<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION NO. 333-
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 33-61165
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
COMMERCIAL NET LEASE REALTY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION)
56-1431377
(IRS EMPLOYER IDENTIFICATION NO.)
<TABLE>
<S> <C>
KEVIN B. HABICHT, CHIEF FINANCIAL OFFICER
COMMERCIAL NET LEASE REALTY, INC.
400 EAST SOUTH STREET, SUITE 500 400 EAST SOUTH STREET, SUITE 500
ORLANDO, FLORIDA 32801 ORLANDO, FLORIDA 32801
TELEPHONE: (407) 422-1574 TELEPHONE: (407) 422-1574
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE OF AGENT FOR SERVICE)
</TABLE>
------------------
COPIES TO:
THOMAS H. MCCORMICK, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-8000
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable following the effective date of this Registration
Statement.
------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TYPE OF EACH CLASS OF AMOUNT BEING OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PRICE PRICE(2)(4) FEE(3)(4)
<S> <C> <C> <C> <C>
Debt Securities............................
Common Stock, $.01 par value(5)............ $300,000,000 (6) $300,000,000 $ 90,910(7)
Common Stock Warrants......................
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Offered Securities registered hereunder may be sold separately, together or
as units with other Offered Securities registered hereunder.
(2) In U.S. Dollars or the equivalent thereof at the time of sale for any Debt
Security denominated in one or more foreign currencies or units of two or
more foreign currencies or composite currencies (such as European Currency
Units).
(3) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for shares of Common Stock that are
issued upon conversion of Debt Securities. The aggregate maximum public
offering price of all Offered Securities issued pursuant to this
Registration Statement will not exceed $300,000,000. Debt Securities may be
issued with original issue discount such that the aggregate initial public
offering price will not exceed $300,000,000.
(4) Includes $36,846,250 of unissued Offered Securities previously registered
under Registration Statement No. 33-61165. A registration fee of $12,705 was
previously paid with respect to such amount.
(5) Including such indeterminate number of shares of Common Stock as may from
time to time be issued at indeterminate prices or issuable upon exercise of
the Common Stock Warrants to purchase Common Stock registered hereunder, as
the case may be.
(6) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1933, as amended.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
----------------------
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.
Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, the prospectus included herein also relates to
Registration Statement No. 33-61165.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 8, 1997
LOGO
$300,000,000
COMMERCIAL NET LEASE REALTY, INC.
DEBT SECURITIES, COMMON STOCK AND COMMON STOCK WARRANTS
------------------------------
Commercial Net Lease Realty, Inc. (the "Company") may from time to time
offer in one or more series (i) its debt securities (the "Debt Securities"),
which may be senior debt securities or subordinated debt securities, (ii) Common
Stock, par value $.01 per share (the "Common Stock"), or (iii) warrants to
purchase Common Stock (the "Common Stock Warrants"), with an aggregate public
offering price of up to $300,000,000 on terms to be determined at the time or
times of offering. The Debt Securities, Common Stock or Common Stock Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate classes or series in amounts, at prices and on terms to be set forth
in a supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, ranking, currency,
form (which may be registered or bearer, or certified or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Common Stock or other securities of the Company, and
any public offering price; (ii) in the case of Common Stock, any public offering
price; and (iii) in the case of Common Stock Warrants, the duration, offering
price, exercise price and detachability. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names and any applicable purchase price, fee, commission or
discount arrangement between or among them will be set forth or will be
calculable from the information set forth in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such class or series of Offered Securities.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Seven
World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants such as the Company which file
electronically with the Commission. The Company's Common Stock is listed on the
New York Stock Exchange under the ticker symbol "NNN." Reports, proxy statements
and other information concerning the Company also may be inspected at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) on Form S-3 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Offered Securities. This Prospectus does not contain all of the information
set forth in the Registration Statement, including the exhibits and schedules
thereto, certain parts of which are omitted as permitted by 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 Offered
Securities, 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 Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The document listed below has been filed by the Company under the Exchange
Act (Exchange Act file number 0-12989) with the Commission and is incorporated
herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents.
Any statement contained herein, or in a document incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
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<PAGE> 4
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
request of any such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests for such
copies should be directed to Kevin B. Habicht, Commercial Net Lease Realty,
Inc., 400 East South Street, Suite 500, Orlando, Florida 32801 (telephone
number: (407)422-1574).
THE COMPANY
Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"),
is a real estate investment trust (a "REIT") formed in 1984 that acquires, owns
and manages a diversified portfolio of high-quality, single-tenant, freestanding
properties leased to major retail businesses under full-credit, long-term
commercial net leases. As of December 31, 1996, the Company owned 195 properties
acquired for an aggregate purchase price of approximately $371 million and
having an annualized current cash on cost return (on an Inclusive Cost basis as
defined below) of approximately 10.4%. For the purposes of the Prospectus,
"Inclusive Cost" means all costs related to acquisitions, including but not
limited to the purchase price, legal fees and expenses, commissions and title
insurance.
The Company focuses on acquiring freestanding properties that are located
within intensive commercial corridors near traffic generators, such as regional
malls, business developments and major thoroughfares. These properties, which
generally have purchase prices of up to $7.5 million, attract a wide array of
established retail tenants. Consequently, management believes that such
properties offer attractive opportunities for stable current return and
potential capital appreciation. In addition, management believes that the
location and design of properties in this niche provide flexibility in use and
tenant selection and an increased likelihood of advantageous re-lease terms.
The Company has been successful in attracting tenants that operate in a
variety of retail segments, including Eckerd Drug, Marshalls and Burger King,
and "category killer" retailers such as Barnes & Noble Bookstores, OfficeMax,
Computer City and Linens 'n Things. "Category killer" retailers offer an
extensive variety of merchandise in a defined product category at competitive
prices through a "superstore" format, providing the convenience of in-depth
product selection in a single location. The Company intends to continue leasing
properties it acquires in the future to "category killer" retailers or other
major national or regional retail businesses.
CNL Realty Advisors, Inc. (the "Advisor") is the Company's advisor. The
Advisor is a majority owned subsidiary of CNL Group, Inc. ("CNL Group"), a
diversified real estate company with expertise in commercial net leased
investments that currently owns and manages, either directly or through
affiliates (collectively, "CNL Affiliates"), a property portfolio with a cost in
excess of $700 million. Under the direction of the Company's Board of Directors,
the Advisor has responsibility for the day-to-day operations of the Company,
including investment analysis and development, acquisitions, due diligence, and
asset management and accounting services. Management of the Company believes
that the Advisor's extensive experience and long-term relationships throughout
the commercial net leased property industry benefits the Company in selecting,
acquiring and managing its properties. In focusing on acquiring freestanding
properties that are located within intensive commercial corridors which have
been successful in attracting a variety of retail tenants, including "category
killer" retailers, management of the Company also believes that the Advisor
provides the Company with a competitive advantage in the management and
operation of its real estate assets and in the identification of attractive
investments. At the time the Company retained the Advisor in July 1992 the
Company owned 28 properties leased to one tenant (three of which were
subsequently sold). The aggregate cost of such properties was approximately
$12.8 million. As of December 31, 1996, the Company had acquired 172 additional
properties (two of which were subsequently sold) leased to 36 new tenants for an
aggregate purchase price of approximately $361 million.
Historically, the Company has not had a large enough asset base to provide
the economies of scale needed to support efficiently the extensive general and
administrative expenses of an in-house management team. As a result, the Advisor
has incurred the full expense of a management and acquisition team while
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<PAGE> 5
receiving advisory and acquisition fees that have offset this expense. However,
management believes that the efficiencies currently experienced by employing a
third-party advisor will diminish as the Company grows and expects that as the
Company continues to grow it will be more cost effective to become
self-administered. Management is currently considering whether it may be
appropriate at this time to recommend to the Board of Directors that the Company
become self-administered. Any recommendation would be evaluated by the
Independent Directors, and any transaction by which the Company would become
self-administered would be subject to the approval of the stockholders.
The principal office of the Company is located at 400 East South Street,
Suite 500, Orlando, Florida 32801 and the Company's telephone number is
(407)422-1574.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the repayment of certain
indebtedness outstanding at such time, the acquisition of single tenant
freestanding properties as suitable opportunities arise and the expansion and
improvement of certain properties in the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the year ended
December 31, 1996 was 3.49, and for the years ended December 31, 1995, 1994,
1993 and 1992 was 4.06, 12.86, 9.77 and 6.18, respectively. For the purposes of
computing these ratios, earnings have been calculated by adding fixed charges
(excluding capitalized interest) to income before taxes and extraordinary items.
Fixed charges consist of interest costs, whether expensed or capitalized, and
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct obligations of the Company, which may be
secured or unsecured, and which may be senior or subordinated indebtedness of
the Company. The Debt Securities may be issued under one or more indentures,
each dated as of a date before the issuance of the Debt Securities to which it
relates and in the form that has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. Each such indenture
(collectively, the "Indenture") will be entered into between the Company and a
trustee (the "Trustee"), which may be the same Trustee. The Indenture will be
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
statements made hereunder relating to the Indenture and the Debt Securities are
summaries of the provisions thereof, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the Indenture and such Debt Securities. Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Indenture.
TERMS
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along with
any applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable federal income tax considerations. Accordingly, for a description of
the terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
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Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limits as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company's Board of
Directors or as set forth in the applicable Indenture or one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuance of additional Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor trustee may be
appointed to act with respect to such series. If two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the applicable Indenture separate
and apart from the trust administered by any other Trustee and, except as
otherwise indicated herein, any action described herein to be taken by a Trustee
may be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indenture and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Stock or other equity securities of the Company, or the method by which any
such portion shall be determined;
(4) if such Debt Securities are convertible, any limitation to the
ownership or transferability of the Common Stock or other equity securities
of the Company into which such Debt Securities are convertible in
connection with the preservation of the Company's status as a REIT;
(5) the date or dates, or the method for determining the date or
dates, on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining the date or
dates, from which any such interest will accrue, the dates upon which any
such interest will be payable, the record dates for payment of such
interest or the method by which any such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) the place or places where the principal of (and premium, if any)
or interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange, and where notices or demands to or upon the Company
in respect to such Debt Securities and the applicable Indenture may be
served;
(9) the period or periods within which, the price or prices at which,
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or
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periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the events of default or covenants set
forth in the applicable Indenture;
(14) whether such Debt Securities will be issued in certificated or
book-entry form;
(15) whether such Debt Securities will be in registered or bearer form
or both and, if and to the extent in registered form, the denominations
thereof if other than $1,000 and any integral multiple thereof and, if and
to the extent in bearer form, the denominations thereof and terms and
conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(17) the terms, if any, upon which such Debt Securities may be
convertible into Common Stock or other equity securities of the Company
(and the class thereof) and the terms and conditions upon which such
conversion will be effected, including, without limitation, the initial
conversion price or rate and the conversion period;
(18) whether and under what circumstances the Company will pay
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(19) the provisions, if any, relating to the security provided for
such Debt Securities; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as may be set forth in the applicable Prospectus Supplement, the
Debt Securities will not contain any provisions that would limit the ability of
the Company to incur indebtedness or that would afford holders of Debt
Securities protection in a highly leveraged or similar action involving the
Company or in the event of a change of control of the Company. However, certain
restrictions on ownership and transfers of the Company's Common Stock and the
Company's other equity securities designed to preserve its status as a REIT may
act to prevent or hinder a change of control. See "Description of Common
Stock -- Restrictions on Ownership." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletion from,
modification of or addition to the events of default or covenants of the Company
that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
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<PAGE> 8
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the applicable Trustee's corporate trust office, the address
of which will be set forth in the applicable Prospectus Supplement; provided,
however, that, at the Company's option, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
Any interest not punctually paid or duly provided for on any date upon
which interest is payable with respect to a Debt Security ("Defaulted Interest")
will forthwith cease to be payable to the holder on the applicable regular
record date and may either be paid to the person in whose name such Debt
Security is registered at the close of business on a special record date (the
"Special Record Date") for the payment of such Defaulted Interest to be fixed by
the applicable Trustee, notice of which shall be given to the holder of such
Debt Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture.
Subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the applicable Trustee. Every Debt Security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the Trustee) initially designated
by the Company with respect to any series of Debt Securities, the Company may at
any time rescind the designation of any such transfer agent or approve a change
in the location at which any such transfer agent acts, except that the Company
will be required to maintain a transfer agent in each place of payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities.
Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) to register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) to issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the holder, except the
portion, if any, of such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other corporation, provided that (a) either the Company must be the
continuing corporation, or the successor corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets must expressly assume payment of the
principal of (and premium, if any), and interest on, all of the outstanding Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in the applicable Indenture; (b) immediately
after giving effect to such transaction and treating any indebtedness which
becomes an obligation of the Company or any subsidiary as a result thereof as
having been incurred by the Company or such subsidiary at the time of such
transaction, no event of default under the applicable Indenture, and no event
which, after notice or the lapse of time, or both, would become such an event of
default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion concerning such conditions shall be delivered to the Trustee.
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CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale,"
the Indenture will require the Company to do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (by articles of incorporation, bylaws or statute) and franchises;
provided, however, that the Company will not be required to preserve any right
or franchise if it determines that the preservation thereof is no longer
desirable in the conduct of its business.
Maintenance of Properties. The Indenture will require the Company to cause
all of its properties used or useful in the conduct of its business or the
business of any subsidiary to be maintained and kept in good condition and must
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries will not be prevented from selling or otherwise disposing for
value its properties in the ordinary course of business.
Insurance. The Indenture will require the Company to, and to cause each of
its subsidiaries to, keep or cause to be kept in force upon all of its
properties and operations policies of insurance carried with responsible
companies in such amounts and covering all such risks as shall be customary in
the industry in accordance with prevailing market conditions and availability.
Payment of Taxes and Other Claims. The Indenture will require the Company
to pay or discharge or cause to be paid or discharged (or, if applicable, cause
to be transferred to bond or other security), before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary, and (b) all lawful claims for labor, materials and
supplied which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary, provided, however, that the Company will not be
required to pay or discharge (or transfer to bond or other security) or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity it being contested in good faith by appropriate
proceedings.
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indenture will require the
Company, within 15 days after each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (a) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, without cost to such holders,
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Company were subject to such Sections,
(b) to file with the Trustee copies of the annual reports, quarterly and other
documents that the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject
to such Sections, and (c) to supply promptly upon written request and payment of
the reasonable cost of duplication and delivery, copies of such documents to any
prospective holder of Debt Securities.
Additional Covenants. Any additional covenants of the Company with respect
to any of the series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable indenture, the Indenture will
provide that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any installment of interest on any Debt Security of such series; (b)
default in the payment of the principal of (or premium, if any, on) any Debt
Security of such series at its maturity; (c) default in making any sinking fund
payment as required for any Debt Security of such series; (d) default in the
performance of any other covenant of the Company contained in the applicable
Indenture (other than a covenant added to such Indenture solely for the benefit
of a series of Debt Securities issued thereunder other than such series),
continued for 60 days after written notice as provided in such Indenture; (e)
default under
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any evidence of indebtedness of the Company or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such indebtedness
is secured which results in the acceleration of indebtedness in an aggregate
principal amount exceeding $10,000,000, but only if such indebtedness is not
discharged or such acceleration is not rescinded or annulled as provided in the
applicable Indenture; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee, of
the Company or of any Significant Subsidiary or of the respective property of
either; and (g) any other event of default provided with respect to that series
of Debt Securities. The term "Significant Subsidiary" means each significant
subsidiary (as defined in Regulation S-X promulgated under the Securities Act)
of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the holders of not
less than 25% in principal amount of the outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of all
of the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given by
the holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under such Indenture, as the case may be) has been made, the holders
of not less than a majority in principal amount of Debt Securities of such
series (or of each series of Debt Securities then outstanding under such
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Company shall have deposited with such Trustee all
required payments of the principal of (and premium, if any) and interest on the
Debt Securities of such series (or of all Debt Securities then outstanding under
such Indenture, as the case may be), plus certain fees, expenses, disbursements
and advances of the applicable Trustee and (b) all events of default, other than
the nonpayment of accelerated principal (or specified portion thereof) with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under such Indenture, as the case may be) have been cured or waived
as provided in such Indenture. The Indenture will also provide that the holders
of not less than a majority in principal amount of the Debt Securities of any
series (or of each series of Debt Securities then outstanding under the
applicable Indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (x) in the payment
of the principal of (or premium, if any) or interest on any Debt Security of
such series or (y) in respect of a covenant or provision contained in such
Indenture that cannot be modified or amended without the consent of the holder
of each outstanding Debt Security affected thereby.
The Indenture will provide that the Trustee thereunder is required to give
notice to the holders of Debt Securities issued thereunder within 90 days of a
default under the Indenture unless such default shall have been cured or waived;
provided, however, that such Trustee may withhold notice to the holders of any
such series of Debt Securities of any default with respect to such series
(except a default in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or in the payment of any sinking
fund installment in respect of any Debt Security of such series) if specified
responsible officers of the Trustee consider such withholding to be in the
interest of such holders.
The Indenture will provide that no holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the failure of the applicable Trustee, for 60 days, to act after it has received
a written request to institute proceedings in respect of an event of default
from the holders of not less than 25% in principal amount of the outstanding
Debt Securities of such series, as well as an offer of reasonable indemnity.
This provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on the Debt Securities held by that holder at the
respective due dates thereof.
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee thereunder is under no obligation to exercise any of its
rights or powers under such Indenture at the request or direction of any holders
of any series of Debt Securities then outstanding under such Indenture, unless
such holders shall have offered to such Trustee reasonable security or
indemnity. The holders of not less than a majority in
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principal amount of the outstanding Debt Securities of any series (or of each
series of Debt Securities then outstanding under such Indenture, as the case may
be) shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to such Trustee, or of exercising any trust
or power conferred upon such Trustee. However, such Trustee may refuse to follow
any direction which is in conflict with any law or such Indenture, which may
involve such Trustee in personal liability or which may be unduly prejudicial to
the holders of Debt Securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Company must
delivery to each Trustee under the Indentures a certificate, signed by one of
several specified officers, stating whether such officer has knowledge of any
default under the Indenture and, if so, specifying each such default and the
nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of any Indenture may be made only with the
consent of the holders of not less than a majority in principal amount of all
outstanding Debt Securities issued thereunder which are affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each such Debt Security
affected thereby, (a) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (b)
reduce the principal amount of, or the rate of amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (c) change the place of payment, or the currency or
currencies, for payment of principal of, or premium, if any, or interest on any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
percentage of outstanding Debt Securities of any series necessary to modify or
amend the applicable Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in such Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of outstanding Debt
Securities of each series may, on behalf of all holders of Debt Securities of
that series, waive, insofar as that series is concerned, compliance by the
Company with certain covenants in the applicable Indenture, including those
described in "-- Certain Covenants."
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any holder of Debt Securities issued
thereunder for any of the following purposes: (a) to evidence the succession of
another person to the Company as obligor under such Indenture; (b) to add to the
covenants of the Company for the benefit of the holders of all or any series of
Debt Securities issued thereunder or to surrender any right or power conferred
upon the Company in such Indenture; (c) to add events of default for the benefit
of the holders of all or any series of Debt Securities issued thereunder; (d) to
add or change any provisions of such Indenture to facilitate the issuance of, or
to liberalize certain terms of, Debt Securities issued thereunder in bearer
form, or to permit or facilitate the issuance of such Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the holders of such Debt Securities of any series in any material
respect; (e) to change or eliminate any provision of such Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities outstanding of any series issued thereunder created prior
thereto which are entitled to the benefit of such provision; (f) to secure the
Debt Securities issued thereunder; (g) to establish the form or terms of Debt
Securities of any series issued thereunder, including the provisions and
procedures, if applicable, for the conversion of such Debt Securities into
Common Stock of the Company; (h) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trusts under such
Indenture by more than one Trustee; (i) to cure any ambiguity, defect or
inconsistency in such Indenture, provided that such action shall not adversely
affect the interests of holders of Debt Securities of any series
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issued thereunder in any material respect; or (j) to supplement any of the
provisions of such Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities issued
thereunder, provided that such action shall not adversely affect the interests
of the holders of the Debt Securities of any series issued thereunder in any
material respect.
The Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
holders of such Debt Securities, (a) the principal amount of an Original Issue
Discount Security that shall be deemed to be outstanding shall be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof; (b) the
principal amount of a Debt Security denominated in a foreign currency that shall
be deemed outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as provided in (a) above);
(c) the principal amount of an indexed security that shall be deemed outstanding
shall be the principal face amount of such indexed security at original
issuance, unless otherwise provided with respect to such indexed security in the
applicable Indenture; and (d) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
The Indenture will contain provisions for convening meetings of the holders
of Debt Securities of a series issued thereunder. A meeting may be called at any
time by the Trustee and also, upon request, by the Company or the holders of at
least 10% in principal amount of the outstanding Debt Securities of such series,
in any such case upon notice given as provided in the applicable Indenture.
Except for any consent that must be given by the holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage which is less than a majority in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the holders of such specified percentage in principal amount of the outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the provisions described above, if any action is to be
taken at a meeting of holders of Debt Securities of any series with respect to
any request, demand, authorization, direction, notice, consent, waiver or other
action that the applicable Indenture expressly provides may be made, given or
taken by the holders of a specified percentage in principal amount of all
outstanding Debt Securities affected thereby, or of the holders of such series
and one or more additional series: (a) there shall be no minimum quorum
requirement for such meeting and (b) the principal amount of the outstanding
Debt Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under the Indenture.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company may discharge certain obligations to holders of any series of Debt
Securities that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with such Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium, if any) and interest
to the date of such deposit (if such Debt Securities have become due and
payable) or to the stated maturity or redemption date, as the case may be.
The Indenture will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (a) to defease
and be discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) with respect to such Debt Securities
("defeasance") or (b) to be released from its obligations with respect to such
Debt Securities under the applicable Indenture (being the restrictions described
under the caption "-- Certain Covenants") or if provided in the applicable
Prospectus Supplement, its obligations with respect to any other covenant, and
any omission to comply with such obligations shall not constitute a default or
an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an opinion of Counsel (as specified in
the applicable Indenture) to the effect that the holders of such Debt Securities
will not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of such
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities which are (a) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (b) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
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Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of actions by a central bank or other public institution of
or within the international banking community, (ii) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Communities or (iii) any currency unit or
composite currency other than the ECU for the purposes for which it was
established. Unless otherwise described in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a Foreign Currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any event of default, other than the event of default
described in clause (d) under "-- Events of Default, Notice and Waiver" with
respect to the specified sections in the applicable Indenture (which Sections
would no longer be applicable to such Debt Securities) or clause (g) thereunder
with respect to any other covenants as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable and Government Obligations on deposit
with the applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such event of default. In any such event, the Company would remain liable
to make payments of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERTIBLE DEBT SECURITIES
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include whether such Debt
Securities are convertible into Common Stock, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether conversion
will be at the option of the holders or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Debt Securities and any restrictions on
conversion, including restrictions directed at maintaining the Company's REIT
status.
Reference is made to the section captioned "Description of Common Stock"
for a general description of the Common Stock to be acquired upon the conversion
of Debt Securities, including a description of certain restrictions on the
ownership of the Common Stock.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the
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applicable Prospectus Supplement relating to such series. Global Securities may
be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, as well as 50,000,000 shares of
Excess Stock, par value $0.01 per share, issuable in exchange for Common Stock
as described in the Company's articles of incorporation. At March , 1996, the
Company had outstanding 23,393,672 shares of Common Stock. All issued and
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable.
GENERAL
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Debt Securities or upon the exercise of the Warrants
to purchase Common Stock issued by the Company. The statements below describing
the Common Stock are in all respects subject to and qualified in their entirety
by reference to the applicable provisions of the Company's articles of
incorporation and bylaws.
COMMON STOCK
The holders of Common Stock elect all directors and are entitled to one
vote per share on all matters submitted to a vote of the stockholders.
Stockholders are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available for that purpose. Upon any
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share pro rata in any distribution to stockholders. Holders of
Common Stock have no preemptive, subscription or conversion rights. The Common
Stock will, when issued, be fully paid and nonassessable and will not be subject
to preemptive or other similar rights.
The Company purchased from six limited partnerships and one general
partnership 14 properties in July 1992, and purchased from a trust one property
in August 1993, in exchange for the issuance to the partnerships and the trust
of an aggregate of 346,172 restricted shares of Common Stock (the "CNL
Transaction"). All of the shares issued in connection with the CNL Transaction
are subject to piggyback registration rights under certain circumstances.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT, not more than 50 percent in value of
its outstanding Common Stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year; the shares must be beneficially owned (without
reference to any rules of attribution) 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 certain other requirements must be satisfied. See
"Federal Income Tax Considerations -- Taxation of the Company."
To ensure that five or fewer individuals do not own more than 50 percent in
value of the outstanding Common Stock, the Company's articles of incorporation
provide that, subject to certain exceptions, no holder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8 percent
in value (the "Ownership Limit") of the outstanding Common Stock. The Board of
Directors may waive the Ownership Limit if evidence satisfactory to the Company
and the Company's tax counsel is presented that such ownership will not then or
in the future jeopardize the Company's status as a REIT. As a condition of such
waiver, 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.
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The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. In addition to preserving the Company's status as a REIT, the
Ownership Limit may prevent any person or small group of persons from acquiring
unilateral control of the Company.
If the ownership, transfer or acquisition of shares of Common Stock, or
change in capital structure of the Company or other event or transaction would
result in (a) any Person (as defined below) owning (applying certain attribution
rules) Common Stock in excess of the Ownership Limit, (b) fewer than 100 Persons
owning the Common Stock, (c) the Company being "closely held" within the meaning
of Section 856(h) of the Code, or (d) 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 to the extent
required to avoid such a result. Common 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 Stock. A holder of Excess Stock 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 Stock, the fair
market value at the time of such devise or gift or event) and the right to
certain distributions upon liquidation. Any dividend or distribution paid to a
proposed transferee or holder of Excess Stock shall be repaid to the Company
upon demand. Excess Stock shall be subject to repurchase by the Company at its
election. The purchase price of any Excess Stock shall be equal to the lesser of
(i) 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 Stock, the fair market
value at the time of such devise or gift or event), or (ii) the fair market
value of such Common Stock 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 Stock may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring such Excess Stock and to hold such
Excess Stock on behalf of the Company.
For purposes of the Company's 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 Exchange Act; but
does not include an underwriter which participated in a public offering of
Common Stock for a period of sixty (60) days following the purchase by such
underwriter of Common Stock therein, provided that the foregoing exclusions
shall apply only if the ownership of such Common Stock by such 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.
All certificates representing Common Stock will bear a legend referring to
the restrictions described above.
The articles of incorporation of the Company provide that all persons who
own, directly or by virtue of the attribution provisions of the Code, more than
5.0 percent of the outstanding Common Stock, or such lower percentage as may be
required pursuant to regulations under the Code or as may be requested by the
Board of Directors, must file a written notice with the Company no later than
January 31 of each year with respect to the prior year containing (a) the name
and address of such owner, (b) the number of shares of Common Stock owned by
such holder and (c) a description of how such shares are held. In addition, each
stockholder shall be required to disclose, upon demand, to the Company in
writing such information with respect to the direct indirect and constructive
ownership of shares as the directors deem necessary to comply with the
provisions of the Code as applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
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The ownership limitations described above may have the effect of precluding
acquisitions of control of the Company by a third party.
TRANSFER AGENT
First Union National Bank of North Carolina is the Transfer Agent of the
Common Stock.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Stock Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Common Stock Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Common Stock Warrants. The following sets forth certain general terms and
provisions of the Common Stock Warrants offered hereby. Further terms of the
Common Stock Warrants and the applicable Warrant Agreements will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (a) the title of such Common Stock
Warrants; (b) the aggregate number of such Common Stock Warrants; (c) the price
or prices at which such Common Stock Warrants will be issued; (d) the number of
shares of Common Stock purchasable upon exercise of such Common Stock Warrants;
(e) the designation and terms of the other Offered Securities with which such
Common Stock Warrants are issued and the number of such Common Stock Warrants
issued with each such Offered Security; (f) the date, if any, on and after which
such Common Stock Warrants and the related Common Stock will be separately
transferable; (g) the price at which each share of Common Stock purchasable upon
exercise of such Common Stock Warrants may be purchased; (h) the date on which
the right to exercise such Common Stock Warrants shall commence and the date on
which such right shall expire; (i) the minimum or maximum amount of such Common
Stock Warrants which may be exercised at any one time; (j) information with
respect to book-entry procedures, if any; (k) any limitations on the acquisition
or ownership of such Common Stock Warrants which may be required in order to
maintain the status of the Company as a REIT; (l) a discussion of certain
federal income tax considerations; and (m) any other terms of such Common Stock
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Stock"
for a general description of the Common Stock to be acquired upon the exercise
of the Common Stock Warrants, including a description of certain restrictions on
the ownership of Common Stock.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax consequences
of the ownership of the Common Stock of the Company, prepared by Shaw, Pittman,
Potts & Trowbridge, tax counsel to the Company ("Tax Counsel"). This discussion
is based upon the laws, regulations, and reported rulings and decisions in
effect as of the date of this Prospectus (or, in the case of certain
regulations, proposed as of such date), 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 tax consequences
applicable to all investors in light of their particular investment
circumstances, or to all categories of investors, some of whom may be subject to
special rules (including, for example, insurance companies, tax-exempt
organizations,
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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 Common Stock, has been requested from
the Internal Revenue Service (the "Service") or other tax authority. Tax Counsel
has rendered certain opinions discussed herein and believes that if the Service
were to challenge the conclusions of Tax 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 Tax
Counsel would be sustained in court. 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 Common
Stock of the Company.
TAXATION OF THE COMPANY
General. Since its inception, the Company has elected, and believes it has
qualified, to be taxed as a REIT for federal income tax purposes, as defined in
Sections 856 through 860 of the Code. The provisions of the Code pertaining to
REITs are highly technical and complex. If various conditions imposed by the
Code are met, a REIT is, with limited exceptions, not taxed at the corporate
level on income that is currently distributed to the REIT's stockholders.
Undistributed income is taxed at regular corporate rates and may be subject to a
4 percent excise tax. In addition, a REIT may be subject to the "alternative
minimum tax" on its items of tax preference and is subject to income tax at the
highest corporate rate on income from foreclosure property and to penalty taxes
on excessive unqualified income and prohibited transactions.
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 Common Stock. To the extent that the Company
would, as a consequence, be subject to tax liability for any such year, the
amount of cash available for satisfaction of its liabilities and for
distribution to holders of Common Stock would be reduced. Distributions to
holders of Common Stock 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 subsequent
taxable years, unless its failure to qualify was due to reasonable cause and not
willful neglect and unless certain other requirements were satisfied.
Opinion of Tax 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 Tax Counsel's independent review of such documents and other information as
Tax Counsel deemed relevant in the circumstances and upon the assumption that
the Company will operate in the manner described in this Prospectus, Tax Counsel
has advised the Company that, in its opinion, (a) the Company has, for the years
1984 through 1996, met the requirements for qualification and taxation as a REIT
and (b) the Company's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT for 1997. It must be
emphasized, however, that the Company's ability to qualify as a REIT is
dependent upon actual operating results and future actions and events by the
Company and others, and no assurance can be given that the actual results of the
Company's operations and the 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 (a) which is managed by one or more
trustees or directors; (b) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest; (c)
which would be taxable, but for Sections 856 through 860 of the Code, as a
domestic corporation; (d) which is neither a financial institution nor an
insurance company; (e) the beneficial ownership of which is held by 100 or more
persons; (f) which is not closely held; and (g) which meets certain other tests
regarding the nature of its assets and income and the amount of its
distributions.
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Ownership Tests. More specifically, the ownership requirements of a REIT
are that (a) during the last half of each taxable year not more than 50 percent
of the Company's outstanding shares may be owned, directly or indirectly, by
five or fewer individuals and (b) there must be at least 100 stockholders on at
least 335 days of such 12-month taxable year (or a proportionate number of days
of a short taxable year). In order to meet these requirements, or to otherwise
obtain, maintain or reestablish REIT status, and for no other purpose, the
Company's articles of incorporation empowers the Board of Directors to redeem,
at its option, a sufficient number of shares or to restrict the transfer thereof
to bring or to maintain the ownership of shares of the Company in conformity
with the requirements of the Code. The redemption price to be paid will be fair
market value as reflected in the latest quotations, or, if no quotations are
available, the net asset value of the shares as determined by the Board of
Directors.
Under the Company's articles of incorporation, each holder of common stock
is required, upon demand, to disclose to the Board of Directors in writing such
information with respect to direct and indirect 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 to comply with 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 has met, and expects to meet, these stock ownership requirements for each
taxable year.
Asset Tests. At the end of each quarter of a REIT's taxable year, at least
75 percent of the value of its total assets must consist of "real estate
assets," cash and cash items (including receivables) and government securities.
The balance of a REIT's assets generally may be invested without restriction,
except that holdings of securities not within the 75 percent class of assets
generally must not, with respect to any issuer, exceed 5 percent of the value of
the REIT's assets or 10 percent 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 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). The Company has
represented that at the end of each quarter it has met, and expects in the
future to continue to meet, this asset test.
Income Tests. A REIT also must meet three separate tests with respect to
its sources of income for each taxable year.
(i) The 75 Percent and 95 Percent Tests. In general, at least 75 percent
of a REIT's gross income (excluding income from prohibited transactions) 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. In addition, a REIT must derive at
least 95 percent of its gross income (excluding income from prohibited
transactions) for each taxable year from any combination of the items of income
which qualify under the 75 percent test, from dividends and interest and from
gains from the sale, exchange or other disposition of certain stocks and
securities.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part 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
of sales. The Company's leases provide for either fixed rent, sometimes with
scheduled escalations, or a fixed minimum rent and a percentage of gross
receipts in excess of some threshold. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the Company, or an owner of 10 percent or
more of the Company, directly or constructively owns 10 percent 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
percent 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." The Company anticipates that none of its gross annual income will be
considered attributable to rents that are based in whole or in part on the
income or profits of any person;
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that no more than a de minimis amount of its gross annual income will be
considered attributable to the rental of personal property; and that none of its
gross annual income will be from Related Party Tenants. Finally, for rents
received to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by the Company are "usually or customarily
rendered" in connection with the rental space for occupancy only and are not
otherwise considered "rendered to the occupant." The Company or CNL Advisors
will provide certain services with respect to the Properties. The Company does
not anticipate that any of these services will be (a) of a type other than those
usually or customarily rendered in connection with the rental space for
occupancy only or (b) of a type considered rendered to any of the occupants of
the Properties.
Should an entity fail to satisfy either or both of the 75 percent or 95
percent tests for any taxable year, it may still qualify as a REIT if (a) such
failure is due to reasonable cause and not willful neglect; (b) it reports the
nature and amount of each item of its income on a schedule attached to its tax
return for such year; and (c) the reporting of any incorrect information is not
due to fraud with intent to evade tax. However, even if these three requirements
were met and the REIT were not disqualified, a penalty tax of 100 percent would
be imposed by reference to the amount by which the REIT failed the 75 percent or
95 percent test (whichever amount is greater). No mitigation provision applies
if the 30 percent income test, described below, is failed. In such case, the
Company will cease to qualify as a REIT.
(ii) The 30 Percent Test. In addition to the 75 percent and 95 percent
tests, a REIT must derive less than 30 percent of its gross income (including
gross income from prohibited transactions) from the sale or other disposition of
(i) real property held for less than four years (other than foreclosure property
or property involuntarily or compulsorily converted through destruction,
condemnation or similar events); (ii) stocks or securities held for less than
one year; and (iii) property sold or otherwise disposed of in a prohibited
transaction. The Company has represented that it has not recognized and does not
expect that it will recognize gross income of a type, in an amount or at a time
which would cause it to fail the 30 percent test.
Distribution Requirements. A REIT must distribute annually to its
stockholders ordinary income dividends in an amount equal to at least (a) 95
percent 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. To the
extent that the Company does not distribute all of its net capital gain or
distributes at least 95 percent, but less than 100 percent, of its real estate
investment trust taxable income, as adjusted, it will be subject to tax thereon
at regular ordinary and capital gain corporate tax rates. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(x) 85 percent of its ordinary income, (y) 95 percent of its net capital gain
net income for such year and (z) any undistributed taxable income from prior
periods, the Company would be subject to a 4 percent excise tax on the excess of
such required distribution over the amounts actually distributed.
The Company has represented that it has made and intends to make
distributions to stockholders that will be sufficient to meet the annual
distribution requirements. Under some circumstances, however, it is possible
that the Company may not have sufficient funds from its operations to pay cash
dividends to satisfy these distribution requirements. 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 percent 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 distributions to holders of the Common Stock.
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If the Company were to fail to meet the 95 percent distribution requirement
as a result of an adjustment to the Company's tax returns by the Service, the
Company could maintain its qualification as a REIT by paying a "deficiency
dividend" (plus a penalty and interest) within a specified period which will be
permitted as a deduction in the taxable year with respect to which the
adjustment is made.
Taxation of Taxable Domestic Stockholders. For any taxable year in which
the Company qualifies as a REIT for federal income tax purposes, distributions
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 (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held his Common Stock. However, corporate stockholders
may be required to treat up to 20 percent of certain capital gain dividends as
ordinary income. Such ordinary income and capital gain are not eligible for the
dividends received deduction allowed to corporations. 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, reducing the
tax basis of each stockholder's Common Stock, and then, to the extent the
distribution exceeds each stockholder's basis, a gain realized from the sale of
Common Stock. 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. Any dividend that is (a) 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 (b) actually paid by the
Company in January of the following year, shall be deemed to have been both paid
by the Company and received by the stockholders on December 31 of such calendar
year and, as a result, will be includable in gross income of the stockholders
for the taxable year which includes such December 31.
Stockholders may not deduct on their income tax returns any net operating
or net capital losses of the Company. Net operating losses may be carried
forward by the Company for 15 years and used to reduce taxable income and the
amounts that the Company will be required to distribute in order to remain
qualified as a REIT. Net capital losses may be carried forward by the Company
for five years and used to reduce capital gains. Losses not used within the
relevant period expire.
Upon the sale or other disposition of the Company's Common Stock, a
stockholder generally will recognize capital gain or loss equal to the
difference between this amount realized on the sale or other disposition and the
adjusted basis of the shares involved in the transaction. Such gain or loss will
be long-term capital gain or loss if, at the time of sale or other disposition,
the shares involved have been held for more than one year. In addition, if a
stockholder receives a capital gain dividend with respect to a share of Common
Stock 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.
Distributions from the Company and gain from the disposition of Common
Stock will not be treated as passive activity income and, therefore,
stockholders will not be able to apply any "passive activity losses" against
such income. Dividends from the Company (to the extent they do not constitute a
return of capital or capital gain dividends) and, on an elective basis, capital
gain dividends and gain from the disposition of Common Stock generally will be
treated as investment income for purposes of the investment income limitation.
The state and local income tax treatment of the Company and its
stockholders may not conform to the federal income tax treatment described
above. (For example, in most states, individual stockholders who are residents
of the state will be subject to state income tax on dividends and gains on their
shares in the Company, but the state of Delaware -- unlike most, if not all,
other states -- also taxes nonresident stockholders of a REIT on dividends and
gains from the REIT to the extent, if any, that such income is attributable to
property located in Delaware.) As a result, investors should consult their own
tax advisors for an explanation of how other state and local tax laws would
affect their investment in Common Stock.
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Backup Withholding. The Company will report to its stockholders and the
IRS the amount of distributions 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 a rate of 31 percent with respect to
distributions paid unless such other holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) 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 his correct taxpayer identification number also may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability.
Taxation of Tax-Exempt Stockholders. Distributions 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 the Code and the
shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity. For taxable years beginning after December 31, 1993, however,
qualified trusts that hold more than 10 percent (by value) of the shares of
certain REITs may be required to treat a certain percentage of the distributions
of such REITs as UBTI. The conditions which trigger this requirement do not
currently exist, and the Company does not anticipate that they will ever exist.
This requirement will apply only if (a) the REIT would not qualify as such for
federal income tax purposes but for the application of a "look-through"
exception to the five or fewer requirement applicable to shares being held by
qualified trusts and (b) the REIT is "predominantly held" by qualified trusts. A
REIT is predominantly held if either (i) a single qualified trust holds more
than 25 percent by value of the REIT interests or (ii) one or more qualified
trusts, each owning more than 10 percent by value of the REIT interests, hold in
the aggregate more than 50 percent of the REIT interests. The percentage of any
REIT dividend treated as UBTI is equal to the ratio of (i) the UBTI earned by
the REIT (treating the REIT as if it were a qualified trust and therefore
subject to tax on UBTI) to (ii) 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 percent 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 provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the five or fewer requirements without relying
upon the "look-through" exception. The existing restrictions on ownership of
shares in the articles of incorporation will prevent the application of the
provisions treating a portion of the REIT distributions as UBTI to tax-exempt
entities purchasing shares pursuant to the Offering, absent a waiver of the
restrictions by the Board of Directors.
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 OFFERED SECURITIES 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
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particular circumstances before authorizing an investment of any portion of the
ERISA Plan's assets in the Offered Securities. Accordingly, such fiduciary
should consider (a) whether the investment satisfies the diversification
requirements of Section 404(a)(1)(C) of ERISA; (b) 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; (c) whether the investment is prudent
under Section 404(a)(1)(B) of ERISA; and (d) 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 Offered
Securities 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 a
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 Common
Stock is being sold in an offering registered under the Securities Act 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 a public offering as a result of events beyond the
issuer's control. The Company expects the Common Stock to be "widely held."
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 "Description of Common Stock -- Restrictions on Ownership."
The DOL Regulation only establishes a presumption in favor of a finding of free
transferability and, therefore, no assurance can be given
22
<PAGE> 24
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 Common Stock will be "widely held" and "freely
transferable," the Company believes that the Common Stock 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 Common Stock.
Additional ERISA considerations that apply to the acquisition or continued
holding of Offered Securities that are Common Stock Warrants or Debt Securities
which are convertible into equity securities will be contained in the applicable
Prospectus Supplement.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Offered Securities upon the terms and conditions set forth in an applicable
Prospectus Supplement. In connection with the sale of Offered Securities,
underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Offered Securities for whom they may act as agent.
Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions from the
underwriters or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered Securities may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to delayed
delivery contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Securities sold
pursuant to Contracts shall be not less or more than, the respective amounts
stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Offered Securities
covered by its Contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject and (ii) if the Offered Securities are being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Offered Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
23
<PAGE> 25
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995,
and for each of the years in the three-year period ended December 31, 1996, have
been incorporated by reference from the Company's Annual Report on Form 10-K in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Shaw, Pittman, Potts & Trowbridge, Washington, D.C., a partnership including
professional corporations. In addition, the description of federal income tax
consequences contained in this Prospectus is based upon the opinion of Shaw,
Pittman, Potts & Trowbridge.
24
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the amounts of fees and expenses (other than
underwriting discounts and commissions) to be paid by the Company in connection
with the offering of the Offered Securities. All amounts set forth below, with
the exception of the SEC Registration Fee and the NASD Filing, are estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 90,910(1)
NASD Filing Fee................................................... $ 30,500
Printing and Mailing Costs........................................ $200,000
Accounting Fees and Expenses...................................... $ 50,000
Legal Fees and Expenses........................................... $150,000
Blue Sky Fees and Expenses........................................ $ 20,000
Miscellaneous..................................................... $ 10,000
--------
Total................................................... $551,410
========
</TABLE>
- ---------------
(1) Includes $36,846,250 of unissued Offered Securities previously registered
under Registration Statement No. 33-61165. A registration fee of $12,705 was
previously paid with respect to such amount.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the liability of the
directors and officers of the Company for money damages shall be eliminated to
the maximum extent permitted by Maryland law. Under current Maryland law, the
directors are liable to the Company or its stockholders for money damages only
for liability resulting from (i) acts or omissions committed in bad faith
involving active and deliberate dishonesty that were material to the cause of
action adjudicated, as established by a final judgment or (ii) actual receipt of
an improper benefit or profit in money, property or services. The Articles of
Incorporation also provide that no amendment thereto may limit or eliminate this
limitation of liability with respect to events occurring prior to the effective
date of such amendment.
The Company's Articles of Incorporation and Bylaws require the Company to
indemnify its directors and officers to the fullest extent permitted by Maryland
law. Under current Maryland law, the Company will indemnify (i) any director or
officer who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his service in that
capacity, against reasonable expense incurred by him in connection with the
proceeding and (ii) any present or former director or officer against any claim
or liability unless it is established that (a) his act or omission was material
to the matter giving rise to the proceeding and was committed in bad faith or
was the result of active and deliberate dishonesty; (b) he actually received an
improper personal benefit in money, property or services; or (c) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, the Company's Bylaws require it to pay or
reimburse, in advance of the final disposition of a proceeding, reasonable
expenses incurred by a present or former director or officer or any person who
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, who is made a party to a proceeding by reason of his status as a
director, officer, employee or agent, to the fullest extent provided by Maryland
law. Current Maryland law provides that the Company shall have received, before
providing any such payment or reimbursement, (i) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by Maryland
law and the Bylaws and (ii) a written undertaking by or on his behalf to repay
the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. The Company's Bylaws also
permit the Company to provide indemnification, payment or reimbursement of
expenses to any employee or agent of the Company in such capacity.
II-1
<PAGE> 27
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, (the "Securities Act") 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 a successful defense of any 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 of 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.
ITEM 16. EXHIBITS
The following exhibits, as noted, are filed herewith, previously have been
filed, or will be filed by amendment.
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLES IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION
- --------------- ------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement for Debt Securities.
*1.2 Form of Underwriting Agreement for Equity Securities.
3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to the
Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated
herein by reference).
3.2 Articles of Amendment to the Articles of Incorporation of the Registrant
(filed as Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated herein by reference).
3.3 Bylaws of the Registrant (filed as Exhibit 3(ii) to the Registrant's
Registration Statement No. 33-83110 on Form S-3, and incorporated herein by
reference).
4.1 Specimen Certificate of Common Stock, par value $.01 per share, of the
Registrant (filed as Exhibit 3.4 to the Registrant's Registration Statement
No. 1-11290 on Form 8-B, and incorporated herein by reference).
4.2 Form of Indenture (filed as Exhibit 4.2 to the Registrant's Registration
Statement No. 33-61165 on Form S-3, and incorporated herein by reference).
4.3 Form of Debt Security (included in Exhibit 4.2).
*4.4 Form of Common Stock Warrant Agreement.
5 Opinion of Counsel, including consent. Filed herewith.
8 Opinion of Counsel regarding Tax Matters, including consent. Filed herewith.
10.1 Advisory Agreement between Registrant and CNL Realty Advisors, Inc. effective
as of April 1, 1993 and renewed as of January 1, 1997 (filed as Exhibit 10.04
to Amendment No. 1 to the Registrant's Registration Statement No. 33-61214 on
Form S-2, and incorporated herein by reference).
10.2 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed as Exhibit No.
10(x) to the Registrant's Registration Statement No. 33-83110 on Form S-3, and
incorporated herein by reference).
10.3 Interest Rate Cap Agreement dated December 23, 1994, by and between the
Registrant and First Union National Bank of Florida (filed as Exhibit 10.12 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated by reference).
</TABLE>
II-2
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLES IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION
- --------------- ------------------------------------------------------------------------------
<C> <S>
10.4 Second Amended and Restated Line of Credit and Security Agreement, dated
December 7, 1995, among Registrant, certain lenders listed therein and First
Union National Bank of Florida, as the Agent, relating to a $100,000,000 loan
(filed as Exhibit 10.14 to the Registrant's Current Report on Form 8-K dated
January 18, 1996, and incorporated herein by reference).
10.5 Secured Promissory Note, dated December 14, 1995, among Registrant and
Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed
as Exhibit 10.15 to the Registrant's Current Report on Form 8-K dated January
18, 1996, and incorporated herein by reference).
10.6 Mortgage and Security Agreement, dated December 14, 1995, among Registrant and
Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed
as Exhibit 10.16 to the Registrant's Current Report on Form 8-K dated January
18, 1996, and incorporated herein by reference).
10.7 Loan Agreement, dated January 19, 1996, among Registrant and Principal Mutual
Life Insurance Company relating to a $39,450,000 loan (filed as Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, and incorporated herein by reference).
10.8 Secured Promissory Note, dated January 19, 1996, among Registrant and
Principal Mutual Life Insurance Company relating to a $39,450,000 loan (filed
as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated herein by reference).
10.9 Third Amended and Restated Line of Credit and Security Agreement, dated
September 3, 1996, by and among Registrant, certain lenders and First Union
National Bank of Florida, as the Agent, relating to a $150,000,000 loan (filed
as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated herein by reference).
10.10 Second Renewal and Modification Promissory Note, dated September 3, 1996, by
and among Registrant and First Union National Bank of Florida, as the Agent,
relating to $150,000,000 loan (filed as Exhibit 10.12 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and
incorporated herein by reference).
12 Statement of Computation of Ratios of Earnings to Fixed Charges. Filed
herewith.
23.1 Consent of KPMG Peat Marwick. Filed herewith.
23.2 Consent of Counsel. Included in Exhibits 5 and 8.
24 Power of Attorney (contained on the signature page hereto).
*25 Statement of Eligibility of Trustee on Form T-1(1).
</TABLE>
- ---------------
* To be filed by amendment or incorporated by reference in connection with the
offering of the Offered Securities.
ITEM 17. UNDERTAKINGS.
(a) See Item 15 for Registrant's undertaking with respect to
indemnification.
(b) 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;
(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
II-3
<PAGE> 29
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 and 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; and
(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.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities 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 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 Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 30
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-3 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 April 8, 1997.
COMMERCIAL NET LEASE REALTY, INC.
(Registrant)
By: /s/ JAMES M. SENEFF, JR.
------------------------------------
JAMES M. SENEFF, JR.
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints James M. Seneff, Jr. and Gary M. Ralston 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
this Registration Statement), and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting onto said attorneys-in-fact and agents 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 capacity
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------------
<S> <C> <C>
/s/ JAMES M. SENEFF, JR. Chairman of the Board April 8, 1997
- --------------------------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
/s/ GARY M. RALSTON President April 8, 1997
- ---------------------------------------------
Gary M. Ralston
/s/ KEVIN B. HABICHT Executive Vice President and April 8, 1997
- --------------------------------------------- Chief Financial Officer
Kevin B. Habicht (Principal Financial and
Accounting Officer)
/s/ ROBERT A. BOURNE Vice Chairman of the Board April 8, 1997
- --------------------------------------------- and Secretary/Treasurer
Robert A. Bourne
/s/ EDWARD CLARK Director April 8, 1997
- ---------------------------------------------
Edward Clark
/s/ WILLOUGHBY T. COX, JR. Director April 8, 1997
- ---------------------------------------------
Willoughby T. Cox, Jr.
/s/ CLIFFORD R. HINKLE Director April 8, 1997
- ---------------------------------------------
Clifford R. Hinkle
/s/ TED B. LANIER Director April 8, 1997
- ---------------------------------------------
Ted B. Lanier
</TABLE>
II-5
<PAGE> 31
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DOCUMENT PAGE NO.
- ----------- ------------------------------------------------------------------------ -----------
<C> <S> <C>
*1.1 Form of Underwriting Agreement for Debt Securities.
*1.2 Form of Underwriting Agreement for Equity Securities.
3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to
the Registrant's Registration Statement No. 1-11290 on Form 8-B, and
incorporated herein by reference).
3.2 Articles of Amendment to the Articles of Incorporation of the Registrant
(filed as Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, and incorporated herein by
reference).
3.3 Bylaws of the Registrant. (filed as Exhibit 3.3(ii) to the Registrant's
Registration Statement No. 33-83110 on Form S-3, and incorporated herein
by reference).
4.1 Specimen Certificate of Common Stock, par value $.01 per share, of the
Registrant (filed as Exhibit 3.4 to the Registrant's Registration
Statement No. 1-11290 on Form 8-B, and incorporated herein by
reference).
4.2 Form of Indenture (filed as Exhibit 4.2 to the Registrant's Registration
Statement No. 33-61165 on Form S-3, and incorporated herein by
reference).
4.3 Form of Debt Security (included in Exhibit 4.2).
*4.4 Form of Common Stock Warrant Agreement.
5 Opinion of Counsel, including consent. Filed herewith.
8 Opinion of Counsel regarding Tax Matters, including consent. Filed
herewith.
10.1 Advisory Agreement between Registrant and CNL Realty Advisors, Inc.
effective as of April 1, 1993 and renewed as of January 1, 1997 (filed
as Exhibit 10.04 to Amendment No. 1 to the Registrant's Registration
Statement No. 33-61214 on Form S-2, and incorporated herein by
reference).
10.2 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed as
Exhibit No. 10(x) to the Registrant's Registration Statement No.
33-83110 on Form S-3, and incorporated herein by reference).
10.3 Interest Rate Cap Agreement dated December 23, 1994, by and between the
Registrant and First Union National Bank of Florida (filed as Exhibit
10.12 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated by reference).
10.4 Second Amended and Restated Line of Credit and Security Agreement, dated
December 7, 1995, among Registrant, certain lenders listed therein and
First Union National Bank of Florida, as the Agent, relating to a
$100,000,000 loan (filed as Exhibit 10.14 to the Registrant's Current
Report on Form 8-K dated January 18, 1996, and incorporated herein by
reference).
10.5 Secured Promissory Note, dated December 14, 1995, among Registrant and
Principal Mutual Life Insurance Company relating to a $13,150,000 loan
(filed as Exhibit 10.15 to the Registrant's Current Report on Form 8-K
dated January 18, 1996, and incorporated herein by reference).
10.6 Mortgage and Security Agreement, dated December 14, 1995, among
Registrant and Principal Mutual Life Insurance Company relating to a
$13,150,000 loan (filed as Exhibit 10.16 to the Registrant's Current
Report on Form 8-K dated January 18, 1996, and incorporated herein by
reference).
10.7 Loan Agreement, dated January 19, 1996, among Registrant and Principal
Mutual Life Insurance Company relating to a $39,450,000 loan (filed as
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference).
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DOCUMENT PAGE NO.
- ----------- ------------------------------------------------------------------------ -----------
<C> <S> <C>
10.8 Secured Promissory Note, dated January 19, 1996, among Registrant and
Principal Mutual Life Insurance Company relating to a $39,450,000 loan
(filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, and incorporated herein by
reference).
10.9 Third Amended and Restated Line of Credit and Security Agreement, dated
September 3, 1996, by and among Registrant, certain lenders and First
Union National Bank of Florida, as the Agent, relating to a $150,000,000
loan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and incorporated
herein by reference).
10.10 Second Renewal and Modification Promissory Note, dated September 3,
1996, by and among Registrant and First Union National Bank of Florida,
as the Agent, relating to $150,000,000 loan (filed as Exhibit 10.12 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, and incorporated herein by reference).
12 Statement of Computation of Ratios of Earnings to Fixed Charges. Filed
herewith.
23.1 Consent of KPMG Peat Marwick. Filed herewith.
23.2 Consent of Counsel. Included in Exhibits 5 and 8.
24 Power of Attorney (contained on the signature page hereto).
*25 Statement of Eligibility of Trustee on Form T-1(1).
</TABLE>
- ---------------
* To be filed by amendment or incorporated by reference in connection with the
offering of the Offered Securities.
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE]
April 8, 1997
Commercial Net Lease Realty, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
RE: COMMERCIAL NET LEASE REALTY, INC.
Ladies and Gentleman:
We have acted as counsel to Commercial Net Lease Realty, Inc., a Maryland
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 filed by the Company on July 20, 1995, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended to date (the
"Registration Statement"), relating to the offering by the Company from time to
time of (i) one or more series of debt securities (the "Debt Securities"), (ii)
shares of common stock, par value $.01 per share (the "Common Stock"), and
(iii) warrants to purchase Common Stock (the "Common Stock Warrants"), with an
aggregate initial public offering price of up to $300,000,000. The Debt
Securities, Common Stock and Common Stock Warrants are collectively referred to
herein as the "Offered Securities."
In our capacity as counsel in connection with such registration, we are
familiar with the proceedings taken and proposed to be taken by the Company in
connection with the authorization and issuance of the Offered Securities, and
for purpose of this opinion have assumed that such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records and instruments as we have deemed necessary
or appropriate for purposes of this opinion. Among such documents are the
Registration Statement, the charter of the Company certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"Charter"), the by-laws of the Company, Resolutions adopted by the Board of
Directors of the Company (the "Board of Directors") in connection with the
matters contemplated by the Registration Statement, and the form of Indenture
(the "Indenture") to be entered into between the Company and a financial
institution organized under the laws of the United States of America (the
"Trustee").
The Debt Securities will be issued pursuant to the Indenture and the
Common Stock Warrants will be issued under one or more warrant agreements
(each, a "Warrant Agreement"), each to be between the Company and a financial
institution identified therein as warrant agent (each, a "Warrant Agent").
Subject to the foregoing and the other matters set forth herein, it is
our opinion, that, as of the date hereof:
1. The issuance of the Debt Securities by the Company has been duly
authorized by the Board of Directors and, (i) when the Debt Securities have
been duly established by the Indenture (including, without limitation, the
<PAGE> 2
Commercial Net Lease Realty, Inc.
April 8, 1997
Page 2
adoption by the Board of Directors of a resolution duly authorizing the
issuance and delivery of the Debt Securities), (ii) when the Debt Securities
have been duly authenticated by the Trustee and (iii) when the Debt Securities
have been duly executed and delivered on behalf of the Company against payment
therefor in accordance with the terms and provisions of the Indenture and as
contemplated by the Registration Statement and the applicable Prospectus
Supplement, the Debt Securities will constitute legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
2. The Company has the authority, pursuant to its Charter, to issue up to
50,000,000 shares of Common Stock. Upon adoption by the Board of Directors of
a resolution in form and content as required by applicable law, and upon
issuance and delivery of and payment for such shares in the manner contemplated
by the Registration Statement and the applicable Prospectus Supplement and by
such resolution, such shares of Common Stock will be validly issued, fully paid
and nonassessable.
3. The issuance of the Common Stock Warrants by the Company has been duly
authorized by the Board of Directors and, (i) when the final terms of the
Common Stock Warrants and applicable Warrant Agreement have been duly
established in accordance with the Charter and applicable law, (ii) upon the
adoption by the Board of Directors of a resolution duly authorizing the
issuance and delivery of the Common Stock Warrants and (iii) when duly executed
and delivered by the Company against payment therefor and countersigned by the
applicable Warrant Agent in accordance with the applicable Warrant Agreement
and delivered to and paid for by the purchasers of the Common Stock Warrants in
the manner contemplated by the Registration Statement and the applicable
Prospectus Supplement, the Common Stock Warrants will constitute legally valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
We consent to your filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the prospectus included therein.
Very truly yours,
/s/ Shaw, Pittman, Potts & Trowbridge
Shaw, Pittman, Potts & Trowbridge
<PAGE> 1
EXHIBIT 8
April 8, 1997
Commercial Net Lease Realty, Inc.
400 E. South Street
Suite 500
Orlando, Florida 32801
Ladies and Gentlemen:
In connection with the filing of a Registration Statement on Form S-3,
dated April 8, 1997, you have asked us to render an opinion with respect to
the qualification of Commercial Net Lease Realty, Inc. ("CNL Realty") as a real
estate investment trust ("REIT") under sections 856 through 860 of the Internal
Revenue Code. (Our references herein to "the Code" are to the Internal Revenue
Code of 1986, as amended, with respect to taxable years ending on or after
January 1, 1987, and to the Internal Revenue Code of 1954, as amended, with
respect to taxable years ending on or before December 31, 1986.)(1)
We have served as special counsel for CNL Realty in connection with the
filing of the Prospectus and the Prospectus Supplement and from time to time in
the past have represented CNL Realty on specific matters as requested by CNL
Realty. Specifically for the purpose of this opinion, we have examined and
relied upon the following: copies of CNL Realty's Articles of Incorporation and
any amendments thereto; its Federal Forms 1120 for its taxable years 1984
through 1996 (the Form 1120 for taxable year 1996 being in draft) (in which tax
returns we observe that CNL Realty has elected to be treated as a real estate
investment trust); the Registration Statement; the Prospectus; copies of
executed leases covering real property owned by CNL Realty; the Form 10-K filed
on March 20, 1997; and its Form S-11 Registration Statement as filed with the
Securities and Exchange Commission on August 15, 1984.
We have not served as general counsel to CNL Realty and have not been
involved in decisions regarding the day-to-day operation of CNL Realty and its
properties. We have, however, discussed the mode of operation of CNL Realty
with its officers with a view to learning
- ----------------------------------
(1) All section references herein are to the Code or to the regulations
issued thereunder.
<PAGE> 2
Commercial Net Lease Realty, Inc.
Smith Barney, et. al.
April 8, 1997
Page 2
information relevant to the opinions expressed herein and have received and
relied upon a certificate from CNL Realty with respect to certain matters.
We have discussed with management of CNL Realty arrangements relating to
the management of its properties, the relationships of CNL Realty with tenants
of such properties, and certain terms of leases of such properties to tenants,
with a view to assuring that at the close of each quarter of the taxable years
covered by this opinion it met the asset composition requirements set forth in
section 856(c)(5), and with a view to assuring that, with respect to years
covered by this opinion, it satisfied the 95%, 75%, and 30% gross income tests
set forth in sections 856(c)(2), (3), and (4), respectively. We have further
reviewed with management of CNL Realty the requirements that the beneficial
ownership of a REIT be held by 100 or more persons for at least 335/365ths of
each taxable year and that a REIT must satisfy the diversity of ownership
requirements of section 856(h) as such requirements existed in the years
covered by this opinion, and we have been advised by management that at all
times during the years covered by this opinion (and specifically on each record
date for the payment of dividends during 1984 through the date hereof) CNL
Realty has had more than 1,000 shareholders of record, that CNL Realty
maintains the records required by section 1.857-8 of the Treasury Regulations,
that no later than January 30 of each year it sent the demand required by
section 1.857-8(d) of the Treasury Regulations to each shareholder of record
owning one percent or more of the outstanding shares of CNL Realty on the
appropriate date required by said regulation, and that the actual ownership of
CNL Realty shares was such that, to the best knowledge of its management (based
upon responses to the aforesaid demands, any filing of a Schedule 13D under the
Securities Exchange Act of 1934, as amended, or any other sources of
information), CNL Realty satisfied the applicable requirements of section
856(h). Further, we have examined various property leases and lease
supplements relating to the properties that CNL Realty owns, and although
leases relating to certain properties that CNL Realty owns have not been made
available to us, CNL Realty has represented with respect to such leases that
they do conform in all material respects to a form of lease agreement provided
to us. On the basis of discussions with management of CNL Realty, we are not
aware that CNL Realty's election to be a REIT has been terminated or challenged
by the Internal Revenue Service or any other party, or that CNL Realty has
revoked its election to be a REIT for any such prior year so as to make CNL
Realty ineligible to qualify as a REIT for the years covered by this opinion.
In rendering the opinions set forth herein, we are assuming that copies of
documents examined by us are true copies of originals thereof and that the
information concerning CNL Realty set forth in CNL Realty's Federal income tax
returns, and in the Prospectus Supplement, as well as the information provided
us by CNL Realty's management are true and correct. We have no reason to
believe that such assumptions are not warranted.
<PAGE> 3
Commercial Net Lease Realty, Inc.
Smith Barney, et. al.
April 8, 1997
Page 3
Based upon the foregoing, we are of the opinion that: (a) CNL Realty was a
"real estate investment trust" as defined by section 856(a) for its taxable
years ended December 31, 1984 through December 31, 1996, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT for its taxable year ending December 31, 1997 and for
all future taxable years, and (b) CNL Realty's wholly owned subsidiaries, Net
Lease Realty I, Inc. and Net Lease Realty II, Inc., were each "qualified REIT
subsidiaries" as defined by section 856(i) for CNL Realty's taxable year ending
December 31, 1996, and their proposed ownership will enable them to meet the
requirements for treatment as qualified REIT subsidiaries for CNL Realty's
taxable year ending December 31, 1997 and for all future taxable years. With
respect to the 1997 year and all future years, however, we note that CNL
Realty's status as a real estate investment trust at any time is dependent
among other things upon its meeting the requirements of section 856 throughout
the year and for the year as a whole.
This opinion is based upon the existing provisions of the Code (or
predecessor provisions, as applicable), rules and regulations (including
proposed regulations) promulgated thereunder, and reported administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with retroactive effect. This opinion is limited to the specific matters
covered hereby and should not be interpreted to imply that the undersigned has
offered its opinion on any other matter.
We hereby confirm that the statements set forth in the Prospectus
Supplement under the heading "Federal Income Tax Considerations," to the extent
that they constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Prospectus Supplement. We also consent to the reference to Shaw, Pittman,
Potts & Trowbridge under the captions "Federal Income Tax Considerations" and
"Legal Matters" in the Prospectus Supplement. In giving such consent, we do
not consider that we are "experts," within the meaning of the term used in the
Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, with respect to any part of the Prospectus Supplement,
including this opinion as an exhibit or otherwise.
<PAGE> 4
Commercial Net Lease Realty, Inc.
Smith Barney, et. al.
April 8, 1997
Page 4
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
By: /s/ CHARLES B. TEMKIN, P.C.
-------------------------------
Charles B. Temkin, P.C.
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Earnings Before
Extraordinary Item 19,839,374 12,707,271 8,915,373 3,521,914 1,561,682
Fixed Changes:
Interest 7,206,291 3,834,388 497,670 381,075 301,761
Amortization of Loan Costs 748,638 322,176 254,080 20,421 0
--------------------------------------------------------------------------------------
7,954,929 4,156,564 751,750 401,496 301,761
Net Earnings Before Extraordinary
Item and Fixed Charges 27,794,303 16,863,835 9,667,123 3,923,410 1,863,443
Divided by Fixed Charges 7,954,929 4,156,564 751,750 401,496 301,761
--------------------------------------------------------------------------------------
Ratio of Net Earnings to Fixed Charge 3.49 4.06 12.86 9.77 6.18
======================================================================================
</TABLE>
<PAGE> 1
[KMPG PEAT MARWICK LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Commercial Net Lease Realty, Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KMPG PEAT MARWICK LLP
Orlando, Florida
April 4, 1997
