<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Commercial Net Lease Realty, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
COMMERCIAL NET LEASE REALTY, INC.
400 EAST SOUTH STREET, SUITE 500
ORLANDO, FLORIDA 32801
TEL: 407-423-7348
APRIL 17, 1998
To Our Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Commercial Net Lease Realty, Inc. (the "Company") on June 5, 1998 at 9:00 a.m.
at the Citrus Club, 255 S. Orange Avenue, 18th Floor, Orlando, Florida 32801.
The directors and officers of the Company look forward to greeting you
personally. Enclosed for your review are the proxy, proxy statement and notice
of meeting for the annual meeting of stockholders.
The Company has seen significant growth over the past five years. During
this period, including the equity offering completed in February 1998, the
Company has raised a total of $378 million of equity through the sale of
26,783,705 shares of the Company's common stock (the "Common Stock"). The net
proceeds of these offerings have been invested in additional net leased
properties and have provided a significant equity base for the Company to build
upon. As of February 28, 1998, the Company owned 239 properties representing an
initial investment of approximately $537 million compared with 41 properties and
a $24 million investment five years ago. More importantly, we believe the
property portfolio has grown in quality, as we have provided increased
diversification by geography, tenant, and retail line of trade. In addition, on
January 1, 1998, the Company successfully completed the acquisition of CNL
Realty Advisors, Inc., its third-party advisor (the "Advisor").
This growth, we believe, requires corresponding corporate changes and,
primarily for this reason, this year's proxy requests your vote, in addition to
the vote for election of directors, on one additional proposal. The two
proposals contained in this year's proxy are described below.
First, the proxy requests your vote on the election of five directors.
Second, the Board of Directors seeks your approval to amend the Company's
Articles of Incorporation (the "Articles of Incorporation") thereby authorizing
the creation of a new class of stock, designated "Preferred Stock," to provide
the Company with increased access to the capital markets with a different cost
profile relative to Common Stock, generally in order to fund targeted real
estate investments or repay debt. THE AMENDMENT IS MORE COMPLETELY DESCRIBED IN
THE ENCLOSED PROXY STATEMENT.
Since the second proposal in this proxy statement requires a two-thirds
majority, it is very important that you vote your shares. By doing so, the
Company can avoid the cost of having to solicit shareholders for their votes.
The proposals included in this proxy statement reflect changes consistent
with the Company's past growth and its anticipated future growth and success in
the coming years. Therefore, the Board of Directors unanimously recommends that
you vote to approve each of the proposals presented in this proxy statement.
Sincerely,
/s/ JAMES M. SENEFF, JR. /s/ KEVIN B. HABICHT
James M. Seneff, Jr. Kevin B. Habicht
Chairman of the Board and Executive Vice President,
Chief Executive Officer Chief Financial Officer and
Secretary/Treasurer
<PAGE> 3
COMMERCIAL NET LEASE REALTY, INC.
400 EAST SOUTH STREET, SUITE 500
ORLANDO, FLORIDA 32801
-----------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1998
-----------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
COMMERCIAL NET LEASE REALTY, INC. will be held at 9:00 a.m. local time, on June
5, 1998, at the Citrus Club, 255 S. Orange Avenue, 18th Floor, Orlando, Florida,
for the following purposes:
1. To elect five directors.
2. To consider and vote upon a proposal to approve an amendment to the
Company's Articles of Incorporation authorizing the issuance of fifteen
million (15,000,000) shares of Preferred Stock, including a
corresponding fifteen million (15,000,000) share increase in the number
of authorized shares of Excess Stock.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON MARCH 25, 1998, WILL BE
ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING OR AT ANY ADJOURNMENT
THEREOF.
Stockholders are cordially invited to attend the meeting in person. WHETHER
OR NOT YOU NOW PLAN TO ATTEND THE MEETING, YOU ARE ASKED TO COMPLETE, DATE, SIGN
AND MAIL PROMPTLY THE ENCLOSED PROXY CARD FOR WHICH A POSTAGE PAID RETURN
ENVELOPE IS PROVIDED. If you decide to attend the meeting you may revoke your
Proxy and vote your shares in person. It is important that your shares be voted.
By Order of the Board of
Directors,
/s/ KEVIN B. HABICHT
Kevin B. Habicht
Secretary
April 17, 1998
Orlando, Florida
<PAGE> 4
COMMERCIAL NET LEASE REALTY, INC.
400 EAST SOUTH STREET, SUITE 500
ORLANDO, FLORIDA 32801
TEL: 407-423-7348
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished by the Board of Directors of Commercial
Net Lease Realty, Inc. (the "Company") in connection with the solicitation by
management of proxies to be voted at the annual meeting of stockholders to be
held on June 5, 1998, and at any adjournment thereof, for the purposes set forth
in the accompanying notice of such meeting. All stockholders of record at the
close of business on March 25, 1998 (the "Record Date"), will be entitled to
vote.
Any proxy, if received in time, properly signed and not revoked, will be
voted at such meeting in accordance with the directions of the stockholder. If
no directions are specified, the proxy will be voted FOR (i) the election of
directors, and (ii) the adoption of the amendment to the Company's Articles of
Incorporation (the "Articles of Incorporation") to authorize the creation of a
new class of stock, designated "Preferred Stock." Any stockholder giving a proxy
has the power to revoke it at any time before it is exercised. A proxy may be
revoked (1) by delivery of a written statement to the Secretary of the Company
stating that the proxy is revoked, (2) by presentation at the annual meeting of
a subsequent proxy executed by the person executing the prior proxy, or (3) by
attendance at the annual meeting and voting in person.
Votes cast in person or by proxy at the annual meeting will be tabulated
and a determination will be made as to whether or not a quorum is present. The
Company will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence or absence of a quorum, but as unvoted
for purposes of determining the approval of any matter submitted to the
stockholders. If a broker submits a proxy indicating that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to such matter.
Solicitation of proxies will be primarily by mail. However, directors and
officers of the Company may also solicit proxies by telephone or telegram or in
person. All of the expenses of preparing, assembling, printing and mailing the
materials used in the solicitation of proxies will be paid by the Company.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to forward soliciting materials, at the expense of the Company,
to the beneficial owners of shares held of record by such persons. It is
anticipated that this Proxy Statement and the enclosed proxy will be mailed to
stockholders on or about April 17, 1998.
As of the Record Date, 28,884,762 shares of the common stock of the Company
(the "Common Stock") were outstanding. Each share of Common Stock entitles the
holder thereof to one vote on each of the matters to be voted upon at the annual
meeting. As of the Record Date, executive officers and directors of the Company
had the power to vote approximately 2.1% of the outstanding shares of Common
Stock.
1
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL I: ELECTION OF DIRECTORS....................................... 3
Nominees.................................................... 3
Compensation of Directors................................... 5
Committees of the Board of Directors........................ 5
Executive Officers.......................................... 6
EXECUTIVE COMPENSATION...................................... 9
Annual Compensation......................................... 9
Stock Option Grants in Last Fiscal Year..................... 9
Options Exercised and Fiscal Year-End Values................ 9
COMPENSATION COMMITTEE REPORT............................... 10
PERFORMANCE GRAPH........................................... 11
PROPOSAL II: APPROVAL OF AMENDMENTS TO THE COMPANY'S ARTICLES OF
INCORPORATION TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK
AND A CORRESPONDING INCREASE IN THE AUTHORIZED SHARES OF
EXCESS STOCK................................................ 11
Characteristics of Preferred Stock.......................... 12
Characteristics of Excess Stock............................. 12
Vote Required to Amend the Articles of Incorporation........ 13
Possible Effects of the Proposal to Authorize Preferred
Stock....................................................... 14
14
SECURITY OWNERSHIP.........................................................
15
Section 16(a) Beneficial Ownership Reporting Compliance...............
16
CERTAIN TRANSACTIONS.......................................................
16
INDEPENDENT AUDITORS.......................................................
16
OTHER MATTERS..............................................................
16
PROPOSALS FOR NEXT ANNUAL MEETING..........................................
16
AVAILABLE INFORMATION......................................................
17
DOCUMENTS INCORPORATED BY REFERENCE........................................
APPENDIX A: Text of Amendments to Articles of Incorporation Regarding
Proposal II................................................. A-1
</TABLE>
2
<PAGE> 6
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
The persons named below have been nominated by the Board of Directors of
the Company (the "Board of Directors") for election as directors to serve until
the next annual meeting of stockholders or until their successors shall have
been elected and qualified. Mr. Lanier has been a director since April 1988 and
Mr. Clark since 1991. Messrs. Bourne and Seneff became directors in June 1992.
Mr. Hinkle became a director in June 1993. The table sets forth each nominee's
name, age, principal occupation or employment during at least the last five
years, and directorships in other public corporations.
The Company's officers and directors have advised the Company that they
intend to vote their shares of Common Stock for the election of each of the
nominees. Proxies will be voted FOR the election of the nominees below unless
authority is withheld. Stockholders may withhold authority to vote for any
nominee, in lieu of voting for the entire slate of directors, by lining through
or striking out the name of any nominee listed below the pertinent instruction
on the proxy card.
<TABLE>
<CAPTION>
NAME AND AGE BACKGROUND
------------ ----------
<S> <C>
Robert A. Bourne, 50................. Mr. Bourne has served as Vice Chairman of the Board since
February 1996. Previously, Mr. Bourne served as Secretary
and Treasurer of the Company from February 1996 through
December 31, 1997. Additionally, he has served as a director
of the Company since June 1992. Previously, he served as
Vice Chairman of the Board, Secretary and Treasurer of CNL
Realty Advisors, Inc. (the external advisor of the Company
from July 1992 through December 31, 1997, the "Advisor")
from February 1996 until December 1997, as President of the
Company from July 1992 until February 1996 and as President
and a director of the Advisor from 1991 until February 1996.
On January 1, 1998, the Advisor merged into a wholly owned
subsidiary of the Company which resulted in the Company
becoming a self-administered and self-managed real estate
investment trust. See "Certain Transactions." Mr. Bourne
also serves as President of CNL Group, Inc. ("CNL Group").
In addition, Mr. Bourne is President, a director and a
registered principal of CNL Securities Corp., President and
a director of CNL Investment Company, President of CNL
Realty Corp. and President and a director of CNL
Institutional Advisors, Inc., a registered investment
advisor. All of such entities are affiliates of CNL Group, a
privately held, diversified real estate company. Since
joining CNL Group in 1979, Mr. Bourne has been active in the
acquisition, development and management of real estate
projects throughout the United States. Mr. Bourne formerly
was a Certified Public Accountant with Coopers & Lybrand.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND AGE BACKGROUND
------------ ----------
<S> <C>
Edward Clark, 78..................... Mr. Clark currently is a director of two private companies
and a trustee of a private trust. From 1984 until July 1992,
Mr. Clark served as President of the Company. From 1982
through January 1998, he was employed by Investors
Management Corporation, a privately held corporation. While
employed by Investors Management Corporation, Mr. Clark
provided consulting services with respect to tax and
financial matters to Investors Management Corporation,
Golden Corral Corporation, a subsidiary of Investors
Management Corporation, and various other companies. From
1966 to 1980, Mr. Clark, a certified public accountant, was
a partner in the public accounting firm of Peat Marwick
Mitchell & Co.
Clifford R. Hinkle, 49............... Since 1991, Mr. Hinkle has been a director and executive
officer of the Flagler companies, including Flagler Capital
Corporation, which provides financial advisory and
investment consulting services, where he has been the
President since 1991, and Flagler Holdings, Inc., a merchant
banking company, where he has been the Chairman and Chief
Executive Officer since 1996. Additionally, Mr. Hinkle was a
director of MHI Group, Inc., a New York Stock Exchange
company, which owned and operated funeral homes and
cemeteries from November 1993 until November 1995, and was
the Chief Executive Officer of MHI Group, Inc. from April
1995 until November 1995 when it was acquired by a
subsidiary of The Loewen Group. Since 1996, Mr. Hinkle has
been a director of Integrated Orthopaedics, Inc., an
American Stock Exchange company, which owns and operates
orthopaedic physician management practices. From 1987 to
1991, Mr. Hinkle was the Executive Director and Chief
Investment Officer of the State Board of Administration of
Florida and managed over $40 billion in various trust funds.
Ted B. Lanier, 63.................... Mr. Lanier was the Chief Executive Officer of the Triangle
Bank and Trust Company, Raleigh, North Carolina
("Triangle"), from January 1988 until March 1991. Mr. Lanier
also was the Chairman of Triangle from January 1989 until
March 1991 and its President from January 1988 until January
1989. Since his retirement in 1991 as Chairman and Chief
Executive Officer of Triangle, Mr. Lanier has managed his
personal investments and managed investment accounts for
various individuals and trusts.
James M. Seneff, Jr., 51............. Mr. Seneff has been Chief Executive Officer of the Company
since July 1992 and Chairman of the Board of the Company
since June 1992. Mr. Seneff has served as Chief Executive
Officer, director, and principal stockholder of CNL Group
since its formation in 1973. From 1991 to December 1997, Mr.
Seneff served as Chief Executive Officer and Chairman of the
Board of the Advisor. From 1986 to 1994, Mr. Seneff served
on the Florida Investment Advisory Council (the "Council"),
which oversees the $40 billion Florida state retirement
plan, and was Chairman of the Council from 1991 to 1992.
Since 1971, Mr. Seneff has been active in the acquisition,
development and management of real estate projects
throughout the United States. Mr. Seneff is the brother-
in-law of Kevin B. Habicht, Chief Financial Officer of the
Company.
</TABLE>
In the event that any nominee(s) should be unable to accept the office of
director, which is not anticipated, it is intended that the persons named in the
proxy will vote FOR the election of such other person
4
<PAGE> 8
in the place of such nominee(s) for the office of director as the Board of
Directors may recommend. The affirmative vote of a plurality of the shares of
Common Stock present in person or represented by proxy and entitled to vote is
required for the election of directors. Any director that does not receive an
affirmative vote of a plurality of the shares of Common Stock will not be
elected.
A majority of the Company's directors are required to be independent, as
that term is defined in the Company's Bylaws, as amended (the "Bylaws"). Messrs.
Bourne, Clark, Hinkle and Lanier are independent directors (the "Independent
Directors"). Independent Directors are those persons who are not affiliated,
directly or indirectly, with any person, corporation, association, company,
trust, partnership (general or limited) or other organization to whom the Board
of Directors has delegated management duties. In addition, an Independent
Director cannot perform any services for the Company other than as a director.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1997, each director who was a director
for the entire year was paid $12,000 for serving on the Board of Directors. Each
director received $1,000 per quarterly Board of Directors meeting attended and
$750 per committee meeting attended. Since May 1993, however, Messrs. Seneff and
Bourne have waived their directors' fees. The Board of Directors believes this
compensation level is comparable to that provided by many other companies in the
real estate investment trust ("REIT") industry.
The Board of Directors met 18 times during the year ended December 31, 1997
and the average attendance by the nominated directors at Board of Directors
meetings was approximately 98%. Each nominated member attended at least 90% of
the total meetings of the Board of Directors and of any committee on which he
served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The current members of the
Audit Committee, who have served since June 1992, are Messrs. Clark and Lanier.
The Audit Committee makes recommendations to the Board of Directors as to the
independent accountants of the Company and reviews with such accounting firm the
scope of the audit and the results of the audit upon its completion. The Audit
Committee met once during the year ended December 31, 1997.
The Company has a standing Compensation Committee, the members of which are
selected by the full Board of Directors each year. The current members of the
Compensation Committee are Messrs. Clark, Hinkle and Lanier. The principal
function of the Compensation Committee is to make awards of stock options under
the 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (the "1992 Plan")
and to set the terms of such stock options in accordance with the terms of the
1992 Plan. The Compensation Committee met once during the year ended December
31, 1997.
In addition to the Audit Committee and the Compensation Committee, on
December 18, 1996, the Board of Directors appointed a special committee of
independent directors consisting of four of the Independent Directors of the
Company (Messrs. Clark, Hinkle and Lanier and retired Board member Willoughby T.
Cox) (the "Special Committee") to consider and evaluate a possible merger with
the Advisor (the "Advisor Transaction"). The Board of Directors authorized the
Special Committee to retain outside counsel and financial advisors to assist it
in its assignment.
The Board of Directors agreed to compensate each member of the Special
Committee at the rate of $20,000 plus $1,000 for each Special Committee meeting
attended. The Special Committee met twelve times during the year ended December
31, 1997. With the exception of Mr. Cox, who did not attend several meetings,
all members of the Special Committee participated in each of the 11 meetings.
Upon the consummation of the Advisor Transaction, the responsibilities of the
Special Committee terminated.
The Company has a nominating committee, which was formed in September 1997
but did not meet during the year ended December 31, 1997. The current members of
the nominating committee are Messrs. Bourne, Hinkle, Lanier and Seneff.
5
<PAGE> 9
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
James M. Seneff, Jr.................. Chief Executive Officer and Chairman of the Board
Gary M. Ralston...................... President and Chief Operating Officer
Kevin B. Habicht..................... Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
</TABLE>
Mr. Ralston, age 47, has served as President and Chief Operating Officer of
the Company since February 1996. From February 1996 until December 1997 he
served as President of the Advisor. From December 1993 until February 1996 he
served as Executive Vice President and Chief Operating Officer of the Company.
Mr. Ralston previously served as Vice President of the Company from July 1992
through December 1993 and as Vice President of the Advisor from its inception in
1991 through December 1993. From 1988 to 1992, he also served as a Senior Vice
President of CNL Properties, Inc., a real estate investment and asset/property
management company affiliated with CNL Group, Inc. From 1983 until 1988, Mr.
Ralston was Vice President of ENCO, a real estate investment and asset/property
management firm located in Lakeland, Florida. Mr. Ralston holds the Certified
Commercial Investment Member and Society of Industrial and Office Realtors
designations and is also a Florida licensed Real Estate Broker, Mortgage Broker
and Certified Building Contractor. Mr. Ralston is a member of the Board of
Directors of the National Association of Realtors, Vice Chairman of its
Commercial Investment Committee and a member of the Capital Consortium.
Mr. Habicht, age 39, has been Executive Vice President and Chief Financial
Officer of the Company since December 1993 and has been Secretary and Treasurer
of the Company since January 1, 1998. Mr. Habicht previously served as Assistant
Secretary of the Company from December 1993 through December 1997, as Vice
President of the Company from July 1992 through December 1993, as Assistant
Secretary of the Advisor from December 1993 through December 1997, and as Vice
President of the Advisor from its inception in 1991 through December 1993. From
1990 through December 1997, Mr. Habicht served as Senior Vice President of CNL
Institutional Advisors, Inc. and from 1992 through 1997, Mr. Habicht served as
Treasurer of CNL Investment Company, Senior Vice President of CNL Management
Company and Treasurer of CNL Securities Corp. From 1981 to 1983, Mr. Habicht, a
Certified Public Accountant and a Chartered Financial Analyst, was employed by
Coopers & Lybrand, Certified Public Accountants. Mr. Habicht is the
brother-in-law of James M. Seneff, Jr., Chief Executive Officer and Chairman of
the Board of the Company.
The background of Messr. Seneff is described at "PROPOSAL I -- ELECTION OF
DIRECTORS -- Nominees."
The Company employs certain other officers who also have extensive
experience in selecting and managing freestanding retail properties. In addition
to the directors and executive officers listed above, the following individuals
are involved in the acquisition and management of the Company's properties:
Joseph A. Ciardiello, age 50, has served as Senior Vice President of
Corporate Acquisitions of the Company since January 1, 1998. From May 1996
through December 1997, Mr. Ciardiello served as Senior Vice President of
Corporate Acquisitions of the Advisor. From 1992 to 1996, he served as Vice
President of Real Estate and Development at Color Tile Inc. Prior to that he
served as Vice President of Real Estate Price Club East Coast and Vice President
of Development at Marriott Corporation. Mr. Ciardiello also served as National
Director of Real Estate at McDonalds Corporation where he developed McDonalds'
first joint venture real estate projects. Mr. Ciardiello holds the Certified
Commercial Investment Member designation and is a member of the National
Association of Corporate Real Estate Executives (NACORE). Mr. Ciardiello has
over 20 years of retail real estate experience.
Mez R. Birdie, age 48, has served as Vice President of Asset Management of
the Company since January 1, 1998.. From December 1993 to December 1997, Mr.
Birdie served as Vice President of Asset
6
<PAGE> 10
Management of the Advisor, from June 1992 to November 1993, Mr. Birdie served as
Director of Retail Management of the Company and from 1987 to 1992, Mr. Birdie
served as Director of Property Management for Charles Wayne Properties, Inc. Mr.
Birdie has received the Certified Property Manager designation awarded by the
Institute of Real Estate Management and the Certified Shopping Center Manager
designation awarded by the International Counsel of Shopping Centers (ICSC), and
has a total of 14 years experience in the field of commercial and residential
property management.
David G. Etter, age 35, has served as Director of Real Estate Acquisitions
of the Company since January 1, 1998. From April 1996 to December 1997, Mr.
Etter served as Director of Real Estate Acquisitions of the Advisor. Previously,
Mr. Etter worked for Rite Aid Corporation from 1994 to 1996 as Director of Real
Estate for the Southeastern United States, and as Real Estate Manager for Taco
Bell Corp. from 1989 to 1994. Mr. Etter holds an M.B.A., is a member of the
National Association of Corporate Real Estate Executives (NACORE) and has 10
years of experience in asset management, real estate acquisition and real estate
development.
Courtney S. Hubbard, age 34, has served as Director of Due Diligence and
Research of the Company since January 1, 1998. From February 1995 to December
1997, Ms. Hubbard served as Director of Due Diligence and Research of the
Advisor. Prior to joining the Advisor, Ms. Hubbard was a senior associate at
Clayton, Roper & Marshall, a real estate appraisal and consulting firm (1991 to
1995) and a senior associate with Kampe Appraisals, Inc. (1989 to 1991). She
holds a Master of Arts Degree in Real Estate from the University of Florida. Ms.
Hubbard is a MAI (Member, Appraisal Institute), a certified general real estate
appraiser in the State of Florida, and a member of the Appraisal Institute's
Admissions and Ethics committees.
Dawn A. Peterson, age 34, has served as Director of Accounting and
Financial Reporting of the Company since January 1, 1998. From July 1994 to
December 1997, Ms. Peterson served as Director of Accounting and Financial
Reporting of the Advisor. From 1991 to 1994, Ms. Peterson was employed by
Coopers & Lybrand as a Certified Public Accountant (CPA). Ms. Peterson earned a
Bachelor of Science degree in Business Administration and a Master of Science
Degree in Accountancy from the University of Central Florida. She is a member of
the American Institute of Certified Public Accountants.
Cynthia C. Shelton, age 44, has served as Director of Acquisitions of the
Company since January 1, 1998. From May 1996 to December 1997, Ms. Shelton
served as Director of Acquisitions of the Advisor. Ms. Shelton served from 1995
to 1996 as Vice President of the Ross Realty Group, a real estate brokerage and
property management company that specializes in retail properties, and from 1985
to 1995 as the Real Estate Manager for KinderCare Learning Centers, Inc., the
largest child care company in the United States. Ms. Shelton has 21 years of
experience in commercial brokerage and site selection and she holds the
Certified Commercial Investment Member (CCIM) designation and is a Florida
licensed Real Estate Broker. Ms. Shelton is the 1996 President of the Florida
CCIM Chapter, a national councilor for the Certified Investment Real Estate
Institute (CIREI) and a 1997 Director of the National Association of Realtors.
In addition, the Company employs certain officers who have extensive
experience in the build to suit development of commercial properties. These
officers previously worked for CNL Development Company, Inc. (the "Development
Company") until the Development Company was merged with and into the Advisor in
April 1997, with the Advisor being the surviving corporation. Effective January
1, 1998, as a result of the Advisor Transaction, these officers became employees
of the Company. See "Certain Transactions." The following individuals are among
the key employees involved in the development of properties:
Alexander M. Dmyterko, age 38, has served as Chief Operating
Officer -- Build-to-Suit since January 1, 1998. From March 1997 to December
1997, Mr. Dmyterko served as Chief Operating Officer of the Development Company.
Before joining the Development Company, Mr. Dmyterko was a founder, and from
1993 to 1997 served as Executive Vice President/Managing Director of, Trammell
Crow BTS, Inc. ("Trammell Crow"). From 1991 to 1993 Mr. Dmyterko served as
Managing Director -- Retail for Trammell Crow. From 1987 to 1991 Mr. Dmyterko
was a Project Manager and Marketing Representative at Trammell Crow. Mr.
Dmyterko is a member of the International Council of Shopping Centers, the Urban
Land Institute and the Chicago Area Shopping Center Owners.
7
<PAGE> 11
John K. Awsumb, age 51, has served as Senior Vice President of the Company
since January 1, 1998. From October 1992 to December 1997, Mr. Awsumb served as
Senior Vice President of the Development Company. Prior to joining the
Development Company, from 1973 to 1992, Mr. Awsumb was a founding principal of
Vickerey/Oversat/Awsumb Associates, Inc., a national architecture, planning, and
interior design firm in Orlando, Florida and Chicago, Illinois. Mr. Awsumb
served as vice chairman of that company from 1976 to 1992. From 1975 to 1981,
Mr. Awsumb served as Chairman of the Downtown Development Board of the City of
Orlando. Mr. Awsumb is a member of the American Institute of Architects and from
1987 to 1989 served as president and State director of the mid-Florida chapter.
Mr. Awsumb is currently Vice President of the State Association of the American
Institute of Architects.
J. Michael Davis, age 37, has served as a Vice President of the Company
since January 1, 1998. From April 1997 to December 1997, Mr. Davis served as a
Vice President of the Development Company. Prior to joining the Development
Company Mr. Davis was a Vice President of Trammell Crow from 1994 to 1997. From
1989 to 1993, Mr.. Davis served as Marketing Director -- Retail for Trammell
Crow. Mr. Davis is a member of the International Council of Shopping Centers and
the Urban Land Institute.
Dennis E. Tracy, age 48, has served as Senior Vice President the Company
since January 1, 1998. From November 1990 to December 1997, Mr. Tracy served as
Senior Vice President of the Development Company. Prior to joining the
Development Company, Mr. Tracy founded Tracy Homes, Inc., a luxury custom home
building company and served as its president and owner. Mr. Tracy is a Certified
Commercial Investment Manager and a member of the Advisory Board for the Retail
Contractors Association.
8
<PAGE> 12
EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
The following Summary Compensation Table shows the annual and long-term
compensation paid by the Company to the Chief Executive Officer for services
rendered in all capacities to the Company during the fiscal years ended December
31, 1997, 1996, and 1995. No executive officer of the Company received a total
annual salary and bonus in excess of $100,000 from the Company during the fiscal
year ended December 31, 1997. Until January 1, 1998, the Company's employees and
executive officers were also employees and executive officers of the Advisor and
received compensation from CNL Group in part for services in such capacities.
See "Certain Transactions" for a description of the fees payable and expenses
reimbursed to the Advisor.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) ----------------------
--------------------------------- STOCK OPTION
NAME AND PRINCIPLE POSITION YEAR SALARY BONUS AWARDS (SHARES)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
James M. Seneff, Jr. .................... 1997 $0 $0 -0-
Chief Executive Officer & 1996 0 0 120,000
Chairman of the Board 1995 0 0 -0-
</TABLE>
- ---------------
(1) Mr. Seneff became the Chief Executive Officer of the Company in July 1992.
No executive officer received a salary or bonus from the Company during
1997.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to the Chief Executive Officer or any
other executive officer of the Company during the fiscal year ended December 31,
1997.
OPTIONS EXERCISED AND FISCAL YEAR-END VALUES
The following table sets forth certain information with respect to
unexercised stock options held by the Chief Executive Officer at December 31,
1997. The Chief Executive Officer did not exercise any stock options during the
fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James M. Seneff, Jr. .................. 207,500 80,000 $942,625 $390,000
------- ------ -------- --------
</TABLE>
- ---------------
(1) Based on the closing price of $17.875 on the New York Stock Exchange on
December 31, 1997.
The Company's only employee compensation plan is the 1992 Plan. The Company
does not have any other compensation or pension plans.
THE FOLLOWING SECTION OF THIS PROXY STATEMENT SHALL NOT BE DEEMED TO BE
INCORPORATED INTO ANY FILING BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING ANY SUCH INCORPORATION BY REFERENCE
OF ANY OTHER PORTIONS OF THIS PROXY STATEMENT.
9
<PAGE> 13
COMPENSATION COMMITTEE REPORT
The Board of Directors appointed a Compensation Committee comprised of the
undersigned, Messrs. Clark, Hinkle and Lanier. Members of the Compensation
Committee, all of whom must be independent directors of the Company, are
selected each year by the full Board of Directors.
Through December 31, 1997, none of the officers of the Company, including
the Chief Executive Officer, received any salary, bonus or other compensation
from the Company for services rendered, except for stock option grants pursuant
to the 1992 Plan. Accordingly, the primary responsibility of the Compensation
Committee in 1997 was to administer the 1992 Plan, which includes determining
the individuals to be granted stock option awards and defining the terms of such
awards, including the number of shares subject to each option, exercise price,
vesting schedule and expiration date.
The purpose of the 1992 Plan is to provide compensation to persons whose
services are considered essential to the growth and success of the Company. By
linking this compensation to the market performance of the Company's Common
Stock, the Company intends to provide additional incentive for officers and key
employees to enhance the value and success of the Company and align the
long-term interests of the officers and key employees with the interests of the
Company's stockholders.
During the fiscal year ended December 31, 1997, the Compensation Committee
granted option awards in the amount of 200,000 shares under the 1992 Plan. Of
the 2.0 million shares authorized under the 1992 Plan, 1,178,100 had been
granted as of December 31, 1997. Stock option grants provide for an exercise
price equal to the fair market value, as defined in the 1992 Plan, on the date
of grant. In fixing the grants of stock options, including to the Chief
Executive Officer, the Compensation Committee makes a subjective assessment of
the general performance of the Company, the recipient's contribution to the
Company's performance, the recipient's anticipated performance and contributions
to the Company's achievement of its long-term goals and the position, level and
scope of the responsibility of the recipient.
In connection with the Advisor Transaction, the Special Committee (which
included all members of the Compensation Committee) negotiated and evaluated the
Advisor Transaction, including the negotiation of employment agreements (the
"Employment Agreements") with Messrs. Seneff, Ralston and Habicht which became
effective on January 1, 1998.
10
<PAGE> 14
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends ("NNN"), with the National
Association of Real Estate Investment Trusts Equity Index ("NAREIT") and the S&P
500 Index ("S&P 500") for the five year period commencing January 1, 1993 and
ending December 31, 1997. The graph assumes the investment of $100 on January 1,
1993.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
PROPOSAL II
APPROVAL OF AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND A CORRESPONDING
INCREASE IN THE AUTHORIZED SHARES OF EXCESS STOCK
The Board of Directors has unanimously approved, subject to approval of the
stockholders at the Annual Meeting, amendments to Article VII of the Company's
Articles of Incorporation, which (i) would authorize the Company to issue, from
time to time, up to fifteen million (15,000,000) shares of preferred stock, $.01
par value (the "Preferred Stock"), with such rights, powers, preferences and
terms as are determined by the Board of Directors at the time of issuance,
without further stockholder action, and (ii) would increase in the number of
shares of authorized shares of Excess Stock, $.01 par value (the "Excess
Stock"), from ninety million (90,000,000) shares to one hundred and five million
(105,000,000) shares.
The text of the proposed amendments to Article VII is set forth in Appendix
A of this Proxy Statement and incorporated herein by reference.
The Board of Directors believes that the proposal to authorize the issuance
of Preferred Stock is in the best interests of the Company and its stockholders.
If the proposed amendments to the Articles of Incorporation to authorize the
issuance of Preferred Stock is approved by the stockholders, the Preferred Stock
would be available for issuance by the Board of Directors from time to time for
stock dividends, financings, acquisitions or general corporate purposes. Such
availability of shares of Preferred Stock would eliminate the delay and expense
involved in conducting a special meeting of stockholders to authorize the
issuance of such shares when needed and would provide the Company with the
flexibility to act in a timely manner to take advantage of favorable market
conditions and other opportunities. The Board of Directors has
11
<PAGE> 15
no current plans to issue any shares of Preferred Stock. See "Possible Effects
of the Proposal to Authorize Preferred Stock."
The issuance of Preferred Stock is not currently authorized by the
Company's Articles of Incorporation, and, accordingly, no shares of Preferred
Stock are currently issued and outstanding or available for future issuance.
CHARACTERISTICS OF PREFERRED STOCK
If the proposed amendment authorizing the issuance of Preferred Stock is
approved, the Board of Directors would be authorized to approve the issuance,
without the necessity of further stockholder action (unless required by
applicable laws, rules or regulations), of one or more series of Preferred
Stock, and to determine the rights, powers, preferences and terms of such
Preferred Stock, including, among other things: (i) the designation of the
series, which may be by distinguishing number, letter or title; (ii) the
dividend rate on the shares of the series, if any, whether any dividends shall
be cumulative and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of the series; (iii) the
redemption rights, including conditions and the price or prices, if any, for
shares of the series; (iv) the terms and amounts of any sinking fund for the
purchase or redemption of shares of the series; (v) the rights of the shares of
the series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, and the relative rights of
priority, if any, of payment of shares of the series; (vi) whether the shares of
the series shall be convertible into shares of any other class or series, or any
other security, of the Company or any other corporation or other entity, and, if
so, the specification of such other class or series of such other security, the
conversion price or prices or dates on which such shares shall be convertible
and all other terms and conditions upon which such conversion may be made; (vii)
restrictions on the issuance of shares of the same series or of any other class
or series; (viii) the voting rights, if any, of the holders of shares of the
series; and (ix) any other relative rights, preferences and limitations on that
series.
If authorized, the Preferred Stock could be issued in one or more series
varying in such features as dividend, redemption, sinking fund and conversion
provisions, voting rights and the amount payable upon involuntary or voluntary
liquidation of the Company. Preferred Stock would be available for stock
dividends, possible future financings of, or acquisitions by, the Company and
for general corporate purposes without any legal requirement that further
stockholder authorization for the issuance thereof be obtained, unless required
by applicable laws, rules or regulations. While the Board of Directors has great
latitude in setting the terms of Preferred Stock, it is not the intention of the
Board of Directors to provide holders of Preferred Stock with superior voting
rights or to utilize Preferred Stock as an anti-takeover device. The primary
purpose of issuing Preferred Stock, if authorized, will be to provide the
Company with increased access to the capital markets with a different cost
profile relative to Common Stock, generally in order to fund targeted real
estate investments or repay debt.
CHARACTERISTICS OF EXCESS STOCK
Currently, the Articles of Incorporation contain certain restrictions on
the number of shares of Common Stock that individual stockholders may own. For
the Company to qualify as a REIT for federal income tax purposes, not more than
50% in value of the outstanding capital stock (including preferred stock) of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), to
include certain entities) during the last half of a taxable year (other than the
first year). The capital stock also must be beneficially owned 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. Because the Company expects to
maintain its status as a REIT, the ownership limitation provision of the
Articles of Incorporation containing restrictions on the acquisition of its
Common Stock is intended to ensure compliance with these requirements.
Therefore, because the Board of Directors believes it is essential for the
Company to continue to qualify as a REIT for federal income tax purposes, the
Articles of Incorporation provide that no holder may own, or be deemed to own,
by virtue of the applicable attribution provisions of the Code, more than 9.8%
(the "Ownership Limit") of the value of the issued and outstanding Common Stock
of the Company. Any transfer of shares of Common Stock that would (i) create a
direct or indirect ownership of
12
<PAGE> 16
shares of Common Stock in excess of the Ownership Limit, (ii) result in the
shares of Common Stock being owned by fewer than 100 persons, or (iii) result in
the Company being "closely held" within the meaning of section 856(h) of the
Code (collectively, a "Non-Qualifying Event"), will be null and void, and the
intended transferee will acquire no rights to such shares.
Any shares purported to be transferred or issued that would result in a
person owning shares that causes a Non-Qualifying Event will be automatically
converted into shares of Excess Stock, which will be transferred pursuant to the
Articles of Incorporation to the Company as trustee for the exclusive benefit of
the person or persons to whom the shares of Excess Stock are ultimately
transferred, until such time as the intended transferee retransfers the shares
of Excess Stock. Subject to the Ownership Limit, the shares of Excess Stock may
be retransferred by the intended transferee to any person (if the shares of
Excess Stock would not be shares of Excess Stock in the hands of such person) at
a price not to exceed the price paid by the intended transferee (or, if no
consideration was paid, fair market value on the date of the purported transfer
that resulted in shares of Excess Stock), at which point the shares of Excess
Stock will automatically be converted into the stock to which the shares of
Excess Stock are attributable. In addition, such shares of Excess Stock held in
trust are subject to purchase by the Company at a purchase price equal to the
price paid for the stock by the intended transferee (or, if no consideration was
paid, fair market value at the date in which the Company purchases the shares of
Excess Stock).
From and after the intended transfer that caused the issuance of shares of
Excess Stock, the intended transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to such shares of the stock except the right to payment of the purchase
price for the shares of stock or the transfer of shares as provided above. Any
dividend or distribution paid to a proposed transferee on shares of Excess Stock
prior to the discovery by the Company that such shares of stock have been
transferred in violation of the provisions of the Articles of Incorporation
shall be repaid to the Company upon demand. Further, the issuance of shares of
Excess Stock has no dilutive effect on the then-issued and outstanding shares of
Common Stock.
Currently, the Articles of Incorporation authorize an equal number of
shares of Common Stock and Excess Stock. In the event the amendments to Article
VII are approved by the stockholders of the Company, the Articles of
Incorporation would authorize an amount of Excess Stock equal to the aggregate
number of authorized shares of Common Stock and Preferred Stock which, in the
event that a Non-Qualifying Event occurs, would afford stockholders the same
protections against the Company's failure to qualify as a REIT as are now
currently in effect.
Excess Stock may be issued only upon the occurrence of a Non-Qualifying
Event and currently, there are no issued and outstanding shares of Excess Stock.
VOTE REQUIRED TO AMEND THE ARTICLES OF INCORPORATION
The affirmative vote of the holders of a 66 2/3% of the shares of the
Common Stock outstanding and entitled to vote at the meeting is required to
approve amendments to the Articles of Incorporation. Accordingly, shares that
are not voted (whether by abstention, broker non-vote or otherwise) will have
the effect of counting against the approval of the proposed amendments to the
Articles of Incorporation.
THE BOARD OF DIRECTORS DEEMS ADVISABLE, AND RECOMMENDS A VOTE FOR, THE
AUTHORIZATION TO ISSUE FIFTEEN MILLION (15,000,000) SHARES OF PREFERRED STOCK
AND THE CORRESPONDING FIFTEEN MILLION (15,000,000) SHARE INCREASE IN THE NUMBER
OF AUTHORIZED SHARES OF EXCESS STOCK.
A VOTE FOR PROPOSAL II SHALL BE DEEMED A VOTE PERMITTING THE BOARD OF
DIRECTORS TO AMEND AND RESTATE THE ARTICLES OF INCORPORATION IN THEIR ENTIRETY
TO INCLUDE THE AMENDMENTS TO ARTICLE VII OF THE ARTICLES OF INCORPORATION
APPROVED BY THE STOCKHOLDERS AT THE ANNUAL MEETING. IN THE EVENT THAT PROPOSAL
II IS APPROVED BY THE STOCKHOLDERS OF THE COMPANY, APPENDIX A SETS FORTH ARTICLE
VII OF THE ARTICLES OF INCORPORATION AS IF THE PROPOSED AMENDMENTS HAVE BEEN
APPROVED.
13
<PAGE> 17
POSSIBLE EFFECTS OF THE PROPOSAL TO AUTHORIZE PREFERRED STOCK
Because the Board of Directors has not fixed, and does not believe that it
is advisable at this time to fix, the characteristics of any particular series
of Preferred Stock, each series will have the characteristics adopted by the
Board of Directors prior to the issuance of any shares of such series. Such
characteristics may effect the voting powers and the equity of the holders of
the Common Stock, as well as the funds available for dividends and the
distribution of assets upon liquidation. For example, the Preferred Stock could
be given more than one vote per share and a liquidation preference over the
Common Stock. Because dividends on preferred stock generally are paid prior to
dividends on common stock outstanding, Preferred Stock may affect the funds
available for dividends on the Common Stock. In addition, the issuance of shares
of Preferred Stock could cause a dilution of the voting rights, the net earnings
and the net book value per share of the Common Stock.
Although the Board of Directors has no present intention to do so, it
could, in the future, issue a series of Preferred Stock which, due to its terms,
could impede a merger, tender offer or other transaction that some, or a
majority, of the stockholders of the Company might believe to be in their best
interests.
SECURITY OWNERSHIP
The following table sets forth, as of the Record Date, the number and
percentage of outstanding shares beneficially owned by all persons known by the
Company to own beneficially more than five percent of the Company's Common
Stock, by each director and nominee, by each of the executive officers named in
"Executive Compensation," above, and by all officers and directors as a group,
based upon information furnished to the Company by such stockholders, officers
and directors. Unless otherwise noted below, the persons named in the table have
sole voting and sole investment power with respect to each of the shares
beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF SHARES
------------------------------------ ------------------ ---------
<S> <C> <C>
Robert A. Bourne(1)....................................... 500,912(2)(3) 1.1%
400 East South Street, Suite 500
Orlando, Florida 32801
Edward Clark(1)........................................... 10,045(4) (5)
5204 Shamrock Drive
Raleigh, North Carolina 27612
Kevin B. Habicht.......................................... 105,012(6) (5)
400 E. South Street, Suite 500
Orlando, FL 32801
Clifford R. Hinkle(1)..................................... 24,910(7) (5)
215 South Monroe Street, Suite 500
Tallahassee, Florida 32301
Ted B. Lanier(1).......................................... 17,610(8) (5)
1818 Windmill Drive
Sanford, North Carolina 27330
Gary M. Ralston........................................... 148,298(9) (5)
400 East South Street, Suite 500
Orlando, Florida 32801
James M. Seneff, Jr.(10).................................. 764,503(2)(11) 1.8%
400 East South Street, Suite 500
Orlando, Florida 32801
ABKB/LaSalle Securities, Inc.............................. 2,637,700 9.1%
100 East Pratt Street
Baltimore, MD 21202
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF SHARES
------------------------------------ ------------------ ---------
<S> <C> <C>
Public Employees Retirement System of Ohio................ 1,643,000 5.7%
277 East Town Street
Columbus, Ohio 43215
All directors and executive officers as a group (8 1,269,701(2)(3)(4)(6)
persons)................................................ (7)(8)(9)(11) 4.4%
</TABLE>
- ---------------
(1) A director of the Company.
(2) Of these shares, 255,696 shares are held by four limited partnerships, of
which Messrs. Bourne and Seneff are general partners and 55,003 shares are
held in a private corporation, of which Messrs. Bourne and Seneff each own
50%. In addition, 35,473 of these shares are held by a trust of which Mr.
Seneff serves as trustee. Messrs. Bourne and Seneff disclaim beneficial
ownership of these shares, except to the extent of their respective
percentage interests in each of these entities.
(3) Includes 2,680 shares held by Mr. Bourne as custodian for his minor
children and 168,833 shares subject to currently exercisable options.
(4) Includes 635 shares held by Mr. Clark's spouse and 9,110 shares subject to
currently exercisable options.
(5) Less than 1 percent.
(6) Includes 98,000 shares subject to currently exercisable options.
(7) Includes 800 vested shares held by Flagler Capital Corporation Profit
Sharing Plan on behalf of Mr. Hinkle, who is the sole participant, 9,110
shares subject to currently exercisable options, 250 shares held by Mr.
Hinkle as custodian for his son under the Uniform Gift to Minors Act, 1,150
shares held by Mr. Hinkle's spouse, and 10,000 shares held by Flagler
Holdings, Inc., in which Mr. Hinkle has a 26 percent interest and
dispository and voting authority.
(8) Includes 5,000 shares held by Mr. Lanier's spouse and 9,110 shares subject
to currently exercisable options.
(9) Includes 124,000 shares subject to currently exercisable options.
(10) An executive officer and director of the Company.
(11) Includes 166,594 shares owned by CNL Group, Inc. in which Mr. Seneff and
his spouse own 100% and 247,500 shares subject to currently exercisable
options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership on Forms 3, 4
and 5 with the Securities and Exchange Commission (the "SEC") and the New York
Stock Exchange. Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with copies of all Forms
3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for the last fiscal year, the Company believes
that all its officers, directors, and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during fiscal 1997.
15
<PAGE> 19
CERTAIN TRANSACTIONS
For the year ended December 31, 1997, the Company paid the Advisor
approximately $2.1 million in advisory fees. The Advisor was a majority owned
subsidiary of CNL Group, of which James M. Seneff, Jr., Chairman of the Board
and Chief Executive Officer of the Company, and his spouse are the only
stockholders. Prior to the consummation of the Advisor Transaction, when an
affiliate of CNL Group, Inc. (a "CNL Affiliate") undertook the development of a
property, it negotiated with the tenant a "developer's cost," comprised of both
"hard" costs of development and "soft" costs, including reimbursement of certain
of the CNL Affiliate's expenses and a development fee generally equal to five to
10 percent of the total cost of the property. The rent on the developed property
generally was calculated on the basis of market capitalization rate and the
negotiated developer's cost. The Company purchased properties developed by CNL
Affiliates at prices equal to the negotiated developer's costs, which included
reimbursement of any expenses, as well as any development fees reflected in the
developer's costs. The Company, however, did not directly pay acquisition fees
or expense reimbursement in connection with the purchase of such properties.
During the year ended December 31, 1997, the Company acquired 32 properties
and three buildings which were developed by the tenant on land parcels owned by
the Company for purchase prices (exclusive of transaction fees and closing
costs) totaling $137.5 million from unrelated third parties. In connection with
the acquisition of 21 of these properties and the three buildings, the Company
paid the Advisor $2.6 million in acquisition fees and expense reimbursement
fees. Also for the year ended December 31, 1997, the Company acquired 15
properties for an aggregate purchase price (exclusive of transaction fees and
closing costs) of $39.3 million at an annualized cash on cost return (on an
Inclusive Cost basis) of approximately 10.9 percent from CNL Affiliates who had
developed the properties. The purchase prices paid by the Company for these 15
properties equaled the CNL Affiliates' costs, including development fees to
affiliates of $2.6 million. No acquisition fees or expense reimbursement fees
were paid to the Advisor in connection with the acquisition of these 15
properties.
INDEPENDENT AUDITORS
Upon recommendation of and approval by the Audit Committee, KPMG Peat
Marwick LLP has been selected to act as independent certified public accountants
for the Company during the current fiscal year.
A representative of KPMG Peat Marwick LLP will be present at the annual
meeting and will be provided with the opportunity to make a statement if
desired. Such representative will also be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
annual meeting other than those stated above. If any other business should come
before the annual meeting, the person(s) named in the enclosed proxy will vote
thereon as he or they determine to be in the best interests of the Company.
PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder proposal to be considered for inclusion in the Company's
proxy statement and form of proxy for the annual meeting of stockholders to be
held in 1999 must be received at the Company's office at 400 East South Street,
Suite 500, Orlando, Florida 32801, no later than December 17, 1998.
AVAILABLE INFORMATION
The Company is currently subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional
16
<PAGE> 20
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference the following documents into
this Proxy Statement:
(i) The Company's report on Form 8-K dated August 6, 1997 (Commission
File No. 1-11290);
(ii) The Company's report on Form 8-K dated September 18, 1997
(Commission File No. 1-11290);
(iii) The Company's report on Form 10-Q for the quarter ended
September 30, 1997 dated November 14, 1997 (Commission File No. 1-11290);
(iv) The Company's report on Form 8-K dated December 18, 1997
(Commission File No. 1-11290);
(v) The Company's report on Form 8-K dated December 18, 1997 (Commission
File No. 1-11290);
(vi) The Company's report on Form 8-K dated February 18, 1998
(Commission File No. 1-11290);
(vii) The Company's report on Form 10-K for the year ended December
31, 1997 dated March 18, 1998 (Commission File No. 1-11290);
(viii) The Company's report on Form 8-K dated March 20, 1998
(Commission File No. 1-11290);
(ix) The Company's report on Form 8-K dated March 24, 1998 (Commission
File No. 1-11290); and
(x) The Company's report on Form 8-K dated March 25, 1998 (Commission
File No. 1-11290).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the annual meeting of stockholders shall be deemed to be
incorporated by reference herein from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any subsequently filed document that 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 Proxy Statement.
17
<PAGE> 21
The Company will provide, without charge, upon the written or oral request
of any person to whom this Proxy Statement is delivered and by first class mail
or other equally prompt means within one business day of receipt of such
request, a copy of any and all information that has been incorporated by
reference in this Proxy Statement (not including exhibits to the information
that is incorporated by reference unless such exhibits are specifically
described herein). Request for such information should be delivered to:
Commercial Net Lease Realty, Inc., 400 East South Street, Suite 500, Orlando,
Florida 32801, Tel: 407-423-7348, Attn: Kevin B. Habicht.
By Order of the Board of Directors,
/s/ KEVIN B. HABICHT
Kevin B. Habicht
Secretary
April 17, 1998
Orlando, Florida
18
<PAGE> 22
APPENDIX A
ARTICLE VII
AUTHORIZED STOCK
SECTION 1. TOTAL CAPITALIZATION.
The total number of shares of all classes of capital stock that the
Corporation has authority to issue is two hundred ten million (210,000,000)
shares, consisting of (i) ninety million (90,000,000) shares of common stock,
par value $0.01 (the "Common Stock"); (ii) fifteen million (15,000,000) shares
of preferred stock, par value $0.01 (the "Preferred Stock"); and one hundred
five million (105,000,000) shares of excess stock, par value $0.01 (the "Excess
Stock"). The aggregate par value of all of the authorized shares of all classes
of capital stock having a par value is $2,100,000.
SECTION 2. CAPITAL STOCK.
A. COMMON STOCK.
(1) Common Stock Subject to Terms of Preferred Stock. The Common
Stock shall be subject to the express terms of the Preferred Stock.
(2) Dividend Rights. The holders of shares of Common Stock shall be
entitled to receive such dividends as may be declared by the Board of
Directors of the Corporation out of funds legally available therefor.
(3) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of
the assets, of the Corporation, the aggregate amount available for
distribution to holders of shares of Common Stock (including, for purposes
of this sentence, holders of shares of Excess Stock) shall be determined by
applicable law. Except as provided below, each holder of shares of the
Common Stock shall be entitled to receive that portion of such aggregate
amount, ratably with (i) each other holder of shares of Common Stock and
(ii) each holder of shares of Excess Stock, as the number of shares of the
Common Stock held by such holder bears to the total number of shares of
Common Stock and Excess Stock. Anything herein to the contrary
notwithstanding, in no event shall the amount payable to a holder of shares
with respect to Excess Stock hereunder exceed (i) the price per share such
holder paid for the Common Stock in the purported Transfer (as that term is
defined in paragraph A of Section 3 of this Article VII) that resulted in
the Excess Stock or (ii) if the holder did not give full value for such
Excess Stock (as through a gift, devise or other event or transaction), a
price per share equal to the Market Price (as that term is defined in
paragraph A of Section 3 of this Article VII) for the shares of the Common
Stock on the date of the purported Transfer that resulted in such Excess
Stock. Any amount available for distribution in excess of the foregoing
limitations shall be paid ratably to holders of Common Stock and other
holders of Excess Stock resulting from the exchange of Common Stock to the
extent permitted by the foregoing limitations.
(4) Voting Rights. Except as may be provided in this Charter, and
subject to the express terms of any series of Preferred Stock, the holders
of shares of the Common Stock shall have the exclusive right to vote on all
matters (as to which a common stockholder shall be entitled to vote) at all
meetings of the stockholders of the Corporation, and shall be entitled to
one (1) vote for each share of the Common Stock entitled to vote at such
meetings.
B. PREFERRED STOCK.
The Preferred Stock may be issued from time to time in one or more series
as authorized by the Board of Directors. Prior to the issuance of shares of each
such series, the Board of Directors, by resolution, shall fix the number of
shares to be included in each series, and the terms, rights, restrictions and
qualifications of the
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shares of each series. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
(ii) The dividend rate on the shares of the series, if any, whether
any dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of the series.
(iii) The redemption rights, including conditions and the price or
prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the purchase or
redemption of shares of the series.
(v) The rights of the shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, and the relative rights of
priority, if any, of payment of shares of the series.
(vi) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the
Corporation or any other corporation or other entity, and, if so,
the specification of such other class or series of such other
security, the conversion price or prices or dates on which such
shares shall be convertible and all other terms and conditions
upon which such conversion may be made.
(vii) Restrictions on the issuance of shares of the same series or of
any other class or series.
(viii) The voting rights, if any, of the holders of shares of the
series.
(ix) Any other relative rights, preferences and limitations on that
series.
Subject to the express provisions of any other series of Preferred Stock
then outstanding, notwithstanding any other provision of this Charter, the Board
of Directors may increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares, or alter the designation or
classify or reclassify any unissued shares of a particular series of Preferred
Stock, by fixing or altering, in one or more respects, from time to time before
issuing the shares, the terms, rights, restrictions and qualifications of the
shares of any such series of Preferred Stock.
SECTION 3. RESTRICTIONS ON TRANSFER; ACQUISITIONS AND REDEMPTION OF SHARES.
A. DEFINITIONS. For purposes of Sections 3 and 4 of this Article VII, the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of shares of Capital Stock by
an individual who would be treated as an owner of such shares under Section
542(a)(2) of the Code, either directly or constructively through the application
of Section 544, as modified by Section 856(h)(1)(B). For purposes of this
definition, the term "individual" also shall include any organization, trust or
other entity that is treated as an individual for purposes of Section 542(a)(2)
of the Code. The terms "Beneficial Owner," "Beneficially Own," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean a beneficiary of the Trust as determined pursuant
to paragraph A of Section 4 of this Article VII.
"Board of Directors" shall mean the Board of Directors of the Corporation.
"Bylaws" shall mean the Bylaws of the Corporation.
"Capital Stock" shall mean collectively the stock of the Corporation that
is either Common Stock or Preferred Stock.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute thereto. Reference to any provision of the
Code shall mean such provision as in effect from time to time, as the same may
be amended, and any successor thereto, as interpreted by any applicable
regulations and judicial decisions as in effect from time to time.
"Constructive Ownership" shall mean ownership of shares of Capital Stock by
a Person who would be treated as an owner of such shares, either actually or
constructively, through the application of Section 318 of the Code, as modified
by Section 856(d)(5) thereof. The terms "Constructive Owner," "Constructively
Own," "Constructively Owns" and "Constructively Owned" shall have correlative
meanings.
"Market Price" on any day shall mean the average of the Closing Prices for
the ten (10) consecutive Trading Days immediately preceding such day (or those
days during such 10-day period for which Closing Prices are available). The
"Closing Price" on any day shall mean the last sale price, regular way, on such
day or if no such sale takes place on that day, the average of the closing bid
and asked prices, regular way, in either case as reported on the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or the American Stock
Exchange, or if the Capital Stock is not so listed or admitted to trading, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange (including
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System) on which the Capital Stock is listed or
admitted to trading or, if the Capital Stock is not so listed or admitted to
trading, the last quoted price, or if not quoted, the average of the high bid
and low asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal automated quotation system then in use
or, if the Capital Stock is not so quoted by any such system, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the Capital Stock, or, if
there is no such market maker or such closing prices otherwise are not
available, the fair market value of the Capital Stock as of such day, as
determined by the Board of Directors in its discretion.
"Ownership Limit" shall mean 9.8 percent of the Value of any class of
outstanding Capital Stock.
"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 for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended; but does not
include an underwriter which participated in a public offering of Capital Stock
for a period of sixty (60) days following the purchase by such underwriter of
Capital Stock therein, provided that the foregoing exclusion shall apply in an
underwriting only if the ownership of such Capital Stock by such underwriter
would not cause the Corporation 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 Corporation to fail to qualify as a REIT.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock, the purported beneficial transferee for
whom the Purported Record Transferee would have acquired shares of Capital Stock
if such Transfer had been valid under paragraph B of this Section 3.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock, the record holder of the Capital Stock
if such Transfer had been valid under paragraph B of this Section 3.
"REIT" shall mean a real estate investment trust under Sections 856 through
860 of the Code.
"Restriction Termination Date" shall mean the first day on which the Board
of Directors and the stockholders of the Corporation determine that it is no
longer in the best interests of the Corporation to attempt, or continue, to
qualify as a REIT.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Capital Stock is listed or admitted to trading is open for
the transaction of business or, if the Capital Stock is not listed
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or admitted to trading, shall mean any day other than a Saturday, Sunday or
other day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Transfer" shall mean any sale, transfer, gift, hypothecation, assignment,
devise or other disposition of Capital Stock (including (i) the granting of any
option (including any option to acquire an option or any series of such options)
or entering into any agreement for the sale, transfer or other disposition of
Capital Stock or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Capital Stock),
whether voluntary or involuntary, of record, constructively or beneficially, and
whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have correlative meanings.
"Trust" shall mean the trust created pursuant to paragraph A of Section 4
of this Article VII.
"Trustee" shall mean the Corporation as trustee for the Trust, and any
successor trustee appointed by the Corporation.
"Value" shall mean, as of any given date, the Market Price per share of
each class of Capital Stock then outstanding, multiplied by the number of shares
of such class then outstanding.
B. OWNERSHIP AND TRANSFER LIMITATION.
(1) Notwithstanding any other provision of this Charter, except as provided
in paragraph I of this Section 3 and Section 5 of this Article VII, prior to the
Restriction Termination Date, no Person shall Beneficially or Constructively Own
shares of Capital Stock in excess of the Ownership Limit.
(2) Notwithstanding any other provision of this Charter, except as provided
in paragraph I of this Section 3 and Section 5 of this Article VII, prior to the
Restriction Termination Date, any Transfer, change in the capital structure of
the Corporation, or other purported change in Beneficial or Constructive
Ownership of Capital Stock that, if effective, would result in any Person
Beneficially or Constructively Owning Capital Stock in excess of the Ownership
Limit shall be void ab initio as to the Transfer, change in the capital
structure of the Corporation, or other purported change in Beneficial or
Constructive Ownership with respect to that number of shares of Capital Stock
which would otherwise be Beneficially or Constructively Owned by Such Person in
excess of the Ownership Limit, and neither the Purported Beneficial Transferee
nor the Purported Record Transferee shall acquire any rights in that number of
shares of Capital Stock.
(3) Notwithstanding any other provision of this Charter, except as provided
in Section 5 of this Article VII, prior to the Restriction Termination Date, any
Transfer, change in the capital structure of the Corporation, or other purported
change in ownership of Capital Stock that, if effective, would result in the
Capital Stock being owned by fewer than 100 Persons (determined without
reference to any rules of attribution) shall be void ab initio as to the
Transfer, change in the capital structure of the Corporation, or other purported
change in ownership with respect to that number of shares which otherwise would
be owned by the transferee, and the intended transferee or subsequent owner
(including a Beneficial Owner) shall acquire no rights in that number of shares
of Capital Stock.
(4) Notwithstanding any other provisions of this Charter except Section 5
of this Article VII, prior to the Restriction Termination Date, any Transfer,
change in the capital structure of the Corporation, or other purported change in
Beneficial Ownership of shares of Capital Stock that, if effective, would cause
the Corporation to fail to qualify as a REIT by reason of being "closely held"
within the meaning of Section 856(h) of the Code or otherwise, directly or
indirectly, would cause the Corporation to fail to qualify as a REIT shall be
void ab initio as to the Transfer, change in the capital structure of the
Corporation, or other purported change in Beneficial Ownership with respect to
that number of shares of Capital Stock which would cause the Corporation to be
"closely held" within the meaning of Section 856(h) of the Code or otherwise,
directly or indirectly, would cause the Corporation to fail to qualify as a
REIT, and the intended transferee or subsequent Beneficial Owner shall acquire
no rights in that number of shares of Capital Stock.
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C. EXCHANGE FOR EXCESS STOCK.
(1) If, notwithstanding the other provisions contained in this Article VII,
at any time prior to the Restriction Termination Date, there is a purported
Transfer, change in the capital structure of the Corporation or other purported
change in the Beneficial or Constructive Ownership of Capital Stock such that
any person would either Beneficially or Constructively Own Capital Stock in
excess of the Ownership Limit, then, except as otherwise provided in paragraph I
of this Section 3, such shares of Capital Stock (rounded up to the next whole
number of shares) in excess of the Ownership Limit automatically shall be
exchanged for an equal number of shares of Excess Stock having terms, rights,
restrictions and qualifications identical thereto, except to the extent that
this Article VII requires different terms. Such exchange shall be effective as
of the close of business on the business day next preceding the date of the
purported Transfer, change in capital structure or other change in purported
Beneficial or Constructive Ownership of Capital Stock.
(2) If, notwithstanding the other provisions contained in this Article VII,
prior to the Restriction Termination Date, there is a purported Transfer, change
in the capital structure of the Corporation or other purported change in
Beneficial Ownership of Capital Stock which, if effective, would cause the
Corporation to fail to qualify as a REIT by reason of being "closely held"
within the meaning of Section 856(h) of the Code, or otherwise, directly or
indirectly, would cause the Corporation to fail to qualify as a REIT, then the
shares of Capital Stock (rounded up to the next whole number of shares), being
Transferred or which are otherwise affected by the change in capital structure
or other purported change in Beneficial Ownership and which, in any case, would
cause the Corporation to be "closely held" within the meaning of such Section
856(h) or otherwise would cause the Corporation to fail to qualify as a REIT
automatically shall be exchanged for an equal number of shares of Excess Stock
having terms, rights, restrictions and qualifications identical thereto, except
to the extent that this Article VII requires different terms. Such exchange
shall be effective as of the close of business on the business day prior to the
date of the purported Transfer, change in capital structure or other purported
change in Beneficial Ownership.
D. REMEDIES FOR BREACH. If the Board of Directors or its designee shall at
any time determine in good faith that a Transfer or change in the capital
structure of the Corporation has taken place in violation of paragraph B of this
Section 3 or that a Person intends to acquire or has attempted to acquire
Beneficial or Constructive Ownership of any shares of Capital Stock in violation
of paragraph B of this Section 3, the Board of Directors or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer, change in the capital structure of the Corporation or other
attempt to acquire Beneficial or Constructive Ownership of any shares of Capital
Stock, including, but not limited to, refusing to give effect thereto on the
books of the Corporation or instituting injunctive proceedings with respect
thereto; provided, however, that any Transfer, change in the capital structure
of the Corporation, attempted Transfer or other attempt to acquire Beneficial or
Constructive Ownership of any shares of Capital Stock in violation of
subparagraphs (2), (3) and (4) of paragraph B of this Section 3 (as applicable)
shall be void ab initio and where applicable automatically shall result in the
exchange described in paragraph C of this Section 3, irrespective of any action
(or inaction) by the Board of Directors or its designee.
E. NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts to
acquire Beneficial or Constructive Ownership of shares of Capital Stock in
violation of paragraph B of this Section 3 and any Person who Beneficially or
Constructively owns Excess Stock pursuant to paragraph C of this Section 3 shall
immediately give written notice to the Corporation, or, in the event of a
proposed or attempted Transfer or purported change in Beneficial Ownership,
shall give at least fifteen (15) days prior written notice to the Corporation,
of such event and shall promptly provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer, attempted Transfer or purported change in Beneficial
Ownership on the Corporation's status as a REIT.
F. OWNERS REQUIRED TO PROVIDE INFORMATION. Prior to the Restriction
Termination Date:
(1) Every Beneficial or Constructive Owner of more than 5.0 percent,
or such lower percentages as required pursuant to regulations under the
Code or as may be requested by the Board of Directors, of the Value of the
outstanding Capital Stock of the Corporation shall annually, no later than
January 31 of each calendar year, give written notice to the Corporation
stating (i) the name and address of such
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Beneficial or Constructive Owner; (ii) the number of shares of Capital
Stock Beneficially or Constructively Owned; and (iii) a description of how
such shares are held. Each such Beneficial or Constructive Owner promptly
shall provide to the Corporation such additional information as the
Corporation, in its sole discretion, may request in order to determine the
effect, if any, of such Beneficial or Constructive Ownership on the
Corporation's status as a REIT and to ensure compliance with the Ownership
Limit.
(2) Each person who is a Beneficial or Constructive Owner of Capital
Stock and each Person (including the stockholder of record) who is holding
Capital Stock for a Beneficial or Constructive Owner promptly shall provide
to the Corporation such information as the Corporation, in its sole
discretion, may request in order to determine the Corporation's status as a
REIT, to comply with the requirements of any taxing authority or other
governmental agency, to determine any such compliance or to ensure
compliance with the Ownership Limit.
G. REMEDIES NOT LIMITED. Nothing contained in this Article VII except
Section 5 hereof shall limit scope or application of the provisions of this
Section 3, the ability of the Corporation to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Corporation and the interests of its stockholders by preservation of the
Corporation's status as a REIT and to ensure compliance with the Ownership
Limit, including, without limitation, refusal to give effect to a transaction on
the books of the Corporation.
H. AMBIGUITY. In the case of an ambiguity in the application of any of the
provisions of this Section 3, including any definition contained in paragraph A
hereof, the Board of Directors shall have the power and authority, in its sole
discretion, to determine the application of the provisions of this Section 3
with respect to any situation based on the facts known to it.
I. EXCEPTION. The Board of Directors, upon receipt of a ruling from the
Internal Revenue Service, an opinion of counsel, or other evidence satisfactory
to the Board of Directors, in its sole discretion, in each case to the effect
that the restrictions contained in subparagraph 3 and subparagraph 4 of
paragraph B of this Section 3 will not be violated, may waive, in whole or in
part, the application of the Ownership Limit with respect to any Person. In
connection with any such exemption, the Board of Directors may require such
representations and undertakings from such Person and may impose such other
conditions as the Board deems necessary, in its sole discretion, to determine
the effect, if any, of the proposed Transfer on the Corporation's status as a
REIT.
J. LIMITATIONS ON MODIFICATIONS.
(1) The Ownership Limit may not be increased (nor may any additional
ownership limitations be created) if, after giving effect to such increase or
creation, the Corporation would be "closely held" within the meaning of Section
856(h) of the Code (assuming ownership of shares of Capital Stock by all Persons
equal to the greater of the Beneficial Ownership of Capital Stock by such Person
or the Ownership Limit).
(2) Prior to any modification of the Ownership Limit, the Board of
Directors may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary, advisable or prudent in order to determine
or ensure the Corporation's status a REIT.
K. LEGEND. Each certificate for shares of Capital Stock shall bear
substantially the following legend:
"The securities represented by this certificate are subject
to restrictions on transfer for the purpose of maintenance of
the Corporation's status as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code").
Except as otherwise provided pursuant to the Charter of the
Corporation, no Person may (i) Beneficially or Constructively
Own shares of Capital Stock in excess of 9.8 percent of the
Value of the outstanding shares of Capital Stock of the
Corporation; or (ii) Beneficially Own Capital Stock which would
result in the Corporation being "closely held" under Section
856(h) of the Code or otherwise would cause the Corporation to
fail to qualify as a REIT. Any Person who attempts or proposes
to Beneficially or Constructively Own shares of Capital Stock in
excess of the above limitations must notify the Corporation in
writing at least
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fifteen (15) days prior to the proposed or attempted transfer.
If the transfer restrictions referred to herein are violated,
the shares of Capital Stock represented hereby automatically
will be exchanged for shares of Excess Stock and will be held in
trust by the Corporation, all as provided in the Charter of the
Corporation. All capitalized terms in this legend have the
meanings identified in the Corporation's Charter, as the same
may be amended or restated from time to time, a copy of which,
including the restrictions on transfer, will be sent without
charge to each stockholder who so requests."
SECTION 4. EXCESS STOCK.
A. OWNERSHIP IN TRUST. Upon any purported Transfer, change in the capital
structure of the Corporation or other purported change in Beneficial Ownership
that results in Excess Stock pursuant to paragraph C of Section 3 of this
Article VII, such Excess Stock shall be deemed to have been transferred to the
Corporation, as Trustee of a Trust for the benefit of such Beneficiary or
Beneficiaries to whom an interest in such Excess Stock may later be transferred
pursuant to paragraph E of this Section 4. Shares of Excess Stock so held in
trust shall be issued and outstanding stock of the Corporation. The Purported
Record Transferee shall have no rights in such Excess Stock except the right to
designate a transferee of such Excess Stock upon the terms specified in
paragraph E of this Section 4. The Purported Beneficial Transferee shall have no
rights in such Excess Stock except as provided in paragraph C of this Section 4.
B. DIVIDEND RIGHTS. Excess Stock shall not be entitled to any dividends.
Any dividend or distribution paid prior to the discovery by the Corporation that
the shares of Capital Stock have been exchanged for Excess Stock shall be repaid
to the Corporation upon demand, and any dividend or distribution declared but
unpaid at the time of such discovery shall be rescinded as void ab initio with
respect to such shares of Excess Stock.
C. RIGHTS UPON LIQUIDATION.
(1) Except as provided below, in the event of any voluntary or involuntary
liquidation, dissolution or winding up, or any other distribution of the assets,
of the Corporation, each holder of shares of Excess Stock resulting from the
exchange of Preferred Stock of any specified series shall be entitled to
receive, ratably with each other holder of shares of Excess Stock resulting from
the exchange of shares of Preferred Stock of such series and each holder of
shares of Preferred Stock of such series, such accrued and unpaid dividends,
liquidation preferences and other preferential payments, if any, as are due to
holders of shares of Preferred Stock of such series. In the event that holders
of shares of any series of Preferred Stock are entitled to participate in the
Corporation's distribution of its residual assets, each holder of shares of
Excess Stock resulting from the exchange of Preferred Stock of any such series
shall be entitled to participate, ratably with (i) each other holder of shares
of Excess Stock resulting from the exchange of shares of Preferred Stock of all
series entitled to so participate; (ii) each holder of shares of Preferred Stock
of all series entitled to so participate; and (iii) each holder of shares of
Common Stock and Excess Stock resulting from the exchange of shares of Common
Stock (to the extent permitted by paragraph C of Section 3 of Article VII
hereof), that portion of the aggregate assets available for distribution
(determined in accordance with applicable law) as the number of shares of such
Excess Stock held by such holder bears to the total number of (i) outstanding
shares of Excess Stock resulting from the exchange of Preferred Stock of all
series entitled to so participate; (ii) outstanding shares of Preferred Stock of
all series entitled to so participate; and (iii) outstanding shares of Common
Stock and shares of Excess Stock resulting from the exchange of shares of Common
Stock. The Corporation, as holder of the Excess Stock in trust, or, if the
Corporation shall have been dissolved, any trustee appointed by the Corporation
prior to its dissolution, shall distribute ratably to the Beneficiaries of the
Trust, when determined, any such assets received in respect of the Excess Stock
in any liquidation, dissolution or winding up, or any distribution of the
assets, of the Corporation. Anything to the contrary herein notwithstanding, in
no event shall the amount payable to a holder with respect to shares of Excess
Stock resulting from the exchange of shares of Preferred Stock exceed (i) the
price per share such holder paid for the Preferred Stock in the purported
Transfer that resulted in the Excess Stock or (ii) if the holder did not give
full value for such Excess Stock (as through a gift, devise or other event or
transaction), a price per share equal to the Market Price for the shares of
Preferred Stock on the date of the purported Transfer that resulted
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in such Excess Stock. Any amount available for distribution in excess of the
foregoing limitations shall be paid ratably to the holders of shares of
Preferred Stock and other holders of Excess Stock resulting from the exchange of
Preferred Stock to the extent permitted by the foregoing limitations.
(2) Except as provided below, in the event of any voluntary of involuntary
liquidation, dissolution or winding up, or any other distribution of the assets,
of the Corporation, each holder of shares of Excess Stock resulting from the
exchange of Common Stock shall be entitled to receive, ratably with (i) each
other holder of shares of such Excess Stock and (ii) each holder of Common
Stock, that portion of the aggregate assets available for distribution to
holders of shares of Common Stock (including holders of Excess Stock resulting
from the exchange of Common Stock pursuant to paragraph C of Section 3 of
Article VII hereof), determined in accordance with applicable law, as the number
of shares of such Excess Stock held by such holder bears to the total number of
shares of outstanding Common Stock and outstanding Excess Stock resulting from
the exchange of Common Stock then outstanding. The Corporation, as holder of the
Excess Stock in trust, or, if the Corporation shall have been dissolved, any
trustee appointed by the Corporation prior to its dissolution, shall distribute
ratably to the Beneficiaries of the Trust, when determined, any such assets
received in respect of the Excess Stock in any liquidation, dissolution or
winding up, or any distribution of the assets, of the Corporation. Anything
herein to the contrary notwithstanding, in no event shall the amount payable to
a holder with respect to shares of Excess Stock exceed (i) the price per share
such holder paid for the Common Stock in the purported Transfer that resulted in
the Excess Stock or (ii) if the holder did not give full value for such Excess
Stock (as through a gift, devise or other event or transaction), a price per
share equal to the Market Price for the shares of Common Stock on the date of
the purported Transfer that resulted in such Excess Stock. Any amount available
for distribution in excess of the foregoing limitations shall be paid ratably to
the holders of shares of Common Stock and other holders of Excess Stock
resulting from the exchange of Common Stock to the extent permitted by the
foregoing limitations.
D. VOTING RIGHTS. The holders of shares of Excess Stock shall not be
entitled to vote on any matters (except as required by the MGCL).
E. RESTRICTIONS ON TRANSFER; DESIGNATION OF BENEFICIARY.
(1) Excess Stock shall not be transferable. The Purported Record Transferee
may freely designate a Beneficiary of its interest in the Trust (representing
the number of shares of Excess Stock held by the Trust attributable to a
purported Transfer that resulted in the Excess Stock), if (i) the shares of
Excess Stock held in the Trust would not be Excess Stock in the hands of such
Beneficiary and (ii) the Purported Beneficial Transferee does not receive a
price for designating such Beneficiary that reflects a price per share for such
Excess Stock that exceeds (x) the price per share such Purported Beneficial
Transferee paid for the Capital Stock in the purported Transfer that resulted in
the Excess Stock or (y) if the Purported Beneficial Transferee did not give
value for such shares of Excess Stock (as through a gift, devise or other
transaction), a price per share equal to the Market Price for the shares of
Capital Stock on the date of the purported Transfer that resulted in the Excess
Stock. Upon such transfer of an interest in the Trust, the corresponding shares
of Excess Stock in the Trust automatically shall be exchanged for an equal
number of shares of Capital Stock and such shares of Capital Stock shall be
transferred of record to the Beneficiary of the interest in the Trust designated
by the Purported Record Transferee, as described above, if such Capital Stock
would not be Excess Stock in the hands of such Beneficiary. Prior to any
transfer of any interest in the Trust, the Purported Record Transferee must give
advance notice to the Corporation of the intended transfer and the Corporation
must have waived in writing its purchase rights under paragraph F of this
Section 4.
(2) Notwithstanding the foregoing, if a Purported Beneficial Transferee
receives a price for designating a Beneficiary of an interest in the Trust that
exceeds the amounts allowable under subparagraph (1) of this paragraph E, such
Purported Beneficial Transferee shall pay, or cause the Beneficiary of the
interest in the Trust to pay, such excess to the Corporation.
(3) If any of the transfer restrictions set forth in this paragraph E, or
any application thereof, is determined to be void, invalid or unenforceable by
any court having jurisdiction over the issue, the Purported Record Transferee
may be deemed, at the option of the Corporation, to have acted as the agent of
the
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<PAGE> 30
Corporation in acquiring the Excess Stock as to which such restrictions would,
by their terms, apply, and to hold such Excess Stock on behalf of the
Corporation.
F. PURCHASE RIGHT IN EXCESS STOCK. Shares of Excess Stock shall be deemed
to have been offered for sale to the Corporation, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created such Excess Stock (or, in the case of devise or gift, the Market Price
at the time of such devise or gift) and (ii) the Market Price of the Capital
Stock exchanged for such Excess Stock on the date the Corporation, or its
designee, accepts such offer. The Corporation shall have the right to accept
such offer for a period of ninety (90) days after the later of (i) the date of
the purported Transfer, change in capital structure of the Corporation or
purported change in Beneficial Ownership which resulted in such Excess Stock and
(ii) the date on which the Board of Directors determines in good faith that a
Transfer, change in capital structure of the Corporation or purported change in
Beneficial Ownership resulting in Excess Stock has occurred, if the Corporation
does not receive a notice pursuant to paragraph E of Section 3 of this Article
VII, but in no event later than a permitted Transfer pursuant to and in
compliance with the terms of paragraph E of this Section 4.
G. REMEDIES NOT LIMITED. Nothing contained in this Article VII except
Section 5 hereof shall limit scope or application of the provisions of this
Section 4, the ability of the Corporation to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Corporation and the interests of its stockholders by preservation of the
Corporation's status as a REIT and to ensure compliance with the Ownership
Limit, including, without limitation, refusal to give effect to a transaction on
the books of the Corporation.
SECTION 5. SETTLEMENTS.
Nothing in Sections 3 and 4 of this Article VII shall preclude the
settlement of any transaction with respect to the Capital Stock entered into
through the facilities of the New York Stock Exchange or other national
securities exchange on which the Capital Stock is listed.
SECTION 6. SEVERABILITY.
If any provision of this Article VII or any application of any such
provision is determined to be void, invalid or unenforceable by any court having
jurisdiction over the issue, the validity and enforceability of the remainder of
this Article VII shall not be affected and other applications of such provision
shall be affected only to the extent necessary to comply with the determination
of such court.
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<PAGE> 31
PROXY
COMMERCIAL NET LEASE REALTY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints James M. Seneff, Jr. and Kevin B. Habicht, and
any of them, attorneys and proxies, with full power of substitution and
revocation, to vote, as designated below, all shares of Common Stock that the
undersigned is entitled to vote, with all powers that the undersigned would
possess if personally present at the annual meeting (including all adjournments
thereof) of stockholders of Commercial Net Lease Realty, Inc. (the "Meeting") to
be held on June 5, 1998, at 9:00 a.m. local time, at 450 E. South Street,
Orlando, Florida.
I. PROPOSAL I. To elect five Directors to serve until the next annual meeting
of stockholders or until their successors shall have been elected or
qualified.
[ ] GRANT AUTHORITY to vote for all nominees listed below (except as marked to
the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Robert A. Bourne, Edward Clark, Clifford R. Hinkle, Ted B. Lanier, James M.
Seneff, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, LINE
THROUGH OR STRIKE OUT ANY NOMINEE LISTED ABOVE.
II. PROPOSAL II. Approval and adoption of an Amendment to Article VII of the
Articles of Incorporation of Commercial Net Lease Realty, Inc. to (i)
authorize the issuance of fifteen million (15,000,000) shares of Preferred
Stock, $0.01 par value, in accordance with the terms described in the Proxy
Statement and Appendix A attached thereto, and (ii) to increase the number
of authorized shares of Excess Stock, $0.01 par value, from ninety million
(90,000,000) shares to one hundred and five million (105,000,000) shares.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL II
(continued and to be signed on reverse)
<PAGE> 32
(continued from reverse side)
The shares represented by this Proxy when
properly executed will be voted in the manner
directed herein by the undersigned
stockholder. If no direction is given, the
shares represented by this Proxy will be
voted FOR Proposals I and II. In addition,
the proxies may vote in their discretion on
such other matters as may properly come
before the Meeting.
THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF THE PROXY STATEMENT OF
COMMERCIAL NET LEASE REALTY, INC.
-----------------------------------
Signature(s)
-----------------------------------
Title/Authority
Dated , 1998
NOTE: Please sign as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee,
custodian, guardian or corporate
officer, please give your full
title as such. If a corporation,
please sign in full corporate name
by authorized officer. If a
partnership, please sign in
partnership name by authorized
person. The proxies are authorized
in their discretion, to vote such
shares upon any other business that
may properly come before the
Meeting and all adjournments and
postponements thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
