrower is generally not paying its debts as such
debts become due, provided such debts are not paid and evidence of such payment
provided to Bank within thirty (30) days of receipt of written notice from Bank.
s. Securities Laws Violation. The assertion of any violation by Borrower of the
1933 Securities Act, 1934 Securities Act or the Blue Sky Laws by any
Governmental-Authorities or the institution of any securities litigation not
dismissed within sixty (60) days of the commencement of same.
t. Miscellaneous. If at any time Bank shall determine that there has been a
material adverse change in the financial condition or prospect of Borrower,
provided such change is not cured by Borrower to Bank's reasonable satisfaction
within sixty (60) days of receipt of written notice from Bank.
u. Cure. To the extent the Borrower needs additional time to cure any
non-monetary default and Borrower is diligently pursuing said cure, Borrower
shall have reasonable time to complete said cure.
ARTICLE VIII
Bank's Rights and Remedies
The following rights and remedies are available to Bank as to all
Loans then outstanding and any SLFs pertaining thereto:
8.1 Acceleration. Upon the occurrence of a Default, the entire unpaid principal
balance of the Note in Default and all accrued but unpaid interest thereon and
any costs or expenses then due to Bank and any and all other obligations of
Borrower to Bank, shall, at the option of Bank and without notice to Borrower,
become immediately due and payable and, Bank shall have no further obligation to
make any advance, disbursement or Loan under this Master Loan Agreement.
8.2 Remedies. Upon the occurrence of a Default, Bank may avail itself of any and
all rights and remedies available at law or in equity or as provided under this
Master Loan Agreement or any of the other Loan Documents.
8.3 Action to Protect Bank's Interest and Granting Mortgage. From and after the
occurrence of a Default, the Bank shall be entitled to pursue any and all
remedies provided in the Loan Documents to protect the Bank's interest. In
addition to all remedies of Bank provided in this Agreement and in the Loan
Documents, upon a Default Borrower shall, within twenty (20) days of receiving
notice, execute a Mortgage securing the Note in Default with a first lien upon
the respective SLF. Such Mortgage shall be upon terms as set forth in Exhibit
"A" attached hereto. In the event Borrower fails or refuses to execute any of
said Mortgages, Borrower does hereby irrevocably appoint and grant to the Bank
power of attorney for Borrower to act for Borrower in regard to the Bank's
request including the right to execute any and all such Mortgages and documents
relating thereto, to record the same upon the public records and to do all
things necessary to create a first mortgage lien upon each respective SLF.
Borrower shall be responsible for all cost and expenses related to such
Mortgages including but not limited to recording, documentary, or other taxes,
and a mortgage title insurance policy insuring Bank's mortgage.
8.4 Special Remedy. In the event the Primary Lease shall be terminated for any
reason whatsoever, in addition to all other remedies available to Bank under the
Loan Documents, Borrower shall, within twenty (20) days of receiving notice from
Bank, execute a Mortgage securing the Note with respect to such SLF for which
the Primary Lease has terminated unless Borrower has provided the Lender a new
Primary Lease upon substantially similar terms as exist at the time of making
the Loan for such SLF and meeting the requirements of this Master Loan Agreement
(hereinafter a "Qualified Lease"), in the reasonable judgment of Bank. Such
Mortgage shall be upon terms as set forth in Exhibit "A" attached hereto. In the
event Borrower fails or refuses to execute said Mortgage(s), Borrower does
hereby irrevocably appoint and grant to the Bank power of attorney for Borrower
to act for Borrower in regard to the Bank's request including the right to
execute any such Mortgage(s) and documents relating thereto, to record the same
upon the public records and to do all things necessary to create a first
mortgage lien upon said SLF(s). Borrower shall be responsible for all cost and
expenses related to such Mortgage(s) including but not limited to recording,
documentary, or other taxes, and a mortgage title insurance policy insuring
Bank's mortgage. Bank agrees to release the lien created by any Mortgage made
pursuant to this Section 8.4 if Borrower is not in Default and Borrower has or
subsequently obtains a Qualified Lease.
8.5 Remedies Cumulative; Nonwaiver. All remedies of Bank provided for herein or
in the other Loan Documents for any Loan are cumulative and shall be in addition
to any and all other rights and remedies provided for or available under the
other Loan Documents, at law or in equity. The exercise of any right or remedy
by Bank hereunder shall not in any way constitute a cure or waiver of a Default
Condition or a Default hereunder or under the Loan Documents, or All remedies of
Bank provided for herein or in the other Loan Documents for any Loan are
cumulative and shall be in addition to any and all other rights and remedies
provided for or available under the other Loan Documents, at law or in equity.
The exercise of any right or remedy by Bank hereunder shall not in any way
constitute a cure or waiver of a Default Condition or a Default hereunder or
under the Loan Documents, or
8.6 Remedies Cumulative; Nonwaiver. All remedies of Bank provided for herein or
in the other Loan Documents for any Loan are cumulative and shall be in addition
to any and all other rights and remedies provided for or available under the
other Loan Documents, at law or in equity. The exercise of any right or remedy
by Bank hereunder shall not in any way constitute a cure or waiver of a Default
Condition or a Default hereunder or under the Loan Documents, or invalidate an
act done pursuant to any notice of the occurrence of a Default Condition or a
Default hereunder or under the Loan Documents, or invalidate any act done
pursuant to any notice of the occurrence of a Default Condition or Default, or
prejudice Bank in the exercise of said rights, Bank realizes all amounts owed to
it under the Loan Documents.
8.7 No Liability of Bank. Whether or not Bank elects to employ any or all
remedies available to it in the event of an occurrence of a Default Condition or
Default, Bank shall not be liable for the construction of or failure to
construct or complete or protect the Improvements or for payment of any expense
incurred in connection with the exercise or any remedy available to Bank or for
the construction or Completion of the Improvements or for the performance or
nonperformance of any other obligation of Borrower.
8.8 Security Interest. It is understood and agreed that Bank shall have and
enjoy and is hereby granted a lien on, and a security interest in, all real and
personal property and fixtures described in the Security Agreement and
Assignment of Leases and Rents, and including without limitation, any and all
materials of Borrower (stored on-site or off-site) reserves, deferred payments,
deposits or advance payments for materials (stored on-site or off-site)
undisbursed Loan proceeds, insurance refunds, impound accounts, refunds for
overpayment of any kind, and such lien and security interest shall constitute
additional security for the debt of Borrower under the Loan Documents (including
but not limited to the FF&E Account), and Bank shall have and possess any and
all rights and remedies of a secured party provided by law with respect to
enforcement of and recovery on its security interest on such items and amounts.
In the event of a conflict between this paragraph and any security interest
granted pursuant to the Assignment of Leases and Rents, the terms and provisions
contained in the Assignment of Leases and Rents shall control.
ARTICLE IX
General Conditions
The following conditions shall be applicable throughout the term of
this Master Loan Agreement:
9.1 Loan Summary. For any Loan made pursuant to this Master Loan Agreement to be
effective, Borrower must complete and execute the Loan Summary pertaining
thereto and the same must be accepted by Bank in its sole discretion and
executed by the Bank, and Borrower must comply with all the applicable terms and
conditions hereof including, without limitation, the execution and delivery of
the Loan Documents which pertain to the Loan.
9.2 Waivers. No waiver of any Default Condition or Default or breach by Borrower
hereunder shall be implied from any delay or omissions by Bank to take action on
account of such Default Condition or Default, and no express waiver shall affect
any Default Condition or Default other than the Default specified in the waiver
and it shall be operative only for the time and to the extent therein stated.
Waivers or any covenants, terms or conditions contained herein must be in
writing and shall not be construed as a waiver of any subsequent breach of the
same covenant, term or condition. The consent or approval by Bank to or of any
act by Borrower requiring further consent or approval shall not be deemed to
waive or render unnecessary the consent or approval to or of any subsequent or
similar act. No single or partial exercise of any right or remedy of Bank
hereunder shall preclude any further exercise thereof or the exercise of any
other or different right or remedy.
9.3 Benefit. This Master Loan Agreement is made and entered into for the sole
protection and benefit of Bank and Borrower, their successors and assigns, and
no other person or persons have any right to action hereon or rights to the Loan
all proceeds at any time, nor shall Bank owe any duty whatsoever to any claimant
for labor or services performed or material furnished in connection with the
SLF, or to apply any undisbursed portion of the Loan to the payment of any such
claim, or to exercise any right or power of Bank hereunder or arising from any
Default Condition or Default by Borrower.
9.4 Assignment. The terms hereof shall be binding upon and inure to the benefit
of the heirs, successors, assigns, and personal representatives of the parties
hereto; provided, however, that Borrower shall not assign this Master Loan
Agreement or any of its rights, interests, duties or obligations hereunder or
any Loan proceeds or other moneys to be advanced hereunder in whole or in part
without the prior written consent of Bank and that any such assignment (whether
voluntary or by operation of law) without said consent shall be void. It is
expressly recognized and agreed that Bank may assign this Master Loan Agreement,
the Agreement Not to Encumber, the Assignment of Leases and Rents and any other
Loan Documents in whole or in part, to any other person, firm, or legal entity
provided that all of the provisions hereof shall continue in full force and
effect and, in the event of such assignment, Bank shall thereafter be relieved
of all liability under the Loan Documents arising from and after the date of
such assignment and any Loan disbursements made by any assignee shall be deemed
made in pursuant and not in modification hereof and shall be secured by the
Assignment of Leases and Rents and any other Loan Documents.
9.5 Amendments. This Master Loan Agreement shall not be amended except by a
written instrument signed by all parties hereto.
9.6 Terms. Whenever the context and construction so require, all words used in
the singular number herein shall be deemed to have been used in the plural, and
vice versa, and the masculine gender shall include the feminine and neuter and
the neuter shall include the masculine and feminine.
9.7 Post-Closing Environmental Assessments. In addition to the environmental
report required to be furnished to Bank as a condition precedent to closing,
Bank may, but no more frequently than annually, at Bank's sole option, and at
the Borrower's expense, require an environmental assessment or updated
assessment conforming to Bank's Guidance Document, from a reputable
environmental consultant satisfactory to Bank as to whether the SLF, or any
portion thereof, has been or is presently being used for the handling, storage,
transportation or disposal of hazardous or toxic materials. If such report
indicates such past, or present use, handling, storage, transportation or
disposal of hazardous or toxic materials, such shall be deemed to constitute a
default by the Borrower under the Loan Documents.
9.8 Cross Default/Cross Collateral. A default hereunder or under any of the
documents evidencing or securing a Loan shall constitute an event of default
under any other Loan of Borrower to Bank. Any default under any document
evidencing or securing such other indebtedness shall constitute a default
hereunder.
9.9 Anti-Coercion Notice. The insurance laws of the State of Florida provide
that Bank may not require Borrower to take insurance through any particular
insurance agent or company to insure the Land or Improvements. Borrower, subject
to the rules adopted by the Florida Insurance Commissions, has the right to have
insurance placed with an insurance agent or company of Borrower's choice,
provided the company meets Bank's requirements. Bank has the right to designate
reasonable financial requirements as to the company and the adequacy of the
insurance coverage. Borrower shall also execute any documents required by
similar laws of any other state which may be applicable.
9.10 Entire Agreement. This Master Loan Agreement, when accepted, shall
constitute the entire agreement between Borrower and Bank, and it may not be
altered or amended unless agreed to in writing by Bank and Borrower.
9.11 Indemnification. Borrower shall indemnify and hold Bank and its directors,
officers, agent, employees, and attorneys harmless from all liability, loss
expense or damage of any kind or nature, including, without limitation, any
suits, proceedings, claims, demands, or damages (including attorney's fees and
costs paid or incurred in connection therewith at both trial and appellate
levels), incurred or arising by reason of:
a. This Master Loan Agreement or the making of a Loan (except for liability,
loss, expense, or damage arising from the willful misconduct of Bank);
b. Any claim or action for the payment of any brokerage commissions or fees
which may be claimed to be payable in connection with this Master Loan
Agreement; and
c. The past, present or future handling, storage, transportation, or disposal
of hazardous substances upon the SLF, or any portion thereof.
These indemnifications shall survive the full payment and performance
of the obligations of the Borrower under the Loan Documents.
9.12 Choice of Law. The Loans, and all documents executed in connection
therewith shall be governed by and construed in accordance with Florida law
except with respect to the enforcement of the Assignment of Leases and Rents,
the Security Agreement, the Financing Statements and the Agreement Not To
Encumber, which shall be governed by the laws of the State where the SLF is
located, and Borrower shall execute such instruments necessary in connection
therewith.
9.13 Controlling Agreement. The parties intend to conform strictly to the
applicable usury laws. All agreements between Bank and Borrower (or any other
party liable with respect to any indebtedness under the Loan Documents) are
hereby limited by the provision of this paragraph which shall override and
control all such agreements, whether now existing or hereafter arising and
whether written or oral. In no way, nor in any event or contingency (including
but not limited to prepayment default, demand for payment or acceleration of the
maturity of any obligation), shall the interest contracted for, charged or
received under this Master Loan Agreement or otherwise exceed the maximum amount
permissible under applicable law. If, from any possible construction of any
document interest would otherwise be payable to bank in excess of the maximum
lawful amount any such construction shall be subject to the provisions of this
paragraph and such document shall be automatically reformed and the interest
payable to Bank shall be automatically reduced to the maximum amount permitted
under applicable law, without the necessity of execution of any amendment or new
document. If Bank shall ever receive anything of value which is characterized as
interest under applicable law and which would apart from this provisions be in
excess of the maximum lawful amount, an amount equal to the amount which would
have been excessive interest shall be applied to the reduction of the principal
amount owing in the inverse order of its maturity and to the payment of
interest, or refunded to Borrower if and to the extent such amount which would
have been excessive exceeds unpaid principal. The right to accelerate maturity
of any indebtedness does not include the right to accelerate any interest which
has not otherwise accrued on the date of such acceleration, and Bank does not
intend to charge or receive any unearned interest in the event of acceleration.
All interest paid or agreed to be paid to Bank shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
stated term (including any renewal or extension) of such indebtedness so that
the amount of interest on account of such indebtedness does not exceed the
maximum permitted by applicable law.
9.14 NOTICE TO ALL BORROWERS AND OTHER OBLIGORS, FINAL AGREEMENT. The following
notice is incorporated in this Master Loan Agreement; and such of the Loan
Documents as Bank may specify and shall contain such notice in solid capital
letters;
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9.15 Savings Clause. Invalidation of any one or more of the provisions of this
Master Loan Agreement shall in no way affect any of the other provisions hereof,
which shall remain in full force and effect.
9.16 Execution in Counterparts. This Master Loan Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same instrument, and in making proof
of this Master Loan Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
9.17 Captions. The captions herein are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
Master Loan Agreement nor the intent of any provisions hereof.
9.18 Notices. Each notice, request, demand, director or other communication
provided for hereunder shall be in writing and mailed (by registered or
certified mail, return receipt requested), delivered by hand, or sent by
facsimile (with receipt confirmed by facsimile) to Borrower or Bank at the
addresses indicated herein. Notices and other communications mailed shall be
deemed given three (3) days after being mailed; those sent by facsimile shall be
deemed given when sent, and those delivered by hand or reputable overnight
courier shall be deemed given when delivered. To the greatest extent permitted
under applicable law, Borrower waives all notice and demand in connection with
or relating to this Agreement. Borrower agrees that in any instance in which
reasonable advance notice to Borrower is required by law, such requirement shall
be satisfied if notice is given (deemed given) at least five (5) days in
advance.
9.19 No Commitment. Nothing in this Master Loan Agreement shall be construed or
deemed to be a commitment by Bank to make any future Loan or Loans to Borrower
other than as may be set forth in any Commitment Letter or other agreements as
Borrower and Bank may agree upon.
9.20 WAIVER OF JURY TRIAL. BY ACCEPTANCE HEREOF, BORROWER AGREES THAT NEITHER
BORROWER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR LEGAL REPRESENTATIVE OF BORROWER
ALL OF WHOM ARE HEREINAFTER REFERRED TO AS THE PARTIES SHALL SEEK A JURY TRIAL
IN ANY LAWSUIT, PROCEEDINGS, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE
BASED UPON OR ARISING OUT OF THIS MASTER LOAN AGREEMENT OR ANY INSTRUMENT
EVIDENCING, SECURING, OR RELATING TO THE INDEBTEDNESS AND OTHER OBLIGATIONS
EVIDENCE HEREBY, ANY RELATED AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR
THE INDEBTEDNESS EVIDENCE HEREBY OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR
AMONG THE PARTIES, OR ANY OF THEM. NONE OF THE PARTIES WILL SEEK TO CONSOLIDATE
ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION HAVE BEEN
FULLY NEGOTIATED BY THE PARTIES WITH BANK, AND THESE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS. BANK HAS IN NO WAY AGREED WITH OR REPRESENTED TO ANY OF THE
PARTIES THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
9.21 Joint and Several. If there is more than one entity executing as Borrower
under this Master Loan Agreement, each and every entity executing this Master
Loan Agreement on behalf of Borrower shall be joint and severally liable for all
debts and obligations and this Master Loan Agreement.
IN WITNESS WHEREOF, Borrower and Bank have executed this Master Loan
Agreement as of the above written date by their duly authorized respective
officers.
WITNESSES: BORROWER:
CNL HEALTH CARE
PROPERTIES, INC., a Maryland
corporation
/s/ Robert A. Bourne
Print Name: Robert A. Bourne
By: /s/ Phillip M. Anderson
/s/ Daniel Bannon Name: Phillip M. Anderson
Print Name: Daniel Bannon Title: Executive Vice President and
Chief Operating Officer
CNL HEALTH CARE
PARTNERS, LP, a Delaware
Limited partnership
By: CNL Health Care GP Corp.,
a Delaware corporation, general
partner
/s/ Robert A. Bourne
Print Name: Robert A. Bourne
By: /s/ Phillip M. Anderson
/s/ Daniel Bannon Name: Phillip M. Anderson
Print Name: Daniel Bannon Title: Executive Vice President and
Chief Operating Officer
<PAGE>
EXHIBIT 23.1
Consent of PricewaterhouseCoopersLLP,
Certified Public Accountants,
dated May 15, 2000
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of our
report dated January 14, 2000 on our audit of the financial statements of CNL
Health Care Properties, Inc. We also consent to the reference to our Firm under
the caption "Experts".
/s/ PricewaterhouseCoopersLLP
PricewaterhouseCoopersLLP
Orlando, Florida
May 15, 2000
<PAGE>
EXHIBIT 23.3
Consent of PricewaterhouseCoopersLLP,
Certified Public Accountants,
dated May 15, 2000
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of our
report dated March 20, 2000 on our audit of the financial statements of Brighton
Gardens by Marriott, Orland Park, Illinois (An Unincorporated Division of
Marriott Senior Living Services, Inc.). We also consent to the reference to our
Firm under the caption "Experts".
/s/ PricewaterhouseCoopersLLP
PricewaterhouseCoopersLLP
Orlando, Florida
May 15, 2000
<PAGE>
