UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15666
CNL INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2666264
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 26, 1985. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on April 16, 1986, the
Partnership offered for sale up to $15,000,000 in limited partnership interests
(the "Units") (30,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on December 31, 1986, as of which date the maximum offering
proceeds of $15,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$13,284,970, and were used to acquire 20 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer. During the year ended December 31, 1996, the Partnership sold a
small, undeveloped portion of land relating to its Property in Mesquite, Texas.
This sale of land had no bearing on the operations of the Property or the
restaurant business. During the year ended December 31, 1997, the Partnership
sold its Property in Casa Grande, Arizona to a third party. In addition, during
1997, Seventh Avenue Joint Venture, in which the Partnership owns a 50 percent
interest, sold its Property to the tenant and the Partnership received a return
of capital from the net sales proceeds. The Partnership reinvested the majority
of the net sales proceeds from the sale of the Property in Casa Grande, Arizona,
and the return of capital received from Seventh Avenue Joint Venture in a
Property in Camp Hill, Pennsylvania, and in a Property in Vancouver, Washington,
as tenants-in-common , with affiliates of the General Partners. As a result of
the above transactions, the Partnership currently owns 18 Properties, including
interests in two Properties owned by joint ventures in which the Partnership is
a co-venturer and one Property owned with affiliates as tenants-in-common.
Generally, the Properties are leased on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to repurchase Properties, generally at
the Property's then fair market value after a specified portion of the lease
term has elapsed. In general, the General Partners plan to seek the sale of the
remaining Properties commencing seven to 15 years after their acquisition. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from five to 20 years (the average being 16 years), and
expire between 1999 and 2017. Generally, the leases are on a triple-net basis,
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $16,000 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
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Generally, the leases of the Properties provide for two or three
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original cost of the Property, after a specified portion of the
lease term has elapsed. Additionally, certain leases provide the lessees the
option to purchase up to a 49 percent joint venture interest in the Property,
after a specified portion of the lease term has elapsed, at an option purchase
price similar to those described above multiplied by the percentage interest in
the Property with respect to which the option is being exercised.
The leases also provide that, in the event the Partnership wishes to
sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
In January 1997, the Partnership entered into a lease amendment with
the tenant of the Property in Oklahoma City, Oklahoma, to provide for reduced
annual rents and to provide for a change in the percentage rent calculation. The
Partnership does not anticipate that these reduced rents will have a material
effect on operations.
In 1997, the Partnership reinvested the majority of the net sales
proceeds from the sale of the Property in Casa Grande, Arizona, and the return
of capital received from the sale of the Property owned and leased by Seventh
Avenue Joint Venture, in a Property located in Camp Hill, Pennsylvania, and in a
Property located in Vancouver, Washington, with affiliates of the General
Partners as tenants-in-common, as described below in "Joint Venture
Arrangements." The lease terms for these Properties are substantially the same
as the Partnership's other leases, as described above in the first three
paragraphs of this section.
Major Tenants
During 1997, three lessees of the Partnership, Golden Corral
Corporation, Wendy's International, Inc. and Restaurant Management Services,
Inc., each contributed more than ten percent of the Partnership's total rental
income (including the Partnership's share of the rental income from two
Properties owned by joint ventures and a Property owned with affiliates as
tenants-in-common). As of December 31, 1997, Golden Corral Corporation was the
lessee under leases relating to five restaurants, Wendy's International, Inc.
was the lessee under leases relating to one restaurant and Restaurant Management
Services, Inc. was the lessee under leases relating to two restaurants. It is
anticipated that Golden Corral Corporation and Restaurant Management Services,
Inc. each will continue to contribute ten percent or more of the Partnership's
total rental income in 1998 and subsequent years. In addition, three Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Wendy's
Old Fashioned Hamburger Restaurants ("Wendy's") and Popeyes Famous Fried Chicken
("Popeyes"), each accounted for more than ten percent of the Partnership's total
rental income in 1997 (including the Partnership's share of the rental income
from three Properties owned by joint ventures and a Property owned with
affiliates as tenants-in-common). In subsequent years, it is anticipated that
these three Restaurant Chains each will continue to account for more than ten
percent of the total rental income to which the Partnership is entitled under
the terms of its leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income.
Joint Venture Arrangements
The Partnership had entered into three separate joint venture
arrangements, Sand Lake Road Joint Venture, Orange Avenue Joint Venture and
Seventh Avenue Joint Venture, with various unaffiliated entities to purchase and
hold three of the Properties through such joint ventures. During 1997, Seventh
Avenue Joint Venture was liquidated upon the sale of the Property held by the
joint venture and the distribution of the net sales proceeds to each joint
venture partner in accordance with the terms of the joint venture agreement. The
joint venture arrangements for Sand Lake Road Joint Venture and Orange Avenue
Joint Venture provide for the Partnership and its joint venture partner to share
equally in all costs and benefits associated with the joint venture. The
Partnership and its joint venture partners are jointly and severally liable for
all debts, obligations and other liabilities of the joint venture.
Each joint venture has an initial term of 20 years, and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property
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<PAGE>
owned by the joint venture and mutual agreement of the Partnership and its joint
venture partner to dissolve the joint venture.
The Partnership has management control of each joint venture in which
it participates. The joint venture agreements restrict each venturer's ability
to sell, transfer or assign its joint venture interest without first offering it
for sale to the joint venture partner, either upon such terms and conditions as
to which the venturers may agree or, in the event the venturers cannot agree, on
the same terms and conditions as any offer from a third party to purchase such
joint venture interest.
Net cash flow from operations of each joint venture is distributed 50
percent to each joint venture partner. Any liquidation proceeds, after paying
joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each partner's percentage
interest in the joint venture.
In addition to the above joint venture agreements, in December 1997,
the Partnership entered into an agreement to hold a Property in Vancouver,
Washington, as tenants-in-common with affiliates of the General Partners. The
agreement provides for the Partnership and the affiliates to share in the
profits and losses of the Property in proportion to each co-venturer's
percentage interest. The Partnership owns a 12.17% interest in this Property.
Property Management
CNL Income Fund Advisor, Inc., an affiliate of the General Partners,
acted as manager of the Partnership's Properties pursuant to a property
management agreement with the Partnership through September 30, 1995. Under this
agreement, CNL Income Fund Advisors, Inc. was responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. CNL Income Fund Advisors, Inc. also assisted the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
CNL Income Fund Advisors, Inc. an annual fee of one-half of one percent of
Partnership assets (valued at cost) under management, not to exceed the lesser
of one percent of gross rental revenues or competitive fees for comparable
services. Under the property management agreement, the property management fee
is subordinated to receipt by the Limited Partners of an aggregate, ten percent,
noncumulative, noncompounded annual return on their adjusted capital
contributions (the "10% Preferred Return"), calculated in accordance with the
Partnership's limited partnership agreement (the "Partnership Agreement"). In
any year in which the Limited Partners do not receive a 10% Preferred Return, no
property management fee will be paid.
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the property management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
property management agreement, including the payment of fees, as described
above, remain unchanged.
The property management agreement continues until the Partnership no
longer owns an interest in any Properties unless terminated at an earlier date
upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
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Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned, either directly or
through joint venture arrangements, 18 Properties, located in 11 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 16,000
to 95,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,900 to 7,400 square feet. All buildings on Properties acquired by the
Partnership are freestanding and surrounded by paved parking areas. Buildings
are suitable for conversion to various uses, although modifications may be
required prior to use for other than restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business Major
Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 14 years (expiring 2001) and the average minimum
base annual rent is approximately $90,500 (ranging from approximately $77,600 to
$109,300).
Wendy's International, Inc. leases one Wendy's restaurant. The initial
term of the lease is 17 years (expiring in 2006) and the minimum base annual
rent is approximately $82,100.
In addition, Restaurant Management Services, Inc. leases two Popeyes
restaurants. The initial term of one lease is 15 years (expiring 2001) and the
term of the other lease is 17 years (expiring 2003) and the average minimum base
annual rent is approximately $62,100 (ranging from $59,400 to $64,900).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 13, 1998, there were 1,070 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. As of January 1, 1995,
due primarily to the Partnership's sale of its Property in Fairfield,
California, the price paid for any Unit transferred pursuant to the Plan has
been $422 per Unit. The price to be paid for any Unit transferred other than
pursuant to the Plan is subject to negotiation by the purchaser and the selling
Limited Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
------------------------------- ---------------------
<S> <C>
High Low Average High Low Average
First Quarter (2) (2) (2) $422 $422 $422
Second Quarter $422 $380 $401 422 422 422
Third Quarter 422 422 422 500 500 500
Fourth Quarter 444 410 427 469 377 422
</TABLE>
(1) A total of 449 and 255 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1997 and 1996, respectively.
(2) No transfer of Units took place during the quarter other than pursuant to
the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 1997 and 1996, the Partnership
declared cash distributions of $1,264,884 to the Limited Partners. Distributions
of $316,221 were declared at the close of each of the Partnership's calendar
quarters during 1997 and 1996 to the Limited Partners. As a result of returns of
capital in prior years, the amount of the Limited Partners' adjusted capital
contributions (which generally is the Limited Partners' capital contributions,
less distributions from the sale of Properties that are considered to be a
return of capital) was decreased; therefore, the amount of the Limited Partners'
adjusted capital contributions on which the 10% Preferred Return is calculated
was lowered to $13,314,525 as of December 31, 1994. No amounts distributed to
partners for the years ended December 31, 1997 and 1996, are required to be or
have been treated by the Partnership as a return
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of capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. No distributions have been made to the General
Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ---------- ---------- ----------- ----------
<S> <C>
Year ended December 31:
Revenues (1) $ 1,333,000 $ 1,389,308 $ 1,290,567 $ 1,358,871 $ 1,412,327
Net income (2) 1,248,757 1,083,109 962,102 1,208,576 1,039,545
Cash distributions
declared (3) 1,264,884 1,264,884 1,264,883 2,279,123 1,417,622
Net income per Unit (2) 41.24 35.75 31.75 39.91 34.31
Cash distributions declared
per Unit (3) 42.16 42.16 42.16 75.97 47.25
At December 31:
Total assets $ 9,500,078 $ 9,479,777 $ 9,668,878 $10,857,414 $10,930,600
Partners' capital 9,029,050 9,045,177 9,226,952 9,529,733 10,480,280
</TABLE>
(1) Revenues include equity in earnings of joint ventures. Equity in
earnings includes $295,080 from gain on sale of land and building by
Seventh Avenue Joint Venture.
(2) Net income for the years ended December 31, 1997, 1996 and 1994,
includes $233,183, $19,000 and $182,384, respectively, from gains on
sale of land and buildings.
(3) Distributions for the year ended December 31, 1994, include $861,500 as
a result of the distribution of a portion of the net sales proceeds
from the sale of a Property.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 26, 1985, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1997, the Partnership owned 18 Properties, either directly or indirectly
through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $1,316,816, $1,132,688
and $1,182,514 for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in cash from operations during 1997, as compared to
1996, and the decrease during 1996, as compared to 1995, is primarily a result
of changes in the Partnership's working capital during each of the respective
years. Cash from operations during the years ended December 31, 1997, 1996 and
1995, was also affected by the following.
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In August 1996, the Partnership entered into a lease amendment with the
tenant of the Property in Mesquite, Texas, to provide for lower initial base
rent with scheduled rent increases retroactively effective March 1996. In
anticipation of entering into this lease amendment, the Partnership accepted a
promissory note in March 1996, in the amount of $156,308, for past due rental
and other amounts, and real estate taxes previously paid by the Partnership on
behalf of the tenant. Payments were due in 60 monthly installments of $3,492,
including interest at a rate of 11 percent per annum, and collections commenced
on June 1, 1996. Receivables at December 31, 1996, included $150,787 of such
amounts, including accrued interest of $5,657 and late fees of $1,222. During
1997, the Partnership collected the full amount of the promissory note.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
In June 1996, the Partnership sold a small, undeveloped portion of the
land relating to its Property in Mesquite, Texas. In connection therewith, the
Partnership received net sales proceeds of $20,000 and recognized a gain for
financial reporting purposes of $19,000. Proceeds from the sale were used for
operating activities of the Partnership.
During 1996 and 1997, the Partnership entered into various promissory
notes with the corporate General Partner for loans totalling $83,100 and
$133,000, respectively, in connection with the operations of the Partnership.
The loans were uncollateralized, non-interest bearing and due on demand. As of
December 31, 1997, the Partnership had repaid the loans in full to the corporate
General Partner.
In August 1997, the Partnership sold its Property in Casa Grande,
Arizona, to a third party for $840,000 and received net sales proceeds (net of
$2,691 which represents prorated rent returned to the tenant) of $793,009,
resulting in a gain of $233,183 for financial reporting purposes. This Property
was originally acquired by the Partnership in December 1986 and had a cost of
approximately $667,300, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$128,400 in excess of its original purchase price. In October 1997, the
Partnership reinvested the majority of the net sales proceeds in a Property in
Camp Hill, Pennsylvania, as described below. As of December 31, 1997, the
remaining net sales proceeds of $126,009, plus accrued interest of $3,248, were
being held in an interest-bearing escrow account. The Partnership intends to use
the remaining net sales proceeds to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners. The General Partners
believe that the transaction, or a portion thereof, relating to the sale of the
Property in Casa Grande, Arizona, and the reinvestment of the majority of the
net sales proceeds in a Property in Camp Hill, Pennsylvania, will be structured
to qualify as a like-kind exchange transaction for federal income tax purposes.
However, the Partnership will distribute amounts sufficient to enable the
Limited Partners to pay federal and state income taxes, if any, (at a level
reasonably assumed by the General Partners) resulting from the sale.
In addition, in August 1997, Seventh Avenue Joint Venture, in which the
Partnership owned a 50 percent interest, sold its Property to its tenant for
$950,000 and received net sales proceeds (net of $2,678 which represents
prorated rent returned to the tenant) of $944,747, resulting in a gain to the
joint venture of approximately $295,100 for financial reporting purposes. The
Property was originally acquired by Seventh Avenue Joint Venture in June 1986
and had a total cost of approximately $770,000, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the joint venture sold the
Property for approximately $177,400 in excess of its original purchase price.
During 1997, as a result of the sale of the Property, the joint venture was
dissolved in accordance with the joint venture agreement. As a result, the
Partnership received approximately $472,400, representing its pro-rata share of
the net sales proceeds received by the joint venture. In October 1997, the
Partnership reinvested a portion of the return of capital in a Ground Round
Property in Camp Hill, Pennsylvania, as described below. In December 1997, the
Partnership reinvested the remaining return of capital in a Property located in
Vancouver, Washington, as tenants-in-common with affiliates of the General
Partners. The Partnership anticipates that it will distribute amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any (at
a level reasonably assumed by the General Partners), resulting from the sale.
None of the Properties owned by the Partnership or any joint venture in
which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowings from the General Partners, however, the
Partnership may borrow, in the discretion of the General Partners, for the
purpose of maintaining the operations
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of the Partnership. The Partnership will not encumber any of the Properties in
connection with any borrowings or advances. The Partnership will not borrow for
the purpose of returning capital to the Limited Partners. The Partnership also
will not borrow under circumstances which would make the Limited Partners liable
to creditors of the Partnership. Affiliates of the General Partners from time to
time incur certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1997, the Partnership had
$184,130 invested in such short-term investments as compared to $159,379 at
December 31, 1996. The funds remaining at December 31, 1997, will be used for
the payment of distributions and other liabilities.
During 1997, 1996 and 1995, affiliates of the General Partners incurred
on behalf of the Partnership $33,962, $40,510 and $50,300, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed $48,991 and $28,262, respectively, to affiliates for such amounts and
accounting and administrative services. In addition, as of December 31, 1997 and
1996, the Partnership also owed affiliates $66,750 in real estate disposition
fees due as a result of services rendered in connection with the sale of two
Properties in previous years. The payment of such fees is deferred until the
Limited Partners have received the sum of their cumulative 10% Preferred Return
and their adjusted capital contributions.
Amounts payable to other parties, including distributions payable,
increased to $319,550 at December 31, 1997, from $318,877 at December 31, 1996.
Liabilities at December 31, 1997, to the extent they exceed cash and cash
equivalents at December 31, 1997, will be paid from future cash from operations,
proceeds from the sale of Properties as described above, or, in the event the
General Partners elect to make additional contributions or loans to the
Partnership, from future General Partner contributions or loans.
Based primarily on current and anticipated future cash from operations,
proceeds from the sale of Properties as described above, and to a lesser extent
additional loans received from the General Partners, the Partnership declared
distributions to Limited Partners of $1,264,884 for each of the years ended
December 31, 1997 and 1996, and $1,264,883 for the year ended December 31, 1995.
This represents distributions of $42.16 per Unit for each of the years ended
December 31, 1997, 1996, and 1995. No amounts distributed to the Limited
Partners for the years ended December 31, 1997, 1996 and 1995, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
8
<PAGE>
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership, in which event such contributions will be
returned to the General Partners from distributions of net sales proceeds at the
same time that their initial capital contributions of $1,000 are returned.
Results of Operations
During the years ended December 31, 1995 and 1996, the Partnership
owned and leased 15 wholly owned Properties and during the year ended December
31, 1997, the Partnership owned and leased 16 wholly owned Properties (including
one Property in Casa Grande, Arizona, which was sold in August 1997). During the
years ended December 31, 1997, 1996 and 1995, the Partnership was also a
co-venturer in three separate joint ventures that each owned and leased one
Property (including one Property owned and leased by Seventh Avenue Joint
Venture, which was sold in August 1997). In addition, during 1997, the
Partnership owned and leased one Property, with an affiliate of the General
Partners, as tenants-in-common. As of December 31, 1997, the Partnership owned,
either directly or through joint venture arrangements, 18 Properties which are,
in general, subject to long-term, triple net leases. The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $16,000 to $222,800. Generally, the
leases provide for percentage rent based on sales in excess of a specified
amount. In addition, certain leases provide for increases in the annual base
rent during the lease terms. For further description of the Partnership's leases
and Properties, see Item 1. Business -
Leases and Item 2. Properties, respectively.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $1,038,443, $1,115,530 and $1,129,406, respectively, in base
rental income from the Partnership's wholly owned Properties described above.
The decrease in rental income during the years ended December 31, 1997 and 1996,
each as compared to the previous year, is partially attributable to a decrease
of approximately $5,800 and $66,000, respectively, due to the fact that
effective February 1, 1996, the Partnership ceased receiving rental amounts from
the former tenant of three Properties. The rental payments from this former
tenant represented the difference between (i) the payments due under the
original leases entered into between the Partnership and the former tenant and
(ii) the payments due under the current leases on the Properties between the
Partnership and the new tenants (two of which were re-leased to the corporate
franchisor). In August 1997, the Partnership sold one of the three Properties, a
Property in Casa Grande, Arizona, and as a result of the sale, rental income
decreased by approximately $27,700 during 1997. The decrease in rental income
during 1997 was partially offset by an increase in rental income of
approximately $17,700 resulting from the Partnership reinvesting the majority of
these net sales proceeds in a Property in Camp Hill, Pennsylvania, in October
1997.
In addition, the decrease in rental income during 1996, as compared to
1995, is partially attributable to a decrease of approximately $7,000 during
1996, due to the fact that during 1996, the Partnership wrote off as
uncollectible rental income amounts relating to the Property in Oklahoma City,
Oklahoma. Effective January 1, 1997, the Partnership entered into a lease
amendment with the tenant of this Property to provide for lower base rental
income. The Partnership does not anticipate that these reduced rents will have a
material adverse effect on operating results.
The decrease in rental income during 1997, as compared to 1996, is also
partially attributable to, and the decrease during 1996, as compared to 1995, is
partially offset by, the fact that during 1996, the Partnership recognized as
income approximately $62,000 due under the promissory note with the tenant of
the Property in Mesquite, Texas, for which the Partnership had previously
established an allowance for doubtful accounts as the result of collection being
doubtful, as described above in "Liquidity and Capital Resources."
During the years ended December 31, 1997, 1996 and 1995, the
Partnership also earned $22,205, $56,409 and $35,176, respectively, in
contingent rental income. The decrease in contingent rental income during 1997,
as compared to 1996, and the increase during 1996, as compared to 1995, is
attributable to the fact that during 1996, the Partnership recognized
approximately $27,800 in contingent rental income due under the promissory note
with the tenant of the Property in Mesquite, Texas, for which the Partnership
had previously established an allowance for doubtful accounts as the result of
collection being doubtful, as described above in "Liquidity and Capital
Resources."
9
<PAGE>
During the years ended December 31, 1997, 1996 and 1995, the
Partnership also earned $22,210, $101,293 and $13,011, respectively, in interest
and other income. The decrease in interest and other income during 1997, as
compared to 1996, and the increase during 1996, as compared to 1995, is
primarily attributable to the fact that during 1996, the Partnership recognized
approximately $82,600 in interest and other income due under the promissory note
with the tenant of the Property in Mesquite, Texas, for which the Partnership
had previously established an allowance for doubtful accounts due to collection
being doubtful, as described above in "Liquidity and Capital Resources."
In addition, during the years ended December 31, 1997, 1996 and 1995,
the Partnership earned $250,142, $116,076 and $112,974, respectively,
attributable to net income earned by the three joint ventures in which the
Partnership is a co-venturer (including one Property owned and leased by Seventh
Avenue Joint Venture, which was sold in August 1997). The increase in net income
earned by joint ventures is primarily attributable to the fact that in August
1997, Seventh Avenue Joint Venture, in which the Partnership owns a 50 percent
interest, recognized a gain of approximately $295,100 for financial reporting
purposes, as a result of the sale of its Property, as described above in
"Liquidity and Capital Resources." The increase in net income earned by joint
ventures during 1997, was partially offset by a decrease of $31,300 in base
rental income earned by the joint venture due to the sale of the Property in
August 1997.
During at least one of the years ended December 31, 1997, 1996 and
1995, three of the Partnership's lessees, Golden Corral Corporation, Wendy's
International, Inc. and Restaurant Management Services, Inc., each contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of the rental income from three Properties owned by joint
ventures and one Property owned with an affiliate as tenants-in-common). As of
December 31, 1997, Golden Corral Corporation was the lessee under leases
relating to five restaurants, Wendy's International, Inc. was the lessee under
leases relating to one restaurant and Restaurant Management Services, Inc. was
the lessee under leases relating to two restaurants. It is anticipated that
Golden Corral Corporation and Restaurant Management Services, Inc. each will
continue to contribute ten percent or more of the Partnership's total rental
income during 1998 and subsequent years. In addition, during at least one of the
years ended December 31, 1997, 1996 or 1995, three Restaurant Chains, Golden
Corral, Wendy's and Popeyes, each accounted for more than ten percent of the
Partnership's total rental income in 1997 (including the Partnership's share of
the rental income from three Properties owned by joint ventures and one Property
owned with an affiliate as tenants-in-common). In subsequent years, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $317,426, $325,199 and $328,465 for the years ended December 31, 1997, 1996
and 1995, respectively. The decrease in operating expenses during 1997, as
compared to 1996, is primarily attributable to a decrease in accounting and
administrative expenses associated with operating the Partnership and its
Properties.
As a result of the sale of the Property in Casa Grande, Arizona, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $233,183 during 1997, for financial reporting purposes. In 1996, the
Partnership sold a portion of land related to the Property in Mesquite, Texas,
as described above in "Liquidity and Capital Resources," and recognized a gain
of $19,000 for financial reporting purposes. No Properties were sold during the
year ended December 31, 1995.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor their current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income (for certain Properties) over time. Continued
inflation also may cause capital appreciation of the Partnership's Properties.
Inflation and
10
<PAGE>
changing prices, however, also may have an adverse impact on the sales of the
restaurants and on potential capital appreciation of the Properties.
Item 8. Financial Statements and Supplementary Data
11
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Income 15
Statements of Partners' Capital 16
Statements of Cash Flows 17
Notes to Financial Statements 19
12
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund, Ltd.
We have audited the financial statements and the financial statement schedules
of CNL Income Fund, Ltd. (a Florida limited partnership) listed in Item 14(a) of
this Form 10-K. These financial statements and financial statement schedules are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand, L.L.P.
- -----------------------------------
Orlando, Florida
February 1, 1998
13
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------ ---------- -------
Land and buildings on operating leases,
less accumulated depreciation $8,185,465 $8,091,154
Investment in and due from joint
ventures 919,476 990,307
Cash and cash equivalents 184,130 159,379
Restricted cash 129,257 -
Receivables, less allowance for
doubtful accounts $3,092 and
of $1,413 21,331 180,248
Prepaid expenses 4,989 4,465
Lease costs, less accumulated
amortization of $21,875 and
$19,375 28,125 30,625
Accrued rental income 27,305 23,599
---------- ----------
$9,500,078 $9,479,777
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,595 $ 2,131
Escrowed real estate taxes payable 734 525
Distributions payable 316,221 316,221
Due to related parties 115,741 95,012
Rents paid in advance and deposits 35,737 20,711
---------- ----------
Total liabilities 471,028 434,600
Partners' capital 9,029,050 9,045,177
---------- ----------
$9,500,078 $9,479,777
========== ==========
See accompanying notes to financial statements.
14
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $1,038,443 $1,115,530 $1,129,406
Contingent rental income 22,205 56,409 35,176
Interest and other income 22,210 101,293 13,011
---------- ---------- ----------
1,082,858 1,273,232 1,177,593
---------- ---------- ----------
Expenses:
General operating and
administrative 86,780 92,462 84,700
Professional services 12,772 13,262 14,465
Real estate taxes 3,929 4,009 13,746
State and other taxes 5,138 5,260 5,357
Depreciation and
amortization 208,807 210,206 210,197
---------- ---------- ----------
317,426 325,199 328,465
---------- ---------- ----------
Income Before Equity in
Earnings of Joint Ventures
and Gain on Sale of Land
and Building 765,432 948,033 849,128
Equity in Earnings of Joint
Ventures 250,142 116,076 112,974
Gain on Sale of Land and
Building 233,183 19,000 -
---------- ---------- ---------
Net Income $1,248,757 $1,083,109 $ 962,102
========== ========== ==========
Allocation of Net Income:
General partners $ 11,577 $ 10,641 $ 9,621
Limited partners 1,237,180 1,072,468 952,481
---------- ---------- ----------
$1,248,757 $1,083,109 $ 962,102
========== ========== ==========
Net Income Per Limited
Partner Unit $ 41.24 $ 35.75 $ 31.75
========== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 30,000 30,000 30,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- --------
<S> <C>
Balance, December 31, 1994 $193,400 $ 96,520 $13,314,525 $(12,164,195) $ 9,752,623 $(1,663,140) $ 9,529,733
Distributions to limited
partners ($42.16 per
limited partner unit) - - - (1,264,883) - - (1,264,883)
Net income - 9,621 - - 952,481 - 962,102
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 193,400 106,141 13,314,525 (13,429,078) 10,705,104 (1,663,140) 9,226,952
Distributions to limited
partners ($42.16 per
limited partner unit) - - - (1,264,884) - - (1,264,884)
Net income - 10,641 - - 1,072,468 - 1,083,109
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 193,400 116,782 13,314,525 (14,693,962) 11,777,572 (1,663,140) 9,045,177
Distributions to limited
partners ($42.16 per
limited partner unit) - - - (1,264,884) - - (1,264,884)
Net income - 11,577 - - 1,237,180 - 1,248,757
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 $193,400 $128,359 $13,314,525 $(15,958,846) $13,014,752 $(1,663,140) $ 9,029,050
======== ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- --------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 1,227,883 $ 1,096,290 $ 1,152,159
Distributions from joint
ventures 152,019 133,296 129,006
Cash paid for expenses (84,642) (106,546) (110,488)
Interest received 21,556 9,648 11,837
----------- ----------- -----------
Net cash provided by
operating activities 1,316,816 1,132,688 1,182,514
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and building 793,009 20,000 -
Additions to land and
building (863,135) - -
Return of capital from
joint venture 472,373 - -
Investment in joint
venture (303,419) - -
Increase in restricted
cash (126,009) - -
----------- ----------- ----------
Net cash provided by
(used in) investing
activities (27,181) 20,000 -
----------- ----------- ----------
Cash Flows from Financing
Activities:
Proceeds from loan from
corporate general partner 133,000 83,100 -
Repayment of loan from
corporate general partner (133,000) (83,100) -
Contributions from general
partner - - -
Distributions to limited
partners (1,264,884) (1,264,884) (2,164,568)
----------- ----------- -----------
Net cash used in
financing activities (1,264,884) (1,264,884) (2,164,568)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 24,751 (112,196) (982,054)
Cash and Cash Equivalents at
Beginning of Year 159,379 271,575 1,253,629
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $ 184,130 $ 159,379 $ 271,575
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- --------
<S> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating
Activities:
Net income $ 1,248,757 $ 1,083,109 $ 962,102
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 206,307 207,706 207,697
Amortization 2,500 2,500 2,500
Equity in earnings of
joint ventures, net of
distributions (98,123) 17,220 16,032
Gain on sale of land and
building (233,183) (19,000) -
Decrease (increase) in
receivables 158,360 (151,105) (16,414)
Increase in prepaid
expenses (524) (650) (1,252)
Decrease (increase) in
accrued rental income (3,706) 1,234 (2,081)
Increase (decrease) in
accounts payable and
accrued expenses 673 (11,712) 458
Increase in due to related
parties 20,729 19,873 8,389
Increase (decrease) in
rents paid in advance
and deposits 15,026 (16,487) 5,083
----------- ----------- -----------
Total adjustments 68,059 49,579 220,412
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 1,316,816 $ 1,132,688 $ 1,182,514
=========== =========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and
unpaid at December 31 $ 316,221 $ 316,221 $ 316,221
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corpor- ation
(the "Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to- day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are generally leased to unrelated
third parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. The
leases are accounted for using the operating method. Under the
operating method, land and building leases are recorded at cost,
revenue is recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30 years.
When scheduled rentals vary during the lease term, income is recognized
on a straight-line basis so as to produce a constant periodic rent over
the lease term commencing on the date the property is placed in
service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, will be removed from the
accounts and gains or losses from sales will be reflected in income.
The general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of
19
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
the assets may not be recoverable through operations. The general
partners determine whether an impairment in value has occurred by
comparing the estimated future undiscounted cash flows, including the
residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and the allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Sand
Lake Road Joint Venture, Orange Avenue Joint Venture, Seventh Avenue
Joint Venture, and a property in Vancouver, Washington, held as
tenants-in-common with affiliates, are accounted for using the equity
method since the Partnership shares control with affiliates which have
the same general partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
20
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Lease Costs - Lease incentive costs and brokerage and legal fees
associated with negotiating new leases are amortized over the terms of
the new leases using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases have been classified as
operating leases. Substantially all leases are for 15 to 20 years and
provide for minimum and contingent rentals. In addition, the tenant
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two or
three successive five-year periods subject to the same terms and
conditions as the initial lease. Most leases also allow the tenant to
purchase the property at fair market value after a specified portion of
the lease has elapsed.
21
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1997 1996
----------- -----------
Land $ 3,999,700 $ 3,973,607
Buildings 6,358,678 6,226,321
----------- -----------
10,358,378 10,199,928
Less accumulated
depreciation (2,172,913) (2,108,774)
----------- -----------
$ 8,185,465 $ 8,091,154
=========== ===========
In June 1996, the Partnership sold a small, undeveloped portion of the
land relating to its property in Mesquite, Texas. In connection
therewith, the Partnership received net sales proceeds of $20,000, and
recognized a gain for financial reporting purposes, of $19,000.
In August 1997, the Partnership sold its property in Casa Grande,
Arizona, to a third party for $840,000 and received net sales proceeds
(net of $2,691 which represents prorated rent returned to the tenant)
of $793,009, resulting in a gain of $233,183 for financial reporting
purposes. This property was originally acquired by the Partnership in
December 1986 and had a cost of approximately $667,300, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $128,400 in excess of
its original purchase price. In October 1997, the Partnership
reinvested the majority of the net sales proceeds in a property located
in Camp Hill, Pennsylvania.
Certain leases provide for escalating guaranteed minimum rents
throughout the lease terms. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 1997 and 1995, the Partnership
recognized $3,706 and $2,081, respectively, of such income. For the
year ended December 31, 1996, rental payments received exceeded the
rental income recognized on a straight-line basis by $1,234.
22
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1997:
1998 $ 936,961
1999 911,652
2000 911,305
2001 887,428
2002 481,464
Thereafter 3,394,672
----------
$7,523,482
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Investment in and Due from Joint Ventures:
In August 1997, Seventh Avenue Joint Venture, in which the Partnership
owned a 50 percent interest, sold its property to its tenant for
$950,000, and received net sales proceeds (net of $2,678 which
represents prorated rent returned to the tenant) of $944,747, resulting
in a gain to the joint venture of approximately $295,100 for financial
reporting purposes. The property was originally acquired by Seventh
Avenue Joint Venture in June 1986 and had a total cost of approximately
$770,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the joint venture sold the property for
approximately $177,400 in excess of its original purchase price. During
1997, as a result of the sale of the property, the joint venture was
dissolved in accordance with the joint venture agreement. As a result,
the Partnership received approximately $472,400, representing its
pro-rata share of the net sales proceeds received by the joint venture.
In December 1997, the Partnership acquired a property in Vancouver,
Washington, as tenants-in-common with affiliates of the general
partners. The Partnership accounts for its investment in this property
using the equity method since the Partnership shares control with an
affiliate, and amounts relating to its investment are included in
investment in joint ventures. As of December 31, 1997, the Partnership
owned a 12.17% interest in this property.
23
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Investment in and Due from Joint Ventures - Continued:
As of December 31, 1997, the Partnership had a 50 percent interest in
the profits and losses of Orange Avenue Joint Venture and Sand Lake
Road Joint Venture, and owned a 12.17% interest in a property in
Vancouver, Washington, as tenants-in-common. These joint ventures, and
the Partnership and affiliates, as tenants-in-common, each own and
lease one property to an operator of national fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures and the property held as
tenants-in-common with affiliates at December 31:
1997 1996
---------- ----------
Land and buildings on
operating leases,
less accumulated
depreciation $3,338,774 $1,750,065
Cash 1,636 11,934
Receivables - 18,456
Accrued rental income - 16,620
Liabilities 1,677 30,232
Partners' capital 3,338,733 1,766,843
Revenues 246,236 277,652
Gain on sale of land
and building 295,080 -
Net income 500,285 232,152
The Partnership recognized income totalling $250,142, $116,076 and
$112,974 for the years ended December 31, 1997, 1996 and 1995,
respectively, from these joint ventures.
The investment in and due from joint ventures included $27,682 at
December 31, 1996, which was due from Seventh Avenue Joint Venture as a
result of an underpayment of distributions to the Partnership.
24
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
5. Restricted Cash:
As of December 31, 1997, the remaining net sales proceeds of $126,009
from the sale of the property in Casa Grande, Arizona, plus accrued
interest of $3,248, were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional property.
6. Receivables:
In March 1996, the Partnership accepted a promissory note from the
tenant of the property in Mesquite, Texas, in the amount of $156,308,
for past due rental and other amounts, and real estate taxes previously
paid by the Partnership on behalf of the tenant. Payments were due in
60 monthly installments of $3,492, including interest at a rate of 11
percent per annum, and collections commenced on June 1, 1996.
Receivables at December 31, 1996, included $150,787 of such amounts,
including accrued interest of $5,657 and late fees of $1,222. In
January 1997, the Partnership collected the full amount of the
promissory note.
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, noncumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners will then receive, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to
25
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
7. Allocations and Distributions - Continued:
the limited partners and five percent to the general partners. Any gain
from the sale of a property is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
During each of the years ended December 31, 1997 and 1996, the
Partnership declared distributions to the limited partners of
$1,264,884, and during the year ended December 31, 1995, the
Partnership declared distributions to the limited partners of
$1,264,883. Distributions for the year ended December 31, 1994,
included $861,500 as a result of the distribution of net sales proceeds
from the sale of the property in Fairfield, California, which were
treated as a return of capital for purposes of calculating the limited
partners' cumulative 10% Preferred Return. As a result of the return of
capital, the amount of the limited partners' adjusted capital
contributions (which generally is the limited partners' capital
contributions, less distributions from the sale of a property that are
considered to be a return of capital) was decreased; therefore, the
amount of the limited partners' adjusted capital contributions on which
the 10% Preferred Return is calculated was lowered accordingly. No
distributions have been made to the general partners to date.
26
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
8. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C>
Net income for
financial reporting
purposes $1,248,757 $1,083,109 $ 962,102
Depreciation for tax
reporting purposes
in excess of
depreciation for
financial reporting
purposes (104,279) (108,995) (109,002)
Gain on sale of land
and building for
financial reporting
purposes in excess
of gain for tax
reporting purposes (233,183) - -
Equity in earnings of
joint ventures for
financial reporting
purposes in excess of
equity in earnings of
joint ventures for
tax reporting purposes (18,410) (17,987) (14,739)
Accrued rental income (3,706) 1,234 (2,081)
Rents paid in advance 15,026 (16,487) 5,083
Allowance for doubtful
accounts 1,679 (120,724) 22,392
---------- ---------- ----------
Net income for federal
income tax purposes $ 905,884 $ 820,150 $ 863,755
========== ========== ==========
</TABLE>
27
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of
CNL Securities Corp. and CNL Fund Advisors, Inc. James M. Seneff, Jr.
is director and chief executive officer of CNL Securities Corp. and is
director, chairman of the board of directors and chief executive
officer of CNL Fund Advisors, Inc. The other individual general
partner, Robert A. Bourne, is director and president of CNL Securities
Corp., is director, vice chairman of the board of directors and
treasurer of CNL Fund Advisors, Inc. and served as president of CNL
Fund Advisors, Inc through October 1997.
During the years ended December 31, 1997, 1996 and 1995, certain
Affiliates acted as manager of the Partnership's properties pursuant to
a property management agreement with the Partnership. In connection
therewith, the Partnership agreed to pay the Affiliates an annual,
noncumulative, subordinated property management fee of one-half of one
percent of the Partnership assets under management (valued at cost)
annually. The property management fee is limited to one percent of the
sum of gross operating revenues from properties wholly owned by the
Partnership and the Partnership's allocable share of gross operating
revenues from joint ventures or competitive fees for comparable
services. In addition, these fees will be incurred and will be payable
only after the limited partners receive their aggregate, noncumulative
10% Preferred Return. Due to the fact that these fees are
noncumulative, if the limited partners do not receive their 10%
Preferred Return in any particular year, no management fees will be due
or payable for such year. As a result of such threshold, no management
fees were incurred during the years ended December 31, 1997, 1996 and
1995.
Certain Affiliates are also entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if the
Affiliates provide a substantial amount of services in connection with
the sale. However, if the net sales proceeds are reinvested in a
replacement property, no such real estate disposition fees will be
incurred until such replacement property is sold and the net sales
proceeds are
28
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Related Party Transactions - Continued:
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate,
cumulative 10% Preferred Return, plus their adjusted capital
contributions. No deferred, subordinated real estate disposition fees
were incurred for the years ended December 31, 1997, 1996 and 1995.
During the years ended December 31, 1997, 1996 and 1995, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $57,679, $67,685 and $58,543
for the years ended December 31, 1997, 1996 and 1995, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1997 1996
-------- --------
Due to Affiliates:
Deferred, subordinated real
estate disposition fee $ 66,750 $ 66,750
Expenditures incurred on
behalf of the Partnership 17,902 9,527
Accounting and administrative
services 31,089 18,735
-------- --------
$115,741 $ 95,012
======== ========
The deferred, subordinated real estate disposition fees are the result
of the Partnership's sale of two properties in prior years. These fees
will not be paid until after the limited partners have received their
cumulative 10% Preferred Return, plus their adjusted capital
contributions, as described above.
29
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Concentration of Credit Risk:
The following schedule presents total rental income from individual
lessees, each representing more than ten percent of the Partnership's
total rental income (including the Partner-ship's share of rental
income from joint ventures and the property held as tenants-in-common
with an affiliate), for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Corporation $452,653 $452,653 $452,653
Wendy's Inter-
national, Inc. 164,857 212,322 206,805
Restaurant Manage-
ment Services,
Inc. 128,737 129,633 124,315
In addition, the following schedule presents total rental income from
individual restaurant chains, each representing more than ten percent
of the Partnership's total rental income (including the Partnership's
share of rental income from joint ventures and the property held as
tenant-in-common with an affiliate), for at least one of the years
ended December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Family Steakhouse
Restaurants $452,653 $452,653 $452,653
Wendy's Old
Fashioned
Hamburger
Restaurants 443,335 507,642 582,315
Popeyes Famous
Fried Chicken 128,737 129,633 124,315
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the on-going operations of the lessees.
30
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 51, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which served as the
managing dealer in the Partnership's offering of Units, since its formation in
1979. Mr. Seneff also has held the position of President and a director of CNL
Management Company, a registered investment advisor, since its formation in
1976, has served as Chief Executive Officer and Chairman of the Board of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the
Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., served as Chairman of the
Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as a director, Chairman
of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. In addition, Mr. Seneff has served as a director,
Chairman of the Board and Chief Executive Officer of CNL American Properties
Fund, Inc. since 1994, and has served as a director, Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Since 1971, Mr. Seneff has been active in
the acquisition, development and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
joint venturer in over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr. Seneff, directly or through an affiliated entity, serves or has
served as a general partner. Also included are CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL
Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL
Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL
Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd.,
CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd.
and CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public
real estate limited partnerships with investment objectives similar to those of
the Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff
received his degree in Business Administration from Florida State University in
1968.
31
<PAGE>
Robert A. Bourne, age 50, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer, Vice Chairman of the Board of Directors, a
director and Treasurer of CNL Institutional Advisors, Inc., a registered
investment advisor. Mr. Bourne served as President of CNL Institutional
Advisors, Inc. from the date of its inception through June 30, 1997 and served
as President of CNL Fund Advisors, Inc. from the date of its inception through
October 1997. Mr. Bourne currently serves as Vice Chairman of the Board of
Directors and as Treasurer of CNL Fund Advisors, Inc. Mr. Bourne also has served
as a director since 1992, as President from July 1992 to February 1996, as
Secretary and Treasurer from February 1996 through December 1997, and since
February 1996, served as Vice Chairman of the Board of Directors of Commercial
Net Lease Realty, Inc. In addition, Mr. Bourne has served as a director since
its inception in 1991, as President from 1991 to February 1996, as Secretary
from February 1996 to July 1996, and since February 1996, served as Treasurer
and Vice Chairman of CNL Realty Advisors, Inc. through December 31, 1997, at
which time CNL Realty Advisors, Inc. merged with Commercial Net Lease Realty,
Inc. In addition, Mr. Bourne has served as President and a director of CNL
American Properties Fund, Inc. since 1994, and has served as President and a
director of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate
Advisors, Inc. since January 1997. Upon graduation from Florida State University
in 1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked
as a certified public accountant and, from September 1971 through December 1978,
was employed by Coopers & Lybrand, Certified Public Accountants, where he held
the position of tax manager beginning in 1975. From January 1979 until June
1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from
July 1982 through January 1987, he was a partner in the accounting firm of
Bourne & Rose, P.A., Certified Public Accountants. Mr. Bourne, who joined CNL
Securities Corp. in 1979, has participated as a general partner or joint
venturer in over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 64 privately offered real estate limited partnerships
in which Mr. Bourne, directly or through an affiliated entity, serves or has
served as a general partner. Also included are the CNL Income Fund Partnerships,
public real estate limited partnerships with investment objectives similar to
those of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
32
<PAGE>
Curtis B. McWilliams, age 42, joined CNL Fund Advisors, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. and as
Executive Vice President of CNL American Properties Fund, Inc. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Financial Services, Inc. and certain other subsidiaries of CNL
Group, Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill Lynch. From January 1991 to August 1996, Mr. McWilliams was a
managing director in the corporate banking group of Merrill Lynch's investment
banking division. During this time, he was a senior relationship manager with
Merrill Lynch and as such was responsible for a number of the firm's larger
clients. From February 1990 to February 1993, he also served as co-head of one
of the Industrial Banking Groups within Merrill Lynch's investment banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March 1997, Mr. McWilliams served as Chairman of Merrill Lynch's Private
Advisory Services. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Masters of Business Administration with a
concentration in finance from the University of Chicago in 1983.
John T. Walker, age 39, is the Chief Operating Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate Advisors, Inc. Mr. Walker joined CNL Fund Advisors, Inc. in
September 1994, as Senior Vice President, responsible for Research and
Development. From May 1992 to May 1994, he was Executive Vice President for
Finance and Administration and Chief Financial Officer of Z Music, Inc., a cable
television network which was subsequently acquired by Gaylord Entertainment,
where he was responsible for overall financial and administrative management and
planning. From January 1990 through April 1992, Mr. Walker was Chief Financial
Officer of the First Baptist Church in Orlando, Florida. From April 1984 through
December 1989, he was a partner in the accounting firm of Chastang, Ferrell &
Walker, P.A., where he was the partner in charge of audit and consulting
services, and from 1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior
at Price Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest
University with a B.S. in Accountancy and is a certified public accountant.
Lynn E. Rose, age 49, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, served as a director and Secretary of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund
Advisors, Inc. since its inception in 1994 to December 1995, and a director,
Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as
a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since
January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL
American Properties Fund, Inc. since 1994, and has served as Secretary and
Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary for approximately 50 additional corporations. Ms. Rose
oversees the management information services, administration, legal compliance,
accounting, tenant compliance, and reporting for over 300 corporations,
partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of
Central Florida. She was licensed as a certified public accountant in 1979.
33
<PAGE>
Jeanne A. Wall, age 39, has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and has
served as Executive Vice President of CNL Investment Company since January 1991.
In 1984, Ms. Wall joined CNL Securities Corp. In 1985, Ms. Wall became Vice
President of CNL Securities Corp., in 1987, she became Senior Vice President and
in July 1997, she became Executive Vice President of CNL Securities Corp. In
this capacity, Ms. Wall serves as national marketing and sales director and
oversees the national marketing plan for the CNL investment programs. In
addition, Ms. Wall oversees product development, partnership administration and
investor services for programs offered through participating brokers, and
corporate communications for CNL Group, Inc. and Affiliates. Ms. Wall also has
served as Senior Vice President of CNL Institutional Advisors, Inc., a
registered investment advisor, from 1990 to 1993, as Vice President of CNL
Realty Advisors, Inc. since its inception in 1991 through 1997, as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American Properties Fund, Inc. since 1994. In addition,
Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors,
Inc. since January 1997 and as Executive Vice President of CNL American Realty
Fund, Inc. since 1996. Ms. Wall holds a B.A. in Business Administration from
Linfield College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct Participation Program committee for the National Association
of Securities Dealers (NASD).
Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996 and as Chief Financial Officer of
CNL American Properties Fund, Inc. since January 1997. Mr. Shackelford joined
CNL Fund Advisors, Inc. in September 1996. From March 1995 to July 1996, he was
a senior manager in the national office of Price Waterhouse where he was
responsible for advising foreign clients seeking to raise capital and a public
listing in the United States. From August 1992 to March 1995, he served as a
manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and audit senior from
1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr. Shackelford
received a B.A. in Accounting, with honors, and a Masters of Business
Administration from Florida State University and is a certified public
accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 13, 1998, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 13, 1998, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the Registrant.
34
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1997, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred
operating expenses at the lower of cost or 90 percent on behalf of the Partnership:
of the prevailing rate at which $33,962
comparable services could have
been obtained in the same Accounting and administra-
geographic area. If the General tive services: $57,679
Partners or their affiliates loan
funds to the Partnership, the
General Partners or their affiliates
will be reimbursed for the interest
and fees charged to them by
unaffiliated lenders for such loans.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of
the Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated property One-half of one percent per year $ - 0 -
management fee to affiliates of Partnership assets under
management (valued at cost),
subordinated to certain minimum returns
to the Limited Partners. The property
management fee will not exceed the
lesser of one percent of gross
operating revenues or competitive fees
for comparable services. Due to the
fact that these fees are
non-cumulative, if the Limited Partners
do not receive their 10% Preferred
Return in any particular year, no
property management fees will be due or
payable for such year.
==========================================================================================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1997
------------------------- --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to the
lesser of (i) one-half of a competitive
real estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of such
fee shall be made only if affiliates of
the General Partners provide a
substantial amount of services in
connection with the sale of a Property
or Properties and shall be subordinated
to certain minimum returns to the
Limited Partners. However, if the net
sales proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be incurred
until such replacement Property is sold
and the net sales proceeds are
distributed.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to one percent of
cash flow Partnership distributions of net
cash flow, subordinated to certain
minimum returns to the Limited
Partners.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or Partnership distributions of such
sales net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
==========================================================================================================================
</TABLE>
36
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the years ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital for the years ended December
31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1997, 1996 and 1995
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1997
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 3.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund,
Ltd. (Filed herewith.)
4.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 4.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Filed herewith
as Exhibit 3.2 and incorporated herein by reference.)
10.1 Property Management Agreement. (Filed herewith.)
37
<PAGE>
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc. (Included
as Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996, and incorporated herein
by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1997 through December 31, 1997.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1998.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
==========================================================================================================================
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1998
- ----------------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and March 27, 1998
- ----------------------------------- Director (Principal Executive
James M. Seneff, Jr. Officer)
==========================================================================================================================
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions Deductions
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---- ----------- ---------- ---------- ---------- ---------- --------- --------
<S> <C>
1995 Allowance for
doubtful
accounts (a) $ 99,744 $ - $22,392(b) $ - $ - $122,136
======== ======= ======= ======= ======= ========
1996 Allowance for
doubtful
accounts (a) $122,136 $ - $ 1,413(b) $32,166(c) $89,970 $ 1,413
======== ======= ======= ======= ======= ========
1997 Allowance for
doubtful
accounts (a) $ 1,413 $ 685 $ 1,582(b) $ 588(c) $ - $ 3,092
======== ======= ======= ======= ======= ========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
F-1
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Partnership To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership has
Invested in:
Golden Corral Family
Steakhouse Restaurants:
Virginia Beach, Virginia - $ 340,125 $ 580,432 $ - $ -
Kent Island, Maryland - 140,703 637,826 - -
Salisbury, Maryland - 263,217 532,213 - -
Jasper, Alabama (d) - 220,665 473,818 - -
Eunice, Louisiana - 186,009 477,947 - -
Ground Round Restaurant:
Camp Hill, Pennsylvania - 331,962 531,174 - -
Pizza Hut Restaurant:
Bowie, Texas - 29,683 106,042 10,897 -
Popeyes Famous Fried
Chicken Restaurants:
Kissimmee, Florida - 239,934 266,628 - -
Merritt Island, Florida - 248,564 303,406 - -
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona - 440,339 328,579 - -
Oklahoma City, Oklahoma - 278,878 393,423 20,000 -
Stockbridge, Georgia - 282,482 363,008 - -
Mesquite, Texas - 443,956 456,983 - -
Payson, Arizona - 391,076 427,218 - -
Other:
Angleton, Texas - 162,107 447,512 1,572 -
---------- ---------- -------- -------
$3,999,700 $6,326,209 $ 32,469 $ -
========== ========== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 340,125 $ 580,432 $ 920,557 $ 217,662 1986 10/86 (b)
140,703 637,826 778,529 235,641 1986 12/86 (b)
263,217 532,213 795,430 198,102 1986 12/86 (b)
220,665 473,818 694,483 175,049 1986 12/86 (b)
186,009 477,947 663,956 175,247 1987 01/87 (b)
331,962 531,174 863,136 3,522 1983 10/97 (b)
29,683 116,939 146,622 39,132 1976 12/87 (b)
239,934 266,628 506,562 98,504 1981 12/86 (b)
248,564 303,406 551,970 112,092 1983 12/86 (b)
440,339 328,579 768,918 125,042 1986 08/86 (b)
278,878 413,423 692,301 154,511 1986 08/86 (b)
282,482 363,008 645,490 138,145 1986 08/86 (b)
443,956 456,983 900,939 172,638 1986 09/86 (b)
391,076 427,218 818,294 157,833 1986 12/86 (b)
162,107 449,084 611,191 169,793 1986 09/86 (b)
---------- ---------- ----------- ----------
$3,999,700 $6,358,678 $10,358,378 $2,172,913
========== ========== =========== ==========
</TABLE>
F-2
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Partnership To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties of Joint Ventures
in Which the Partnership
has a 50% Interest:
Burger King Restaurant:
Orlando, Florida - $ 291,159 $ 695,033 $ - $ -
Pizza Hut Restaurant:
Orlando, Florida - 206,575 234,064 - -
---------- ---------- -------- -------
$ 497,734 $ 929,097 $ - $ -
========== ========== ======== =======
Property in Which the Partnership
has a 12.17% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $ 875,659 $1,389,366 $ - $ -
========== ========== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 291,159 $ 695,033 $ 986,192 $ 262,580 1986 11/86 (b)
206,575 234,064 440,639 90,375 1986 06/86 (b)
---------- ---------- ----------- ----------
$ 497,734 $ 929,097 $ 1,426,831 $ 352,955
========== ========== =========== ==========
$ 875,659 $1,389,366 $ 2,265,025 $ 127 1994 12/97 (b)
========== ========== =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during
1997,1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
<S> <C>
Properties the Partnership
has Invested in:
Balance, December 31, 1994 $10,199,928 $ 1,693,371
Depreciation expense - 207,697
----------- -----------
Balance, December 31, 1995 10,199,928 1,901,068
Depreciation expense - 207,706
----------- -----------
Balance, December 31, 1996 10,199,928 2,108,774
Dispositions (704,687) (142,168)
Acquisition 863,137 -
Depreciation expense - 206,307
----------- -----------
Balance, December 31, 1997 $10,358,378 $ 2,172,913
=========== ===========
Properties of Joint Ventures
in Which the Partnership has a
50% Interest:
Balance, December 31, 1994 $ 2,216,871 $ 378,357
Depreciation expense - 44,224
----------- -----------
Balance, December 31, 1995 2,216,871 422,581
Depreciation expense - 44,225
----------- -----------
Balance, December 31, 1996 2,216,871 466,806
Dispositions (790,040) (153,154)
Depreciation expense - 39,303
----------- -----------
Balance, December 31, 1997 $ 1,426,831 $ 352,955
=========== ===========
Property in Which the Partnership
has a 12.17% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 2,265,025 -
Depreciation expense - 127
----------- -----------
Balance, December 31, 1997 $ 2,265,025 $ 127
=========== ===========
</TABLE>
F-4
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1997, the aggregate cost of the Properties owned
by the Partnership and joint ventures for federal income tax purposes
was $10,041,912 and $2,816,198, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to a local, independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the
terms of the lease agreement and is continuing to pay rent on this
Property to the Partnership.
F-5
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Filed herewith.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Filed
herewith as Exhibit 3.2 and incorporated herein by
reference.)
10.1 Property Management Agreement. (Filed herewith.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on March 29, 1996, and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF
LIMITED PARTNERSHIP
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED AGREEMENT
AND CERTIFICATE OF LIMITED PARTNERSHIP
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF
LIMITED PARTNERSHIP
OF
CNL INCOME FUND, LTD.
THIS AMENDED AND RESTATED AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP is made and entered into effective this ______ day of _______, 1986,
by and among Robert A. Bourne, James M. Seneff, Jr. and Centennial Realty
Corporation, as General Partners, Jeanne A. Wall, as the Initial Limited
Partner, and those persons and entities whose names and addresses appear on
Schedule A hereto (as may be amended from time to time) as the Limited Partners.
WHEREAS, on November 26, 1985, a Certificate of Limited Partnership
(the "Original Agreement") was filed with the Secretary of State of the State of
Florida, whereby Robert A. Bourne, James M. Seneff, Jr. and Centennial Realty
Corporation, as General Partners, and Jeanne A. Wall, as the Initial Limited
Partner, formed the Partnership under the Florida Uniform Limited Partnership
Act;
WHEREAS, on March 17, 1986, a First Amendment to the Certificate of
Limited Partnership (the "First Amendment") was filed with the Secretary of
State of the State of Florida, whereby the name of the Partnership was changed
from "Centennial Realty Income Fund, Ltd." to 'CNL Income Fund, Ltd."; and
WHEREAS, the parties hereto desire to amend, restate and supersede in
its entirety the Original Agreement and the First Amendment and to enter into
this Agreement for the purposes of admitting the Limited Partners into the
Partnership, and permitting the withdrawal of the Initial Limited Partner;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein- contained, and intending to be legally bound hereby, the
parties hereto agree to continue the Partnership as follows.
ARTICLE ONE
CERTAIN DEFINITIONS
When used in this Agreement, the following terms (used in plural where
the context indicates) shall have the meanings designated below.
1.1 "10% Preferred Return" as of any date means (i) in the case of
distributions of Net Cash Flow, an amount equal to a 10% noncumulative,
noncompounded annual return on a Limited Partner's Adjusted Capital
Contribution, and (ii) in all other cases, an amount equal to a 10% cumulative,
noncompounded annual return on a Limited Partner's Adjusted Capital
Contribution, reduced by all prior distributions of Net Cash Flow and Net Sales
Proceeds from a Nonliquidating Sale, other than those prior cash distributions
applied in payment of such Limited Partner's Adjusted Capital Contribution
pursuant to Article 9.2(b)(ii).
1.2 "Act" means the Uniform Limited Partnership Act of the State of
Florida, as amended. 1.3 "Acquisition Expenses" mean any and all
expenses incurred by the Partnership, any General Partner
or any Affiliate of any General Partner in connection with the selection or
acquisition of any Property, whether or not such Property is acquired,
including, without limitation, legal fees and expenses, travel and communication
expenses, costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, and title insurance.
1.4 "Acquisition Fees" mean any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any person or entity to any other person or
entity, including any fees or commissions paid by or to any General Partner or
any Affiliate of any General Partner, in connection with the selection or
acquisition of any Property, whether or not such Property is acquired,
including, without limitation, real estate commissions, acquisition fees,
finder's fees, selection fees, development fees, nonrecurring management fees,
consulting fees or any other fees of a similar nature, however designated and
however treated for tax or accounting purposes.
1.5 "Additional Closing Date" means any date, other than the Initial
Closing Date, on which subscribers for Units are admitted to the Partnership as
Limited Partners.
A-1
<PAGE>
1.6 "Adjusted Capital Contribution" as of any date means the Capital
Contribution of a Limited Partner reduced by all prior cash distributions to
such Limited Partner of Net Sales Proceeds from a Nonliquidating Sale, other
than those prior cash distributions applied in payment of such Limited Partner's
10% Preferred Return pursuant to Article 9.2(b)(i). Adjusted Capital
Contributions may differ from Capital Accounts, but may not be less than zero.
1.7 "Affiliate" means any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by or under common
control with another person or entity. For the purposes of this definition, the
following shall be presumed to be Affiliates: (i) any person or entity owning or
controlling ten percent (10%) or more of the outstanding voting securities of
another person or entity; (ii) any officer, director, partner or trustee of such
person or entity; and (iii) if such other person or entity is an officer,
director, partner or trustee of a person or entity, the person or entity for
which such person or entity acts in any such capacity.
1.8 "Agreement" means this Amended and Restated Agreement and
Certificate of Limited Partnership, as amended from time to time, including all
exhibits thereto.
1.9 "Capital Account" means the book account, established and
maintained for each Partner in a manner which complies with Treasury Regulation
ss. 704-1(b)(2)(iv), as may be amended from time to time. Each Capital Account
shall reflect, among other items, (i) all cash and the fair market value of
property (net of liabilities securing such property that the Partnership is
considered to assume or take subject to under Code section 752) contributed by
the Partner to the Partnership, (ii) all allocations to the Partner of
Partnership Net Income, Net Loss, Gain and Loss, and (iii) all cash and the fair
market value of property (net of liabilities securing such property that the
Partner is considered to assume or take subject to under Code section 752)
distributed to the Partner by the Partnership. Any and all amounts distributed
to a Partner as a fee and/or as compensation or reimbursement for services shall
not reduce such Partner's Capital Account.
1.10 "Capital Contribution" means the amount actually paid or the
adjusted basis of property actually contributed to the Partnership by a Partner.
The Capital Contribution of a Substituted Limited Partner shall be that
attributable to the interest in the Partnership assigned to him.
1.11 "Code" means the Internal Revenue Code of 1954, as amended from
time to time. 1.12 "Competitive Real Estate Commission" means a real
estate or brokerage commission for the purchase
or sale of property which is reasonable, customary and competitive in light of
the size, type and location of the property.
1.13 "Effective Date" means the first date following the Initial
Closing Date upon which this Agreement is accepted for filing by the Secretary
of State of the State of Florida.
1.14 "Final Closing Date" means the last date on which subscribers for
Units are admitted to the Partnership as Limited Partners.
1.15 "Front-End Fees"means fees and expenses paid by any person or
entity to any person or entity for any services rendered in connection with the
organization of the Partnership and the acquisition of Properties, including
Selling Commissions, Organizational and Offering Expenses, Acquisition Expenses,
Acquisition Fees, and any other similar fees, however designated.
1.16 "Gain" means the income or gain of the Partnership for federal
income tax purposes arising from any Sale, and includes the Partnership's
distributive share for federal income tax purposes of the income or gain arising
from the sale or other disposition of all or a substantial portion of the assets
of any joint venture or partnership in which the Partnership is a co-venturer or
partner.
1.17 "General Partners" mean Robert A. Bourne, James M. Seneff, Jr.
and Centennial Realty Corporation, or any other person or entity which is
substituted for or succeeds to the interest of all or any of such persons as a
general partner pursuant to this Agreement.
1.18 "General Partners' Capital Contribution" means the total cash and
adjusted basis of property (including contract rights) contributed to the
Partnership by the General Partners.
1.19 "Initial Closing Date" means the first date on which subscribers
for Units are admitted to the Partnership as Limited Partners.
1.20 "Initial Limited Partner" means Jeanne A. Wall, who will withdraw
from the Partnership on or immediately prior to the Effective Date.
A-2
<PAGE>
1.21 "Investment in Properties" means the amount of the Limited
Partners' Capital actually paid or allocated by the Partnership, either directly
or through joint venture arrangements or other partnerships, to the purchase,
development, construction or improvement (including working capital reserves of
up to five percent of the Limited Partners' Capital) of Properties, and other
cash payments such as interest and taxes, but excluding Front-End Fees.
1.22 "Limited Partner" means any person or entity admitted to the
Partnership as a limited partner, including any person or entity admitted to the
Partnership as a Substituted Limited Partner in accordance herewith.
1.23 "Limited Partners' Capital" as of any date means the aggregate
Capital Contributions made by all of the Limited Partners.
1.24 "Liquidating Sale" means any Sale resulting in a dissolution of
the Partnership under Article 17.1, including any Sale which is part of a series
of Sales pursuant to a plan to sell or otherwise dispose of all or substantially
all of the assets of the Partnership. For purposes of this Agreement, a Sale or
other transfer of substantially all of the Partnership assets shall be deemed to
have occurred if 66-2/3% or more in value of the Partnership's assets are sold
or otherwise transferred.
1.25 "Loss" means the loss of the Partnership for federal income tax
purposes arising from any Sale, and includes the Partnership's distributive
share for federal income tax purposes of the loss arising from the sale or other
disposition of all or a substantial portion of the assets of any joint venture
or partnership in which the Partnership is a coventurer or partner.
1.26 "Net Cash Flow" means the Net Income or Net Loss of the
Partnership for each fiscal year, with the following adjustments: (i) there
shall be added to such Net Income or Net Loss the amount charged for any
deduction not involving a cash expenditure (such as depreciation and
amortization), and any cash receipts (excluding Net Sales Proceeds) which the
General Partners, in their sole discretion, deem to be available for
distribution; and (ii) there shall be subtracted from such Net Income or Net
Loss the amount of any nondeductible reserves established or maintained by the
General Partners and any other nondeductible cash items, including principal
payments on indebtedness and distributions made to the Partners prior to the end
of such fiscal year and the amount of any and all income not attributable to
cash receipts of the Partnership (such as accrued accounts receivable).
1.27 "Net Income" means the taxable income of the Partnership for
federal income tax purposes for each taxable year, determined using the accrual
method of accounting and calculated without regard to Gain or Loss.
1.28 "Net Loss" means the taxable loss of the Partnership for federal
income tax purposes for each taxable year, determined using the accrual method
of accounting and calculated without regard to Gain or Loss.
1.29 "Net Sales Proceeds" mean in the case of a Sale described in
Article 1.41(i), the proceeds of any such Sale less all costs and expenses
associated with such Sale and the amount of all Real Estate Commissions paid by
the Partnership. In the case of a Sale described in Article 1.41(ii), Net Sales
Proceeds mean the proceeds of any such Sale less the amount of any and all costs
and expenses, including legal and other selling expenses, incurred in connection
with such Sale. In the case of a Sale described in Article 1.41(iii), Net Sales
Proceeds mean the proceeds of any such Sale actually distributed to the
Partnership from the joint venture or partnership.
1.30 "Nonliquidating Sale" means any Sale other than a Liquidating
Sale.
1.31 "Operating Expenses" mean any and all costs and expenses incurred
by the Partnership, any General Partner or any Affiliate of any General Partner
which are in any way related to the operation of the Partnership or to
Partnership business, including but not limited to the costs and expenses listed
in Article 8.1, but excluding Selling Commissions, Organizational and Offering
Expenses, Acquisition Expenses, Acquisition Fees, Property Management Fees and
Real Estate Commissions.
1.32 "Organizational and 0ffering Expenses" mean any and all costs and
expenses, exclusive of Selling Commissions, incurred by the Partnership, any
General Partner or any Affiliate of any General Partner in connection with the
formation, qualification, organization, and registration of the Partnership and
in the marketing and distribution of Units, including, without limitation, the
following: legal, accounting and escrow fees; printing, amending, supplementing,
mailing, and distributing costs; filing, registration and qualification fees and
taxes; telegraph and telephone costs; and all advertising and marketing
expenses, including the costs related to investor and broker-dealer sales
meetings.
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1.33 "Partner" means a General Partner or a Limited Partner, and
"Partners" means all Partners, both General and Limited.
1.34 "Partnership" means CNL Income Fund, Ltd., the Florida limited
partnership reorganized pursuant to this Agreement.
1.35 "Partnership Capital" means the total Capital Contributions made
by all Partners of the Partnership, both General and Limited.
1.36 "Partnership Interest(s)" mean the ownership interest of a Partner
in the Partnership's profits and losses, other items of income, gain, losses,
deductions, expenses and credits and distributions of net cash receipts at any
particular time, including the right of such Partner to any and all benefits to
which a Partner may be entitled as provided in this Agreement and under the Act,
together with the obligations of such Partner to comply with all the terms and
provisions of this Agreement and the Act. The Partnership Interest of a Limited
Partner shall be equal to that percentage expressed by a fraction, with the
numerator consisting of the number of Units purchased by such Limited Partner,
and the denominator consisting of the total number of Units held by all of the
Limited Partners. The term "Partnership Interests" shall refer to the entire
ownership interest of all Partners in the Partnership.
1.37 "Properties" mean the real properties, including the buildings
located thereon, which are acquired by the Partnership or by any joint venture
or partnership in which the Partnership is a co-venturer or partner, and
including any equipment located therein or thereon to the extent such equipment
is owned by the Partnership or by any such joint venture or partnership.
1.38 "Property Management Fee" means the fee paid for day-to-day
professional property management services in connection with Properties owned by
the Partnership.
1.39 "Prospectus" means the final prospectus included in the
Partnership's Registration Statement filed with the Securities and Exchange
Commission, pursuant to which the Partnership will offer Units to the public, as
the same may be amended or supplemented from time to time after the effective
date of such Registration Statement.
1.40 "Real Estate Commissions" means any and all real estate
commissions and other similar fees, costs or expenses, including a subordinated
real estate disposition fee payable to Centennial Investment Company pursuant to
Article 8.3, incurred in connection with the Sale of Properties owned by the
Partnership.
1.41 "Sale" means any transaction or series of transactions whereby-
(i) the Partnership sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including any event with respect
to any such Property which gives rise to insurance claims or condemnation
awards; (ii) the Partnership sells, grants, transfers, conveys or relinquishes
its ownership of all or substantially all of the interest of the Partnership in
any joint venture or partnership in which it is a co-venturer or partner; or
(iii) any joint venture or partnership in which the Partnership is a co-venturer
or partner sells, grants, transfers, conveys or relinquishes its ownership of
any Property or portion thereof, including any event with respect to any such
Property which gives rise to insurance claims or condemnation awards.
1.42 "Selling Commissions" mean any and all commissions payable to
underwriters, managing dealers or other broker-dealers in connection with the
sale of Units as described in the Prospectus, including, without limitation,
commissions payable to Centennial Investment Company.
1.43 "Substituted Limited Partner" means a person or entity who is
admitted to the Partnership pursuant to the provisions of Article 14.3 hereof
and in accordance with the provisions of the Act.
1.44 "Termination Date" means December 31, 2025, or such earlier date
as the Partnership may be terminated pursuant to any provision of this
Agreement.
1.45 "Unit" means the Partnership Interest represented by a Capital
Contribution of $500.
ARTICLE TWO
ORGANIZATION
2.1 Formation. The parties hereby acknowledge that the term of the
Partnership commenced on November 26, 1985, and agree to continue the
Partnership as a limited partnership pursuant and subject to the Act.
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2.2 Filings. The General Partner shall file, record and publish such
certificates and other documents as may be necessary and appropriate to comply
with the requirements for the organization and operation of a limited
partnership under the Act.
2.3 Foreign Qualification. In the event that the business of the
Partnership may be carried on or conducted in other states in addition to the
State of Florida, then the parties agree that this Partnership shall exist or
shall be qualified under the laws of each such additional state in which
business is actually conducted by the Partnership, and they severally agree to
execute and authorize the General Partners to execute on their behalf or on
behalf of the Partnership such other and further documents as may be necessary
or appropriate to permit the General Partners to qualify this Partnership, or
otherwise comply with requirements for the formation and organization of a
limited partnership in all such states.
ARTICLE THREE
NAME AND PRINCIPAL OFFICE
3.1 Name and Office. The name of the Partnership is "CNL Income Fund,
Ltd." Its principal office and its registered office in the State of Florida
shall be located at 122 East Colonial Drive, Suite 202, Orlando, Florida 32801,
or at such other address as the General Partners notify each Limited Partner in
writing in accordance herewith. The General Partners shall also have the right,
without notice to the Limited Partners, to establish a registered office or
offices in such other states as the General Parnters deem necessary in order to
qualify the Partnership under the laws of any additional state in which the
Partnership actually conducts business.
3.2 Assumed Names. The business of the Partnership shall be conducted
under the name listed above or under such variations of this name as the General
Partners deem appropriate to comply with the laws of any state in which the
Partnership does business. The General Partners shall execute and file in the
proper offices such certificates as may be required by the Assumed Name Act or
similar law in effect in the counties and other governmental jurisdictions in
which the partnership may elect to conduct business.
ARTICLE FOUR
PURPOSES AND POWERS OF THE PARTNERSHIP
The purpose of the Partnership shall be to acquire and lease commercial
properties on which fast-food restaurants which are part of regional or national
restaurant chains are or will be located, as more fully described in the
Prospectus. Subject to the limiations set forth elsewhere in this Agreement, the
Partnership shall be empowered to do or cause to be done, or not to do, any and
all acts deemed by the General Partners to be necessary or appropriate or in
furtherance of the purpose of the Partnership, including, without limitation,
the power and authority.
(a) to acquire, own, lease, manage and/or operate any
Properties;
(b) to enter into joint venture arrangements or general
partnerships with any person or entity wihch is not an Affliate of any of the
General Partners for the acquisitions, ownership, leasing, management and/or
operation of any Properties, provided that the Partnership has the ability to
control the management decisions of any such joint venture or general
partnership and there are no duplicate fees;
(c) to acquire any personal property necessary or appropriate,
in the opinion of the General Partners, for the business of the Partnership;
(d) to make such elections under the Code as to the treatment
of items of Partnership income, Gain, Loss, deductions and credit, and as to all
relevant matters as the General Partners believe necessary, desirable or
beneficial to the Limited Partners;
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(e) to purchase or to elect not to purchase from others, at
the expense of the Partnership, contracts of liability, casualty and other
insurance which the General Partners deem advisable, appropriate or convenient
for the protection of the assets or affairs of the Partnership or for any
purpose convenient or beneficial to the Partnership;
(f) subject to the limitations contained in Article 10.6 and
elsewhere in this Agreement, to employ persons, including Affiliates, for the
operation and management of the Partnership and/or the Properties, on such terms
and for such compensation as the General Partners deem, in their absolute
discretion, to be in the best interest of the Partnership;
(g) to designate the depository or depositories in which all
bank accounts of the Partnership shall be kept and the person or persons upon
whose signature withdrawals therefrom shall be made;
(h) to prosecute, defend, settle, compromise or submit to
arbitration, at the Partnership's expense, any suits, actions or claims at law
or in equity to which the Partnership is a party or by which it is affected, as
may be necessary, proper or convenient, and to satisfy out of Partnership funds
any judgment, decree or decision of any court, board, agency or authority having
jurisdiction, or any settlement of any suit, action or claim prior to judgment
or final decision thereon;
(i) to incur, at the expense of the Partnership, bank charges
with respect to bank accounts maintained, and expenses relating to the purchase
of supplies, materials, equipment or similar items used in connection with the
operation of the Partnership, and to incur escrow fees, recording fees,
insurance premiums and similar expenses in connection with the Properties;
(j) to employ persons, at the expense of the Partnership, to
perform administrative, legal and independent auditing services in connection
with the operation and management of the Partnership's business, and to provide
services in connection with the preparation and filing of any tax return
required of the Partnership;
(k) to distribute among the Partners, to the extent deemed
prudent, cash generated from the operations of the Partnership;
(1) subject to the limitations contained elsewhere in this
Agreement, to transfer, sell or convey Properties, including its interest in any
joint ventures or partnerships, if such transactions are deemed by the General
Partners to be in the best interest of the Partnership;
(m) subject to the limitations set forth elsewhere in this
Agreement, to finance all or any of its activities authorized under the
provisions of this Agreement by secured or unsecured indebtedness and, in
connection therewith, to issue evidences of indebtedness and to execute and
deliver security instruments of every nature and kind as security therefor,
except that the Partnership shall. not encumber any of its Properties;
(n) to invest such funds as are temporarily not required for
Partnership purposes in short-term, highly liquid investments where there is
appropriate safety of principal, including, without limitation, United States
Treasury bills or bonds;
(o) to engage in such other businesses, activities and
transactions similar in nature and scope to those described in this Article Four
as the General Partners from time to time may determine to be necessary or
appropriate in furtherance of the purpose of the Partnership;
(p) to enter into such agreements, contracts, documents,
leases and instruments and to give such receipts, releases, and discharges with
respect to all of the foregoing and any matters incident thereto, as the General
Partners may deem advisable, appropriate or convenient; and
(q) subject to the limitations contained in Article 10.6 and
elsewhere in this Agreement, to execute, deliver, perform and carry out all
contracts, agreements and undertakings of every kind and engage in all
activities and transactions as may in the opinion of the General Partners be
necessary, incidental or advisable to the accomplishment of the Partnership's
purposes or in connection with any of the foregoing.
ARTICLE FIVE
TERM OF PARTNERSHIP
The Partnership commenced on November 26, 1985, and shall continue in existence
until the Termination Date.
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ARTICLE SIX
CAPITALIZATION
6.1 Limited Partners' Capital Contributions. No Limited Partner shall
be admitted to the Partnership unless such Limited Partner shall make a Capital
Contribution of $2,500 or more; provided, however, that the required minimum
Capital Contribution for Individual Retirement Accounts and Keogh and pension
plans shall be $1,000 where permitted by applicable state law. Except where
prohibited by applicable state law or the Prospectus, Individual Retirement
Accounts and Keogh and pension plans making the required minimum investment in
the Partnership shall be entitled to make additional purchases in increments of
one-half Units. Limited Partners shall be admitted to the Partnership solely by
subscription, upon approval by the General Partners. No Limited Partner shall
borrow funds from the General Partners or their Affiliates in order to make
contributions to the Partnership Capital, and the Partnership shall not acquire
Properties in exchange for Units.
6.2 General Partners' Capital Contribution. The General Partners shall,
on or before the Effective Date, contribute to the Partnership the aggregate sum
of $1,000 as their General Partners' Capital Contribution. The General Partners
may also acquire Units as Limited Partners pursuant to the same terms and
conditions as other Limited Partners.
6.3 Minimum Capital Contributions. The aggregate Capital Contributions
by the Limited Partners may range from a minimum of $1,300,000 (2,600 Units) to
a maximum of $15,000,000 (30,000 Units), depending upon the number of such Units
offered and sold in connection with the Partnership's public offering of the
Units. Capital Contributions shall be due and payable in cash upon subscription.
6.4 Escrow. Prior to the General Partners' acceptance or rejection of
any subscription, funds received from such subscription shall be held in escrow.
6.5 Admission of Limited Partners. The General Partners may in their
sole and absolute discretion reject any subscription for any reason.
Subscriptions for Units shall be accepted or rejected by the General Partners
within thirty (30) days after receipt thereof by the General Partners.
Subscribers whose subscriptions are accepted by the General Partners subsequent
to the Initial Closing Date shall be admitted as Limited Partners not later than
the last day of the calendar month following the date such subscriptions are
accepted. Funds received from subscriptions rejected by the General Partners
shall be promptly returned to subscribers with interest and without deduction.
No sale of Units shall be made pursuant to the Prospectus after one year
following the initial effective date of the Prospectus.
6.6 Liability of Limited Partners. Except as otherwise provided in
Article 12. 1, a Limited Partner shall not be liable to the Partnership beyond
the amount of his Capital Contribution, nor shall he be personally liable for
any liabilities, contracts or obligations of the Partnership. However, it is the
intent of the Partners that no distribution (or any part of a distribution) made
to any Limited Partner pursuant to Article Nine of this Agreement shall be
deemed a return or withdrawal of capital, even if such distribution represents
(in full or in part) a distribution of depreciation or any other non-cash item
accounted for as a Loss or deduction from or offset to the Partnership's income,
and that no Limited Partner shall be obligated to pay any such amount to or for
the account of the Partnership or any creditor of the Partnership.
6.7 Interest. Except as provided in Article 7.2, interest earned on
Partnership funds shall inure to the benefit of the Partnership, and the
Partners shall not receive interest on their Capital Contributions.
6.8 Additional Capital Contributions. No Partner shall be required to
make any additional Capital Contributions beyond the amount of his initial
Capital Contribution, nor shall any Partner be required to lend any funds to the
Partnership.
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6.9 Repayment of Capital Contributions of Limited Partners. Except as
expressly provided in this Agreement, no specific time has been agreed upon for
the repayment of the Capital Contributions of the Limited Partners. The Limited
Partners understand that the General Partners and their Affiliates make no
warranty, guarantee or representation that the Partnership will have sufficient
funds to repay the Capital Contribution or Capital Account of any Limited
Partner. The General Partners shall have no personal liability for the repayment
of the Capital Contribution or Capital Account of any Limited Partner. No
Limited Partner or any successor in interest shall have a right to withdraw or
reduce any capital contributed to the Partnership.
6.10 No Priorities Among Limited Partners. Except as expressly provided
in this Agreement, no Limited Partner shall have the right to demand or receive
property other than cash in return for his Capital Contribution, nor shall any
Limited Partner have priority over any other Limited Partner as to Capital
Contributions or as to compensation by way of income.
ARTICLE SEVEN
APPLICATION OF PARTNERSHIP CAPITAL
7.1 General. Partnership Capital shall be applied as set forth in this
Article Seven.
7.2 Return of Earned Interest. The Partnership shall within thirty days
after the Initial Closing Date return to each subscriber for Units from whom the
Partnership received funds prior to the Initial Closing Date an amount equal to
the interest earned on such subscriber's funds during the period in which such
subscriber's funds were held in escrow, with such interest to be calculated by
the General Partners based on such subscriber's pro rata share of all interest
on subscribers' funds during such period of time; provided, however, that a
subscriber for Units who subscribes for Units after the Initial Closing Date
shall receive interest on his subscription funds only if his subscription is
accepted and his funds were held in escrow for more than 20 days.
7.3 Selling Commissions. The Partnership shall pay any and all Selling
Commissions, in the amount of Forty-Two Dollars and Fifty Cents ($42.50) per
Unit sold, on the Initial Closing Date and on each Additional Closing Date in
accordance with the Underwriting Agreement with Centennial Investment Company.
7.4 Organizational and Offering Expenses. The Partnership shall, as
soon as practicable after the Initial Closing Date (and thereafter as soon as
practicable after such expenses are incurred), reimburse the General Partners
and their Affiliates for all Organizational and Offering Expenses incurred by
the General Partners and their Affiliates, and the Partnership shall pay all
other Organizational and Operating Expenses. Notwithstanding anything to the
contrary in the preceding sentence, the General Partners or their Affiliates
shall pay all Organizational and Offering Expenses which exceed the greater of
$65,000 or three percent (3%) of Limited Partners' Capital.
7.5 Acquisition Expenses and Fees. The Partnership shall, as soon as
practicable after such fees and expenses are incurred, reimburse Centennial
Investment Company for any and all Acquisition Expenses and Acquisition Fees
incurred by Centennial Investment Company, and shall, in connection with
services to be provided by Centennial Investment Company related to the
acquisition of properties, pay to Centennial Investment Company an Acquisition
Fee in an amount equal to 5% of Limited Partners' Capital; provided, however,
that the Acquisition Fee paid to Centennial Investment Company shall be reduced
or paid back to the Partnership if and to the extent (i) necessary for the
Partnership to make the required Investment in Properties as set forth in
Article 7.7, or (ii) the total of all Acquisition Fees paid by all persons in
connection with the purchase of all of the Properties exceeds the lesser of 18%
of Limited Partners' Capital or compensation customarily charged in arms' length
transactions by others rendering similar services as an ongoing public activity
in the same geographic locations and for comparable properties. The Partnership
shall pay all other Acquisition Expenses and Acquisition Fees.
7.6 Reserves. The Partnership shall maintain reserves in such amounts
as the General Partners in their sole and absolute discretion determine to be
adequate to meet the Partnership's working capital needs.
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7.7 Investment in Properties. The Partnership shall, when and to the
extent desirable investment opportunities are available as determined by the
General Partners in their sole and absolute discretion, acquire, either directly
or through joint venture arrangements or other partnerships, such Properties as
the General Partners in their sole and absolute discretion determine to be in
the best interests of the Partnership. The Partnership shall commit at least 80%
of the Limited Partners' Capital to Investment in Properties within two years
following the initial effective date of the Prospectus; provided, however, that
any amount returned to the Limited Partners pursuant to Article 7.8 shall not be
considered in determining the percentage committed to Investment in Properties
as of such date. If any Acquisition Fees are paid by the seller of any Property
or Properties, such fees shall not be included in the purchase price of such
Property or Properties for purposes of determining whether the required minimum
Investment in Properties set forth herein has been satisfied.
7.8 Return of Uninvested Partnership Capital. If any portion of Limited
Partners' Capital is not committed to the investment in or actually invested in
Properties within two years after the initial effective date of the Prospectus
and has not been expended and is not reserved as working capital, then the
Partnership shall distribute such portion of the Limited Partners' Capital not
so used or invested to the Limited Partners pro rata as a return of capital. For
purposes of this Agreement, the Limited Partners' Capital will be deemed to have
been committed to investment (and therefore will not be returned to the Limited
Partners) to the extent written agreements in principle or letters of
understanding are executed at any time, which agreements in principle or letters
of understanding have not been rescinded, regardless of whether any such
investment may or may not be consummated, and also to the extent any funds have
been reserved to make contingent payments in connection with any Property,
regardless of whether any such payments are made.
7.9 Restrictions on Investments.
(a) The Partnership shall not acquire or invest in any of the
following: (i) limited partnership interests of another real estate program;
(ii) unimproved or nonincome-producing property, except in amounts not exceeding
10% of Limited Partners' Capital available for investment in Properties and only
upon terms which can be financed by Partnership Capital or from Net Cash Flow;
(iii) the securities of other issuers (nor shall the Partnership underwrite any
such securities), except that the Partnership may invest in short-term, highly
liquid investments where there is appropriate safety of principal; (iv) real
estate mortgages, junior trust deeds or other similar obligations, except in
connection with the disposition of one or more of the Properties; and (v) any
Properties which the Partnership is prohibited from acquiring pursuant to
Article 10.2 or any other provision of this Agreement.
(b) The Partnership shall not reinvest Net Cash Flow. Net Sales
Proceeds shall not be reinvested by the Partnership unless sufficient cash will
be distributed to pay any state (at a rate reasonably assumed by the General
Partners) and federal (assuming the Limited Partners are taxable at the maximum
applicable federal income tax bracket) income taxes created by the Sale.
(c) Neither the Partnership nor any joint venture or general
partnership in which the Partnership invests or participates will finance the
acquisition of any Properties by secured or unsecured indebtedness or encumber
any of the Properties with a lien.
(d) All investments in Properties shall be supported by an appraisal
prepared by a competent, independent appraiser, and the purchase price of any
Prolperty, plus all Acquisition Fees paid by the Partnership in connection with
the acquisition of such Property, shall not exceed, but may be less than, the
appraised value of such Property. Each such appraisal shall be maintained in the
Partnership's records for five years and shall be available for inspection and
copying by the Limited Partners during normal business hours.
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ARTICLE EIGHT
OPERATING EXPENSES; OTHER FEES AND EXPENSES
8.1 Operating Expenses. Subject to the restrictions on reimbursement of
the General Partners and their Affiliates set forth in Article 10.1, the
Partnership shall, as soon as practicable after such expenses are incurred,
reimburse Centennial Investment Company and Affiliates for any and all Operating
Expenses incurred by Centennial Investment Company and Affiliates. All other
Operating Expenses shall be billed directly to and paid by the Partnership.
Operating Expenses shall include, but shall not be limited to, the following
(excluding, however, any costs or expenses listed below which constitute Selling
Commissions, Organizational and Offering Expenses, Acquisition Expenses,
Acquisition Fees, Property Management Fees or Real Estate Commissions):
(a) all costs of personnel employed or otherwise engaged by the
Partnership and directly involved on the operation of the Partnership or the
Properties; all amounts owed to lenders for borrowings to finance Partnership
operations; expenses of insurance required in connection with the operation of
the Partnership or the Properties; taxes and assessments on Properties and other
taxes allocable to the Partnership as an entity; travel expenses related to
Partnership business; fees and expenses paid to consultants, bankers,
independent contractors, insurance and other brokers and agents, and expenses in
connection with the replacement, alteration, repair, leasing, maintenance and
operation of Properties and any other Partnership properties or assets;
(b) all accounting, legal, audit and other professional and reporting
fees and expenses, which may include, but are not limited to, preparation and
documentation of Partnership bookkeeping, accounting and audits; preparation and
documentation of budgets, economic surveys, cash flow projections and working
capital requirements; preparation and documentation of Partnership state and
federal tax returns; printing and other expenses and taxes incurred in
connection witl the issuance, distribution, transfer and recordation of
documents in connection with the business of the Partnership;
(c) expenses in connection with distributions made by the Partnership
to, and communications, bookkeeping and clerical work necessary in maintaining
relations with, the Partners, including expenses in connection with preparing
and mailing reports required to be furnished to the Limited Partners pursuant to
Article 16.3;
(d) expenses of revising, amending, modifying or terminating this
Agreement, and of dissolving, terminating, reforming, liquidating, or winding up
the Partnership;
(e) costs incurred in connection with any litigation in which the
Partnership is involved as well as any examination, investigation or other
proceeding conducted by any governmental agency of the Partnership, including
legal and accounting fees incurred in connection therewith; and
(f) costs of any computer equipment or services used for or by the
Partnership, costs of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Partnership, the
costs of preparation and dissemination of informational material and
documentation relating to the potential sale or other disposition of Partnership
property, and the costs of supervision and the expenses of professionals
employed by the Partnership in connection with any of the foregoing, including
attorneys, accountants and appraisers.
(g) subject to the restrictions contained in Article Four, the
Partnership's share of all fees, commissions, costs and expenses incurred by any
joint venture or partnership of which the Partnership is a co-venturer or
partner.
8.2 Property Management Fee. In each fiscal year in which the Limited
Partners have received or will receive an amount equal to their aggregate,
noncumulative 10% Preferred Returns, the Partnership shall pay to Centennial
Investment Company, within sixty (60) days following the close of each such
fiscal year, an annual Property Management Fee of 1/2 of 1% of the Partnership
assets under management, valued at cost; provided, however, that such fee,
together with any bookkeeping services and fees paid to unaffiliated persons or
entities for property management services, shall not exceed an amount equal to
the lesser of (i) fees which are competitive for similar services in the same
geographic area, or (ii) 1% of the gross revenues derived from Properties owned
by the Partnership.
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8.3 Real Estate Commissions. The Partnership shall pay any and all Real
Estate Commissions. In addition, upon any Sale of one or more of the
Partnership's Properties, the Partnership shall pay to Centennial Investment
Company, as a subordinated real estate disposition fee, an amount equal to the
lesser of (i) one-half of a Competitive Real Estate Commission, or (ii) 3% of
the gross sales price of the Property or Properties. The real estate disposition
fee payable to Centennial Investment Company shall be paid (i) only if
Centennial Investment Company provides a substantial amount of services in
connection with the Sale of the Property or Properties, (ii) in the case of a
Nonliquidating Sale, only after all distributions of Net Sales Proceeds pursuant
to Articles 9.2(b)(i), 9.2(b)(ii) and 9.2(b)(iii) have been made, and (iii) in
the case of a Liquidating Sale, only after all distributions of Net Sales
Proceeds pursuant to Articles 18.2(a) and 18.2(b), plus an additional amount
equal to the sum, as of such date, of the Limited Partners' aggregate 10%
Preferred Returns and their aggregate Adjusted Capital Contributions have been
distributed to the Limited Partners. The total compensation paid by the
Partnership to all persons and entities in connection with any Sale of
Partnership Properties shall not exceed the lesser of (i) a Competitive Real
Estate Commission, or (ii) 6% of the gross sales price of the Property or
Properties.
ARTICLE NINE
ALLOCATIONS AND DISTRIBUTIONS
9.1 Allocations. Net Income, Net Loss, Gain, and Loss for any taxable
year shall be allocated in the following manner. For purposes of this Article
9.1, Capital Accounts shall be determined as if the Partnership's taxable year
had ended immediately prior to any Sale.
(a) Net Income and Net Loss (and each Par-tner's allocable share of any
Partnership item of income, gain, loss, deduction, credit or allowance for any
Partnership tax year or other period taken into account in determining Net
Income and Net Loss) shall be allocated 99% to the Limited Partners and 1% to
the General Partners.
(b) Gain shall be allocated as follows:
(i) first, to the Partners having negative balances in their
Capital Accounts, in the proportion that the negative balance of each
such Partner's Capital Account bears to the aggregate negative balances
in the Capital Accounts of all such Partners, until the balances in
their Capital Accounts equal zero;
(ii) second, 100% to the Limited Partners until the aggregate
positive balances in the Limited Partners' Capital Accounts equal the
sum of their aggregate 10% Preferred Returns and their aggregate
Adjusted Capital Contributions;
(iii) third, 100% to the General Partners until the aggregate
positive balances in their Capital Accounts equal the sum of (1)
$1,000, plus (2) an amount equal to 1% of all prior distributions of
Net Cash Flow, reduced by (3) any amounts previously distributed to the
General Partners from Net Cash Flow and from Net Sales Proceeds
pursuant to subparagraphs (iii) and (iv) of Article 9.2(b); and
(iv) thereafter, 95% to the Limited Partners and 5% to the
General Partners. (c) Any Loss shall be allocated as follows:
(i) first, to the Partners with positive balances in their
Capital Accounts in the proportion that the positive balance in each
such Partner's Capital Account bears to the aggregate positive balances
in the Capital Accounts of all such Partners, until the balances in
their Capital Accounts equal zero; and
(ii) thereafter, 95% to the Limited Partners and 5% to the
General Partners. 9.2 Distributions. Partnership distributions shall be
made in the following manner. (a) The General Partners shall within 30
days following the close of each fiscal quarter or as soon
thereafter as practicable, distribute Net Cash Flow which the General Partners
in their sole and absolute discretion determine is available for distribution,
99% to the Limited Partners and 1% to the General Partners; provided, however,
that the 1% of Net Cash Flow to be distributed to the General Partners shall be
subordinated to receipt by the Limited Partners of their aggregate,
noncumulative 10% Preferred Returns for such fiscal quarter.
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(b) Net Sales Proceeds from a Nonliquidating Sale shall be
distributed in the following order of priority: (i) first,
100% to the Limited Partners until the Limited Partners have
received an amount equal
to their aggregate 10% Preferred Returns;
(ii) second, 100% to the Limited Partners until the Limited
Partners have received an amount equal to their aggregate Adjusted
Capital Contributions;
(iii) third, 100% to the General Partners until the General
Partners have received the sum of (1) $1,000, plus (2) an amount equal
to 1% of all prior and current distributions of Net Cash Flow, reduced
by (3) any amounts previously distributed to the General Partners from
Net Cash Flow and from Net Sales Proceeds pursuant to subparagraphs
(iii) and (iv) of this Article 9.2(b);
(iv) thereafter, 95% to the Limited Partners and 5% to the
General Partners.
9.3 Determination of Allocations and Distributions among the Limited
Partners. For purposes of making
allocations and distributions among the Limited Partners pursuant to Articles
9.1 and 9.2 (or as required elsewhere in this Agreement), if the operative
provision refers to positive or negative balances of Capital Accounts, aggregate
10% Preferred Returns or Adjusted Capital Contributions, then the allocation or
distribution shall be made in accordance with the respective sizes of such items
for each Limited Partner; if, however, no specific item is refeffed to, then the
allocation or distribution shall be made in accordance with the Limited
Partners' respective Partnership Interests.
9.4 Determination of Allocations and Distributions among the General
Partners. The allocations and distributions pursuant to Articles 9.1 and 9.2 (or
as required elsewhere in this Agreement) shall be made among the General
Partners in such amounts as the General Partners may agree among themselves.
9.5 Admission of Limited Partners. In connection with the admission of
any Limited Partner to the Partnership, Net Income or Net Loss for the fiscal
year of such admission (or any item of income, gain, loss, deduction, credit or
allowance for such fiscal year taken into account in determining Net Income and
Net Loss) shall be allocated among all persons or entities who were Limited
Partners during such fiscal year in proportion to the number of days during the
fiscal year for which each was recognized as a Limited Partner.
9.6 Transfer of Units. Net Income or Net Loss for a fiscal year
allocable to any Units which may have been transferred during such year shall be
allocated between the transferor and the transferee based upon the number of
days that each was recognized as the holder of the Units for purposes of this
Article Nine. Gain and Loss for a fiscal year allocable to any Units which may
have been transferred during such year shall be allocated to the Limited Partner
who owned such Units on the date such Gain or Loss was realized for federal
income tax purposes.
9.7 Interest of the General Partners. Notwithstanding anything
contained in this Agreement to the contrary, the interest of the General
Partners in each material item of Partnership income, gain, loss, deduction and
credit will be equal to at least 1% of each such item at all times during the
existence of the Partnership.
9.8 Allocation of Recapture Itemsfor Tax Purposes. Notwithstanding the
allocation of Gain described above in Article 9.1(b), any income recognized
pursuant to the recapture provisions of sections 1245 or 1250 of the Code, or
pursuant to Code section 751 with respect to such recapture provisions, shall be
allocated among the Partners in the proportions in which the original
depreciation deductions being recaptured were allocated to them or to their
predecessors in interest.
9.9 Qualified Income Offset. Notwithstanding the allocation of Net
Income and Gain provided in Article 9.1, any Limited Partner who receives an
allocation or distribution described in Treasury Regulation ss. 1.704-
1(b)(2)(ii)(d)(5) or (6), as may be amended from time to time, respectively,
which causes or increases a deficit balance in such Limited Partner's Capital
Account, will first be allocated items of income or gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. In the
event there is more than one such Limited Partner, items of income or gain shall
be allocated among such Limited Partners in proportion to the respective sizes
of their deficit balances attributable to the allocations or distributions
described in Treasury Regulation ss. 1.704l(b)(2)(ii)(d)(5) or (6) (as may be
amended from time to time).
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9.10 Allocation with Respect to Reserved Liquidation Proceeds. Any
deduction allowed to the Partnership by reason of the payment of any liability
from liquidation proceeds reserved pursuant to Article 18.2(b) shall be
allocated among the Partners in the same proportions that the amount paid on
such liability would otherwise have been distributed pursuant to Article 18.2.
9.11 Limitation on Distributions. Notwithstanding the foregoing, no
distribution shall be made unless, after such distribution, the Partnership's
assets are in excess of all liabilities of the Partnership except liabilities to
Limited Partners on account of their Capital Contributions and liabilities to
the General Partners.
ARTICLE TEN
TRANSACTIONS WITH GENERAL PARTNERS AND AFFILIATES
10.1 Services and Goods.
(a) The following conditions shall apply to all transactions between
the Partnership and the General Partners or their Affiliates in which the
General Partners or their Affiliates render services or sell or lease goods to
the Partnership and for which the General Partners or their Affiliates are
compensated by the Partnership: (i) the services or goods for which the General
Partners or their Affiliates are to receive compensation shall be embodied in a
written contract which details the services to be rendered and all compensation
to be paid; (ii) such contract may only to modified by a vote of a majority in
interest of Limited Partners' Capital; (iii) such contract shall contain a
clause allowing termination without penalty on sixty (60) days notice to the
General Partners; (iv) the terms of such contract and the compensation paid
shall be comparable to and competitive with the terms and compensation which
would demanded by unaffiliated persons or entities for comparable services or
for the sale or lease of comparable goods; and (v) the General Partners or their
Affiliates must previously have engaged in the business of rendering such
services or selling or leasing such goods, independent of the Partnership as an
ordinary and ongoing business.
(b) Reimbursement of the General Partners and their Affiliates for
Operating Expenses incurred by the General Partners or their Affiliates shall be
limited to: (i) the actual cost to the General Partners and their Affiliates of
all goods, materials and services used for or by the Partnership, which, in the
opinion of the General Partners, are reasonably necessary to the prudent
operation of the Partnership and are obtained from entities unaffiliated with
the General Partners or their Affiliates; and (ii) administrative services
performed by the General Partners or their Affiliates which, in the opinion of
the General Partners, are reasonably necessary to the prudent operation of the
Partnership. Reimbursement of the General Partners and their Affiliates for
administrative services shall be at the lower of the General Partners' or
Affiliates' actual cost or 90% of the amount the Partnership would be required
to pay to independent parties for comparable services in the same geographic
area. Such reimbursement shall not include (i) rent or depreciation, utilities,
capital equipment, and other overhead items, or (ii) salaries, fringe benefits,
travel expenses, and other overhead items incurred or allocated to any
controlling persons of the General Partners or their Affiliates. For purposes of
this Article 10.1(b) only, controlling persons shall mean any person who: (a)
holds a 5% or more equity interest in a General Partner or Affiliate or has the
power to direct or cause the directionof a General Partner or Affiliate whether
through the ownership of voting securities or otherwise; or (b) performs
functions for the General Partners similar to those of (i) the chairman or
member of the board of directors, (ii) executive management, such as the
president, vice-president, corporate secretary or treasurer, or (iii) senior
management, such as the vice-president of an operating division who reports
directly to executive management. No reimbursement shall be permitted for
services for which the General Partners are entitled to compensation by way of a
separate fee as provided for elsewhere in this Agreement. None of the
restrictions on reimbursement of General Partners and Affiliates et forth in
this Artcile 10.1(b) shall apply to any fees or other compensation to which the
General Parnters or their Affiliates are entitled in accordance with any other
provision of this Agreement.
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(c) No rebates or give-ups may be received by the General Partners or
their Affiliates in connection with any services or goods provided to the
Partnership by unaffiliated persons or entities, nor may the General Partners or
their Affiliates participate in any reciprocal business arrangement which would
circumvent any restriction contained in this Agreement with respect to
transactios between the Partnership and the General Partners or their
Affiliates.
(d) Independent certified public accounts shall verify the allocation
of all Operating Expenses for which the General Partners or their Affiliates are
reimbursed. Such verification shall at a minimum include the following: (i) a
review of the time records of individual employees, the costs of whose services
were reimbursed; and (ii) a review of the specific nature of the work performed
by each such employee. The methods of verification shall be in accordance with
generally accepted auditing standards. The cost of such verification shall be
itemized by such accountants, which costs may be reimbursed to the General
Partners or their Affiliates only tot he extent that such reimbursement, when
added to the cost to the Partnership of the administrative services rendered by
the General Partners or their Affiliates, does not exceed the amount the
Partnership would be required to pay to independent parties in the same
geographic area for administrative services comparable to those rendered by the
General Partners or their Affiliates.
10.2 Sales and Leases.
(a) The Partnership shall not purchase or lease Properties in which the
General Partners or their Affiliates have an interest, nor shall the Partnership
acquire any Properties from any partnership or other organization in which the
General Partners or their Affiliates have an interest; provided, however, that
the General Partners or their Affiliates may purchase Properties in the name of
any one or more of them and temporarily hold title thereto for the purpsoe of
facilitating the acquisition of such properties, or the completion of
constrution of the Properties, or any other purpsoe related to the business of
the Partnership, if such Properties are purchased by the Partnership for a price
no greater than the cost of such Properties to the General Partners or their
Affiliates (including the cost of carrying such Properties during such interim
period, but excluding any and all fees and other compensation payable under this
Agreement) and there is no other benefit arising out of such trnasaction to the
General Partners or their Affiliates apart from any and all fees and other
compensation otherwise permitted under this Agreement.
(b) The Partnership shall not sell or lease Properties to the General
Parnters or their Affiliates. 10.3 Loans. (a) The Partnership shall not
make any loans to the General Partners or their Affiliates. (b) Neither
the General Partners nor their Affiliates shall provide financing, as
defined in the following
sentence, for the Partnership. For purposes of this paragrab (b), the term
"financing" shall mean loans to the Partnership encumbering any Properties, the
principal amount of which is scheduled to be paid over a period of 48 months or
more, and with 50 percent or more of the principal amount thereof scheduled to
be paid during the first 24 months of the loan; provided, however, that nothing
in this definition shall be construed as prohibiting a bona fide prepayment
provision in the financing agreement.
(c) Except as limited by paragrpah (b) of this Artcile 10.3, the
General Partners and their Affiliates may, but shall not be required to, lend
funds to the Partnership. The General Partners and their Affiliates shall not
receive interest or similar charges or fees with respect to any such loan in
excess of the amount charged to the General Partners or their Affiliates for
such loan by an unaffiliated lending institution.
10.4 No Exclusive Right to Sell. The Partnership shall not give the
General Partners or their Affiliates an exclusive right to sell or exclusive
employment to sell Properties for the Partnership.
10.5 Construction and Development of Properties. The General Partners
and their Affiliates shall notconstruct or develop any Properties or render any
services for which they will receive compensation from the Partnership in
connection with their construction or development of Properties.
10.6 No Other Compensation. Except as provided in this Agreement, the
Partnership shall not pay any commissions, fees or compensation to the General
Partners or their Affiliates.
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ARTICLE ELEVEN
MANAGEMENT BY GENERAL PARTNERS
11.1 Duties of the General Partners. The General Partners shall manage
and control the Partnership and its business and affairs, and each of the
General Partners shall participate in all decisions made by the General Partners
hereunder, and the vote of a majority of the General Partners shall control. The
General Partners' obligations shall include the following:
(a) management of the Partnership affairs;
(b) fiduciary responsibility (i) for the safekeeping and use of all
funds of the Partnership, whether or not in their immediate possession or
control, and (ii) for ensuring that Partnership funds and assets are employed
for the exclusive benefit of the Partnership;
(c) furnishing Limited Partners with reports and information as
specified in Article Sixteen hereof, (d) maintenance of records of
Partnership assets, including information and reports of architects,
appraisers, engineers, attorneys, accountants, or other professionals;
(e) maintenance of books of account regarding Partnership operations
and business affairs; (f) keeping all records of the Partnership
available for inspection and audit by any Limited Partner or his
representative, during normal business hours at the principal place of business
of the Partnership and at the expense of the Limited Partner, following
reasonable notice to the Partnership; and
(g) submitting to officials or agencies administering applicable state
securities laws information required to be filed with such officials or
agencies, including reports and statements required to be distributed to Limited
Partners.
11.2 Rights and Powers. The General Partners shall have all the rights
and powers which may be possessed by a general partner under the Act and such
rights and powers as are otherwise confeffed by law or are necessary, advisable
or convenient to the discharge of their duties under this Agreement and to the
management of the business and affairs of the Partnership. Without limiting the
generality of the foregoing powers of the General Partners, it is agreed that
the General Partners shall have the following rights and powers, which they may
exercise on behalf of the Partnership at the cost, expense and risk of the
Partnership, on terms and conditions deemed necessary or appropriate in their
discretion:
(a) to carry out and implement any and all of the purposes of the
Partnership set forth in Article Four hereof;
(b) to employ the funds of the Partnership in the exercise of any
rights or powers possessed by the General Partners hereunder;
(c) subject to the restrictions contained elsewhere in this Agreement,
to borrow money on behalf of the Partnership for Partnership purposes and to use
as security therefor any Properties of the Partnership;
(d) to pay all fees and expenses incurred in the organization of the
Partnership and in the offer and sale of the Units;
(e) to invest such funds as are temporarily not required for
Partnership purposes in any short-term, highly liquid investments where there is
appropriate safety of principal;
(f) to obtain and maintain, at the expense of the Partnership, or in
their sole discretion to elect not to obtain, insurance policies covering the
property and operations of the Partnership;
(g) subject to the limitations contained elsewhere in this Agreement,
to sell, lease, exchange or otherwise dispose of all or any portion of the
Properties of the Partnership;
(h) to hire, train, transfer, supervise and discharge employees of the
Partnership and establish the compensation and benefits thereof;
(i) subject to the limitations contained elsewhere in this Agreement,
to delegate, by vote of a majority of the General Partners, any or all of their
duties hereunder, and to appoint, employ or contract with any person, which
person shall be under the ultimate supervision of the General Partners;
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(j) to hold Properties in the Partnership name or the name of any of
them or in the name of any designee;
(k) to establish any reserves deemed necessary or advisable by
the Partnership;
(l) to make ministerial amendments to the Agreement and to make any
amendments to this Agreement which are approved or authorized in accordance with
Article 13.3; and
(m) to enter into such agreements, contracts, documents and instruments
and perform such acts with respect to all of the foregoing and any matter
incident thereto.
11.3 Limitations on General Partners' Authority. The General Partners
shall not:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership; (c) possess Properties, or assign the
Partnership's rights in any Properties, for other than a Partnership purpose;
(d) confess a judgment against the Partnership;
(e) sell or transfer all or substantially all of the Partnership assets
without the prior consent of amajority in interest of Limited Partners' Capital;
(f) admit a person as a General Partner except as provided in this
Agreement; (g) admit a person as a Limited Partner except as provided
in this Agreement; or (h) contract away the fiduciary duty owed to the
Limited Partners under the common law of any applicable
jurisdiction.
11.4 Nonexclusive Duties. The General Partners shall devote such time,
effort and skill as they in their discretion determine may be reasonably
required for the conduct of the Partnership's business and affairs, which may be
less than full time. The Limited Partners recognize and agree that the General
Partners' involvement with the Partnership is not exclusive and that they or the
Affiliates of any one of them may perform similar duties for other entities in
another business, including the real estate business, some or all of which may
compete with the Partnership. The General Partner and the Affiliates of any of
them shall be entitled to engage in any other transactions and possess interests
in any other business ventures of any nature or description, independently or
with others, whether existing as of the date hereof or hereafter coming into
existence, and neither the Partnership nor the Limited Partners shall have any
rights in or to any such independent ventures or the income or profits derived
therefrom. The Limited Partners recognize and agree that such other business
ventures may be in or related to the real estate business and/or the restaurant
business and from time to time may compete with the Partnership. However, in the
event that the Partnership and a partnership with which the General Partners or
their Affiliates are affiliated have the same investment objectives, and an
investment opportunity becomes available which is suitable for both entities and
for which both entities have sufficient uninvested funds, then the entity which
has had uninvested funds for the longest period of time will make such
investment.
11.5 Limitation on Liability. No General Partner or Affiliate, as the
term Affiliate is defined in Article 19.1, shall be liable to the Partnership or
to any Limited Partner for any loss incurred by the Partnership which arises out
of any action or inaction of a General Partner or Affiliate, if the General
Partner or Affiliate, in good faith, determined that such course of conduct was
in the best interests of the Partnership, and such course of conduct did not
constitute negligence, misconduct, or breach of fiduciary duty to the Limited
Partners.
ARTICLE TWELVE
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Limited Partners shall have the following rights and obligations.
12.1 Liabilities. Except as otherwise provided in this Article 12.1 or
under applicable law, no Limited Partner shall be personally liable for any of
the debts of the Partnership or any of the losses thereof beyond the amount of
his Capital Contribution and the share of undistributed profits of the
Partnership attributable to such Limited Partner. In the event that the
Partnership is involuntarily liquidated because of insolvency, the Limited
Partners may be additionally liable to:
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(a) return any cash distributed which represents a return of a Capital
Contribution, together with interest thereon; and
(b) repay any cash distributions wrongfully made to them, together with
interest, pro rata in accordance with their Partnership Interests, as is
required to discharge liabilities of the Partnership to creditors who extended
credit or whose claims arose during the period the returned Capital Contribution
was held by the Partnership.
Limited Partners may also be liable for the general obligations of the
Partnership if they are found, under applicable law, to have participated in the
management and control of the Partnership.
12.2 Management. No Limited Partner, as such, shall take part in the
management of the business or transact any business for the Partnership. All
management responsibility is vested in the General Partners.
12.3 Authority. No Limited Partner, as such, shall have the power to
sign for or to bind the Partnership. All authority to act on behalf of the
Partnership is vested in the General Partners.
12.4 Rights. A Limited Partner shall have the right to:
(a) have the Partnership books and records and this Agreement kept at
the principal office of the Partnership or at an office designated by the
General Partners through written notice to the Limited Partners and at all times
during regular business hours to inspect and copy any of them;
(b) have on demand, at their own expense, true and full information of
all things affecting the Partnership, and a formal accounting of Partnership
affairs whenever circumstances render it just and reasonable;
(c) have on demand, at their own expense, by mail for a proper purpose
a copy of the names, addresses and Capital Contributions of all Limited
Partners;
(d) approve or disapprove a Liquidating Sale by a vote of a majority in
interest of Limited Partners' Capital;
(e) propose and vote on certain amendments to this Agreement, as
provided in Article Thirteen; (f) remove any one or more of the General
Partners and elect one or more substitute General Partner, as
provided in Article Fifteen;
(g) have dissolution and winding up by decree of court as provided in
Articles Seventeen and Eighteen; (h) upon sixty (60) days notice to the
General Partners, terminate by vote of a majority in interest of the
Limited Partners' Capital any contract between the Partnership and the General
Partners or their Affiliates pursuant to which the General Partners or their
Affiliates are to receive compensation from the Partnership for services
rendered or goods sold or leased to the Partnership; and
(i) with the consent of the General Partners, modify by vote of a
majority in interest of Limited Partners' Capital any contract between the
Partnership or their Affiliates pursuant to which the General Partners or their
Affiliates are to receive compensation from the Partnership for services
rendered or goods sold or leased to the Partnership.
ARTICLE THIRTEEN
VOTING RIGHTS AND MEETINGS OF THE PARTNERSHIP
13.1 Voting Rights. Except as otherwise expressly provided in this
Agreement, a Limited Partner shall have no right to vote upon any matter
affecting the Partnership. Votes may be cast on any matter submitted for
consideration at a duly called meeting of the Partnership, or without a meeting
upon call of the General Partners or written request (stating the purpose of
such vote) of the Limited Partners holding ten percent (10%) or more of the
Limited Partners'Capital. Within twenty (20) days after receipt of such a
request, the General Partners (i) shall provide all Limited Partners with
appropriate ballots, which ballots shall include a verbatim statement of the
wording of any resolution proposed for adoption by any Limited Partner
requesting a vote on such resolution, and (ii) shall specify a time not less
than fifteen (15) nor more than sixty (60) days after receipt of such request by
which such ballots shall be returned.
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13.2 Meetings of the Partnership. Meetings of the Partnership may be
called by the General Partners, or by written request (stating the purpose of
such meeting) of Limited Partners holding ten percent (10%) or more of the
Limited Partners' Capital. Within ten (10) days after receipt of such request,
the General Partners shall provide all Limited Partners with written notice of a
meeting to be held not less than fifteen ( 15) nor more than sixty (60) days
after receipt of such written request, which notice (i) shall specify the time
and place of such meeting, (ii) shall contain a detailed statement of each
matter to be acted on at such meeting, (iii) shall include a verbatim statement
of the wording of any resolution proposed for adoption by any Limited Partner
calling such meeting, and (iv) shall include proxies or written consents which
specify a choice between approval or disapproval of each matter to be acted upon
at such meeting. Meetings of the Partnership shall be held at such location as
shall be specified by the General Partners. A majority of the Limited Partners'
Capital entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of the Partnership.
13.3 Amendment of Agreement.
(a) Amendments to this Agreement may be proposed by the General
Partners or by Limited Partners owning not less than 10% in interest of the
Limited Partners' Capital. Proposed amendments, subject to the conditions set
forth in this Article Thirteen, may concern any Article in this Agreement,
including, but not limited to (i) removal of any one or more of the General
Partners and election of one or more substitute General Partners; and (ii)
termination of the Partnership.
(b) Following any proposal of an amendment, the General Partners shall,
within fifteen (15) days after receipt, submit to all Limited Partners a
verbatim statement of the proposed amendment. The General Partners shall include
in such submission an opinion of counsel to the General Partners concerning
whether the proposed amendment would result in changing the Partnership to a
general partnership, changing the liability of the General Partners or the
Limited Partners, or allowing the Limited Partners to take part in the control
or management of the Partnership. The General Partners may also include in said
submission their recommendation as to the proposed amendment. In the case of any
proposed amendment which would affect the allocations or distributions provided
for in Articles Nine or Eighteen hereof or would amend Article 7.9(c) hereof,
the General Partners shall include in said submission the written advice of
counsel experienced in federal income tax matters as to the effect which such
amendment would have, if any, on such allocations and distributions and on the
bases of the Limited Partners' Partnership Interests. Any Limited Partner may,
at his sole expense, include an opinion of counsel experienced in matters under
the Act concerning the effect of the proposed amendment. Except as otherwise
provided in Articles 11.2(l) or 13.3(d) hereof, all proposed amendments, whether
proposed by the General Partners or by Limited Partners, shall be submitted to
Limited Partners for a vote, and the affirmative vote of holders of a majority
in interest of the Limited Partners' Capital (or such greater majority as may be
required by law) shall be required to approve any such amendment. The General
Partners may seek the written vote of the Limited Partners or may call a
meeting.
(c) Notwithstanding the provisions of Article 13.3(a), no such
amendment shall alter the allocations specified in Articles Nine and Eighteen
hereof, alter the Capital Contributions of the Partners, or otherwise materially
adversely affect the interests of the Limited Partners without the specific
written consent of each Limited Partner adversely affected thereby; provided,
however, that Article 13.3(d) shall control in all events.
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(d) Notwithstanding any provision of Article 13.3(c) or any other
provision of this Agreement to the contrary, the General Partners are authorized
and directed to allocate Net Income, Net Loss, Gain, and Loss arising in any
year differently than otherwise provided for in this Agreement to the extent
that the General Partners determine that allocating income, gain, loss,
deduction or credit (or item thereof) in the manner provided for in this
Agreement would not be permitted under section 704(b) of the Code and Treasury
regulations promulgated thereunder. Any such allocation (hereinafter referred to
as the "New Allocation") shall be deemed to be a complete substitute for any
allocation otherwise provided for in this Agreement, and no amendment of this
Agreement or approval of any Limited Partner shall be required. In making a New
Allocation, the General Partners are authorized to act only after having been
advised by the Partnership's counsel that the existing allocations are not or
may not be permissible under section 704(b) of the Code and Treasury regulations
promulgated thereunder. The General Partners shall use their best efforts to
cause the New Allocations to resemble in all material ways and to the maximum
extent possible the allocations contained in this Agreement as originally
adopted; the General Partners, however, make absolutely no warranties in this
regard. No New Allocation, and no choice by the General Partners among possible
alternative New Allocations, shall give rise to any claim or cause of action by
any Limited Partner against any party, including. but not limited to, the
General Partners, the Partnership's counsel, or any individual related thereto.
(e) This Article 13.3 may not be amended without the unanimous written
consent of all Partners, and no provision of this Agreement requiring the
consent of greater than a majority in interest of the Limited Partners'Capital
may be amended without the same consent of the Limited Partners' Capital as is
required in the provision to be amended.
ARTICLE FOURTEEN
RESTRICTIONS ON TRANSFER OF INTEREST IN PARTNERSHIP
14.1 Representations of Limited Partners. Each Limited Partner
acknowledges that he is fully aware that the Partnership is selling the Units in
reliance upon the truth and accuracy of the representations of each Limited
Partner contained in this Agreement and in such Limited Partner's Subscription
Agreement.
14.2 Transfer of Limited Partners'Partnership Interests. Subject to
compliance with applicable state and federal securities laws and the conditions
on transfer set forth in this Article Fourteen, a Limited Partner shall have the
right to sell, assign, transfer, encumber, pledge, convey, hypothecate, or
otherwise transfer or dispose (which actions are collectively referred to in
this Article Fourteen as a "transfer") of all or any part of his Partnership
Interest. Transfers may be made only with the consent of the General Partners,
which consent may be granted or withheld at the sole discretion of the General
Partners. Any such transfer shall also comply with the following conditions:
(a) No assignments or transfers will be permitted if such assignments
or transfers would, in the opinion of counsel for the Partnership or the General
Partners, result in the Partnership being considered to have terminated within
the meaning of Section 708 of the Code.
(b) In no event shall Units be assigned or transferred to a minor or an
incompetent except by will or intestate succession.
(c) No sale, assignment or transfer after which the transferor or the
transferee will hold an interest representing a Capital Contribution of less
than $2,500 ($1,000, or such greater amounts as may be required by applicable
state law, in the case of transfers by an Individual Retirement Account, Keogh
or pension plan), will be recognized for any purpose.
14.3 Effect of Transfer.
(a) No transfer will be binding upon the Partnership or the Partners
until (i) the provisions of Article 14.2 have been met; and (ii) there shall
have been filed with the Partnership a duly executed and acknowledged
counterpart of the instrument making such transfer, signed by both the
transferor and the transferee, with such instrument evidencing the written
acceptance by the transferee of all of the terms and provisions of this
Agreement and containing a representation by the transferor that such transfer
was made in accordance with all applicable laws and regulations.
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(b) All transfers of a Limited Partner's Partnership Interest shall
entitle the transferee only to receive the economic interest to, which the
transferring Limited Partner would otherwise be entitled. Such transferee shall
become a Substituted Limited Partner only with the written consent of the
General Partners following compliance with the conditions set forth in this
Article 14.3 and in Article 14.2 hereof. The Substituted Limited Partner shall
also be required to (i) execute and acknowledge such instruments as the General
Partners deem necessary or advisable to effect the admission of such person as a
Substituted Limited Partner, and (ii) pay all reasonable expenses incurred by
the Partnership in connection with such person's admission as a Substituted
Limited Partner (not to exceed $100).
(c) All such transfers shall be effective as of the close of business
on the last day of the calendar month in which the assignment, transfer or
conveyance occurs, or, at the General Partners' election, at 7:00 o'clock a.m.,
Orlando, Florida time, on the following day. Each Partner agrees to execute such
certificates and other documents and perform such acts as may be requested by
the General Partners in connection with such transfer. The General Partners
shall be required to amend this Agreement at least once each calendar quarter to
reflect the substitution of Limited Partners. Until this Agreement is so
amended, an assignee shall not become a Substituted Limited Partner. Any
Substituted Limited Partner so admitted to the Partnership will succeed to all
the rights and be subject to all the obligations of the transferring Limited
Partner with respect to the Partnership Interest as to which such Limited
Partner was substituted. The Limited Partners hereby consent to the substitution
as a Limited Partner of any individual or entity approved by the General
Partners.
14.4 Liability of Transferring Limited Partner. Any Limited Partner who
shall transfer all of his Partnership Interest shall cease to be a Limited
Partner of the Partnership, except that unless and until a Substituted Limited
Partner is admitted in his stead, such transferring Limited Partner shall retain
the statutory rights of an assignor of a limited partnership interest under the
Act. No substitution of an assignee as a Limited Partner shall operate to
relieve the assignor of the liabilities imposed under the Act or of his duties
and obligations hereunder, unless the General Partners agree in writing to
release such Limited Partner.
14.5 Record Owner of Partnership Interest. Notwithstanding anything
contained in this Agreement to the contrary, both the Partnership and the
General Partners shall be entitled to treat the transferor of any Partnership
Interest as the absolute owner thereof in all respects, and shall incur no
liability for distributions of cash or other property made in good faith to such
transferor in reliance on the Partnership records as they exist until such time
as the above-referenced written instrument of transfer has been received by,
approved and recorded on the books of, the Partnership.
14.6 Admission of Additional Limited Partners. The General Partners are
authorized, in their sole discretion and without the approval of any of the
Limited Partners, to admit from time to time as additional Limited Partners such
persons or entities who subscribe for Units during the period in which Units are
offered for sale to the public as described in the Prospectus. Each such person
or entity may apply for admission by completing, executing and delivering to the
General Partners (i) a form of subscription agreement required by the General
Partners which shall include, and constitute, an agreement by him to be bound by
this Agreement and to become a Limited Partner, (ii) his Capital Contribution,
and (iii) such other documents as may be required by the General Partners.
Admission of an additional Limited Partner will become effective upon the
recordation of an amendment to this Agreement reflecting such admission.
14.7 Death, Incompetency or Dissolution of a Limited Partner. The
death, legal incompetency, bankruptcy or dissolution of a Limited Partner shall
not dissolve the Partnership. The rights and obligations of such Limited Partner
to share in the Net Income, Net Loss, Net Cash Flow, Gain and Loss of the
Partnership, to receive distributions of Partnership funds and to transfer his
Partnership Interest pursuant to. this Article Fourteen shall, upon the
happening of such an event, devolve upon such Limited Partner's legal
representative or successor in interest, as the case may be, subject to the
terms and conditions of this Agreement, and the Partnership shall continue as a
limited partnership. Upon the death of a Limited Partner, his legal
representative shall have all the other rights of a Limited Partner solely for
the purpose of settling his estate. In no event, however, may such estate, legal
representative or other successor in interest become a Substituted Limited
Partner except in accordance with Article 14.4 hereof. Each Limited Partner's
estate or other successor in interest shall be liable for all the obligations
and liabilities of such Limited Partner.
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ARTICLE FIFTEEN
ADDITION, REMOVAL, OR WITHDRAWAL OF A GENERAL PARTNER
15.1 Additional General Partners. The General Partners may at any time
designate one or more additional general partners whose Partnership Interests
shall be such as shall be agreed upon by the General Partners and such
additional general partners, provided that the Partnership Interests of the
Limited Partners shall not be affected thereby.
15.2 Removal and Election of General Partners.
(a) Notwithstanding anything else herein contained, any General Partner
may be removed and a new General Partner may be elected as a substitute General
Partner in the place of such removed General Partner by the vote of a majority
in interest of the Limited Partners' Capital.
(b) Written notice of the removal of a General Partner shall be served
upon such General Partner, either by certified or registered mail, return
receipt requested, or by personal service. Such notice shall set forth the
reasons for the removal and the date upon which the removal is to become
effective. Notwithstanding the foregoing sentence, any removal of the last
remaining General Partner shall be effective only at the earlier of (i) such
date as a successor General Partner shall have been admitted to the Partnership
pursuant to Section 15.4 hereof, or (ii) a date ninety (90) days after the date
on which the required majority in interest of the Limited Partners' Capital
shall have voted for such removal of the General Partner. Upon the effective
date of the removal of a General Partner, he or it shall cease to be a General
Partner, and any loans made by such General Partner or his or its Affiliates to
the Partnership shall be repaid as expeditiously as possible.
(c) In the event a General Partner is removed and the remaining General
Partner or General Partners elect to continue the business of the Partnership
pursuant to Article 17.2, or if the business of the Partnership is continued
pursuant to Article 17.2 in the event of the removal of the last remaining
General Partner, then (i) the Partnership shall purchase the General Partner's
Partnership Interest at a price determined in accordance with Article 15.5
hereof, and (ii) if no substitute General Partner is elected in the place of any
removed General Partner, those persons or entities who are General Partners
following such removal shall use their best efforts to release such removed
General Partner (and his or its Affiliates, if applicable) from personal
liability on any existing or future Partnership borrowings.
15.3 Death, Incompetency, Bankruptcy, Dissolution or Withdrawal of a
General Partner.
(a) Subject to the provisions of Articles 17.1(e) and 17.2 hereof, the
death, incompetency, bankruptcy or dissolution of a General Partner shall
dissolve the Partnership. In the event
that, following the death, incompetency, bankruptcy or dissolution of a General
Partner, the remaining General Partner or General Partners (if any) elect to
continue the business of the Partnership pursuant to Article 17.2, or if the
business of the Partnership is otherwise continued pursuant to Article 17.2, the
Partnership shall have the obligation, in accordance with Article 17.2, to
purchase the Partnership Interest of such General Partner at a purchase price
determined in accordance with Article 15.5 hereof.
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(b) A General Partner may withdraw, whether through resignation or
otherwise, or transfer all of his General Partner's Partnership Interest at any
time provided that he shall give at least sixty (60) days prior written notice
to the Limited Partners of such resignation, and such withdrawal shall become
effective at the expiration of such sixty-day period. The last remaining General
Partner may withdraw or transfer all of his General Partner's Partnership
Interest only if (i) he shall give the notice specified in the foregoing
sentence, (ii) in such notice, he shall nominate as a substituted General
Partner a willing person or entity that, in such General Partner's reasonable
discretion, meets the requirements for qualification of the Partnership as a
partnership for federal income tax purposes, and (iii) a majority in interest of
Limited Partners' Capital shall consent in writing to such withdrawal,
resignation, or transfer. Such General Partner shall, concurrently with the
request for such consent, identify to the Limited Partners the interest to be
transferred, the date of the transfer, the proposed transferee and the proposed
substituted General Partner, if any, who shall in such General Partner's
reasonable discretion meet the requirements for qualification of the Partnership
as a partnership for federal income tax purposes. If the Limited Partners
consent to a transfer of such General Partner's Partnership Interest by the
requisite majority, the nominated substituted General Partner shall seek
admission to the Partnership in accordance with the provisions of Article 15.4
hereof prior to the withdrawal of such General Partner, and the withdrawal,
resignation or transfer of such General Partner shall become effective only upon
the admission of a substituted General Partner or the expiration of ninety (90)
days following such withdrawal, resignation or transfer. The substituted General
Partner shall purchase such withdrawing, transferring or resigning General
Partner's Partnership Interest at such price as the substituted General Partner
and such withdrawing, transferring or resigning General Partner shall agree upon
or, if they cannot so agree, at a price determined in accordance with Article
15.5 hereof. Notwithstanding anything else herein contained, no person or entity
shall be admitted as a substituted General Partner until the full purchase price
for the Partnership Interest of such withdrawing, transferring or resigning
General Partner has been paid in full or arrangements satisfactory to such
withdrawing, transferring or resigning General Partner for full payment have
been made. Upon the effective date of the withdrawal or resignation of any
General Partner, or the transfer of his Partnership Interest, he shall cease to
be a General Partner of the Partnership, and all loans made by him or it or by
such General Partner's Affiliates to the Partnership shall be repaid as
expeditiously as possible, and before any distributions to the Limited Partners.
15.4 Admission of Substituted General Partner. No person or entity
shall be admitted as a substituted General Partner unless all of the following
conditions are met or, by unanimous agreement of the Limited Partners, waived:
(a) such person or entity agrees in writing to accept the
responsibilities of the removed General Partner and makes arrangements
reasonably satisfactory to such General Partner (i) to release such General
Partner (and his Affiliates, if applicable) from personal liability on any
existing or future Partnership borrowings and to indemnify such General Partner
and his or its Affiliates against all other liabilities of the Partnership,
fixed, contingent or otherwise, except liabilities for which the General
Partners may not be indemnified by the Partnership under Article Nineteen or
(ii) to indemnify such General Partner and his or its Affiliates against all
liabilities of the Partnership, fixed, contingent or otherwise (including any
existing or future Partnership borrowings), except such liabilities for which
the General Partners may not be indemnified by the Partnership under Article
Nineteen;
(b) such person or entity agrees in writing to become a substituted
General Partner;
(c) counsel for the Partnership renders an opinion
that such admission is in conformity with the Act and
will not cause a termination or dissolution of the Partnership or cause it to be
classified other than as a partnership
for federal income tax purposes;
(d) a majority in interest of the Limited Partners' Capital consent to
the admission of such person as a substituted General Partner; and
(e) such person or entity executes and acknowledges such instruments as
may be necessary or advisable to effect the admission of such person or entity
as a substituted General Partner, including, without limitation, the written
acceptance and adoption by such person of the provisions of this Agreement and
the filing of an amendment to this Agreement evidencing such admission.
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Upon satisfaction or waiver of the foregoing conditions, this Agreement shall be
amended in accordance with the Act, and all other steps shall be taken as are
reasonably necessary to effect the admission of the substituted General Partner.
15.5 Purchase Price of a General Partner's Interest.
(a) In the event that a General Partner's Partnership Interest is
purchased pursuant to Articles 15.2(c) or 15.3(a), or pursuant to 15.3(b) if a
purchase price cannot be agreed upon, the purchase price shall be based upon an
appraisal performed as set forth in this Article 15.5 and shall be equal to the
fair market value of the distribution of Partnership funds to which such General
Partner would have been entitled if the Partnership were dissolved and wound up
pursuant to Article Eighteen hereof on the effective date of the dissolution and
its assets sold on such date without compulsion of the Partnership to do so.
(b) The Partnership and the General Partner whose Partnership Interest
is being purchased shall select an appraiser which is not an Affiliate of the
Partnership or such General Partner to perform the appraisal. If such General
Partner and the Partnership cannot agree upon such an appraiser, then each shall
appoint one appraiser. If the two appraisers so appointed cannot agree on a
purchase price, the two appraisers shall select a third appraiser, or if the
first two appraisers are unable to agree upon a third appraiser, such third
appraiser shall be selected by the American Arbitration Association. The third
appraiser shall submit a written report on the value of such General Partner's
Partnership Interest. If the value arrived at by the third appraiser is between
the values arrived at by the first two appraisers, the report of the third
appraiser shall govern. If the value arrived at by the third appraiser is higher
than the value arrived at by the first two appraisers, the report of the higher
of the first two appraisers shall govern. If the value arrived at by the third
appraiser is lower than the value arrived at by the first two appraisers, the
report of the lower of the first two appraisers shall govern. The costs of the
appraisals shall be bome equally by such General Partner (or such General
Partner's legal representative) and the Partnership.
(c) The purchase price of such General Partner's Partnership Interest
shall be paid by the Partnership giving such General Partner (or such General
Partner's legal representative) a non-interestbearing unsecured promissory note
evidencing such purchase price payable only from Net Cash Flow otherwise payable
to the General Partners pursuant to Article Nine hereof or, as the case may be,
from assets available for payment of Partnership liabilities upon dissolution
and liquidation pursuant to Articles Seventeen and Eighteen hereof.
ARTICLE SIXTEEN
REPORTS, ACCOUNTING AND TAX MATTERS
16.1 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year. 16.2 Books of Account and Accounting. The General
Partners shall maintain or cause to be maintained, full, complete,
accurate and proper books of account and records of the Partnership's
operations.
16.3 Reports to the Limited Partners.
(a) An annual report, examined and reported on by independent
certified public accountants, will be furnished to Limited Partners within 120
days following the close of each fiscal
year. The annual report will contain an audited balance sheet, statement of
operations, statement of Partners' equity, statement of changes in financial
position, an unaudited cash flow statement, and a report of the activities of
the Partnership during the relevant period. The annual report will also contain
a complete statement of distributions to Partners, of any transactions with the
General Partners or their Affiliates and a summary of compensation and fees paid
or payable to the General Partners and their Affiliates (including reimbursable
expenses).
(b) Within 60 days after the end of each fiscal quarter in which the
General Partners or their Affiliates received fees or other compensation from
the Partnership, Limited Partners will be furnished with a detailed statement
setting forth the services rendered or to be rendered by the General Partners or
their Affiliates for the Partnership and the fees or compensation received
therefore.
(c) Information necessary for the preparation of federal income tax
returns will be furnished to Limited Partners within 75 days following the close
of each fiscal year.
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(d) Within 75 days following the close of each fiscal year, each
Limited Partner will be furnished with an annual statement of Unit valuation to
enable Limited Partners subject to annual reporting requirements under ERISA to
file such annual reports as they relate to their Partnership investment. The
statement will report an estimated value of each Unit based on the amount
Limited Partners would receive if the Properties were sold at their appraised
values as of the close of the fiscal year, and if such proceeds and any other
funds of the Partnership were distributed in a liquidation of the Partnership as
described in the Prospectus. For Properties acquired during the fiscal year, an
appraisal will not be obtained as of the end of such fiscal year if the
Partnership obtained an appraisal within a nine-month period prior to the close
of such fiscal year. Limited Partners will not receive copies of appraisals. For
the first three annual valuation reports to Limited Partners after the
termination of the offering, the General Partners will value all Properties at
cost and report the net asset value per each Unit at $500. In providing such
reports to the Limited Partners, the Partnership and the General Partners and
their Affiliates do not thereby make any warranty, guarantee or representation
that (i) the Limited Partners or the Partnership, upon liquidation, will
actually realize the estimated value per Unit, or (ii) the Limited Partners will
realize the estimated net asset value if they attempt to sell their Units.
(e) If the Partnership is required by the Securities Exchange Act of
1934, as amended, to file quarterly reports with the Securities and Exchange
Commission, Limited Partners will, within 60 days after the end of each fiscal
quarter, be furnished with a copy of each such report, containing a balance
sheet, a quarterly statment of income and cash flow, and all pertinent
information regarding the Partnership and its activities during the quarter, as
required by Form 10-Q under the Securities Exchange Act of 1934, as amended. If
the Partnership is not subject to this filing requirement, Limited Partners will
be furnished with a semi-annual report within 60 days after the end of each
six-month period containing the information described in the preceding sentence,
but applicable to such six-month period.
(f) Until such time as all of the Limited Partners' Capital remaining
after payment of the amounts specified in Articles 7.2, 7.3, 7.4 and 7.5 and
creation of reserves as provided in Article 7.6 is used to acquire Properties as
provided in Article 7.7 or is returned to investors as provided in Article 7.8,
special reports will be furnished to the Limited Partners on a quarterly basis,
which shall contain the following information: (i) the location and a
description of the general character of all Properties which the Partnership
acquired during such quarter or which the Partnership intends to acquire during
the following quarter; (ii) the present or proposed use of such Properties,
their suitability and adequacy for such uses, (iii) the material terms of any
leases affecting such Properties, (iv) the method of financing such Properties,
and (v) a statement that title insurance has been or will be obtained on all
Properties acquired or to be acquired. The Partnership may incorporate the
information contained in such reports into any of the reports furnished to the
Limited Partners pursuant to this Article 16.3.
(g) Within 60 days after the end of each fiscal quarter in which
Limited Partners have received distributions from the Partnership, each Limited
Partner who is at that time a resident of the State of New York will be
furnished with the information required by New York Form SD-1 or any sucessor
form.
(h) Financial information contained in all reports to Limited Partners
will be prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles. If such information differs from the information
furnished to Limited Partners for tax purposes, the two sets of information will
be reconciled.
16.4 Tax Returns. The General Partners shall use their best efforts to
cause the Partnership to file on a timely basis all federal, state and local tax
and information returns required of the Partnership and shall, on behalf of the
Limited Partners, make such elections and determinations as are provided for
herein or as they otherwise in their sole discretion deem appropriate. Such
returns shall be prepared on the accrual basis of accounting.
16.5 Tax Matters. Upon the transfer of a Partnership Interest, the
Partnership will consider, upon any Partner's request, an election to cause the
basis of the Partnership property to be adjusted for federal income tax
purposes, as provided in Section 754 of the Code. Robert A. Bourne, or his
successor, is hereby designated as the "Tax Matters Partner" in accordance with
Section 6231(a)(7) of the Code and, in connection therewith and in addition to
all other powers given thereunto, shall have all other powers necessary or
appropriate to fully perform such role, including without limitation the power
to retain all attorneys and accountants of his choice and the right to settle
any audits without the consent of the Limited Partners. This designation is
hereby expressly consented to by each Limited Partner as an express condition to
becoming a Limited Partner.
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ARTICLE SEVENTEEN
DISSOLUTION OF THE PARTNERSHIP
17.1 Events of Dissolution. The Partnership shall dissolve upon the
first to occur of: (a) the expiration of the term of the Partnership;
(b) a vote of a majority in interest of the Limited Partners' Capital
that the Partnership shall dissolve; (c) the cash sale or other
disposition of all or substantially all Partnership assets (as defined
in Article
1.24), other than a transfer thereof as security for indebtedness of the
Partnership, or the receipt by the Partnership of the final payment in the case
of an installment sale of all or substantially all of such assets;
(d) the removal of any General Partner pursuant to Article 15.2 hereof
or the withdrawal or resignation of any General Partner pursuant to Article
15.3, subject in each case to the provisions of Article 17.2 hereof;
(e) the bankruptcy, death, dissolution or adjudication of incompetency
of any General Partner, in each case subject to the provisions of Article 17.2,
and further provided that for purposes of this Article 17. 1 (e), the term
"dissolution" shall not include the merger, consolidation or recapitalization of
any corporate General Partner; or
(f) any other event causing the dissolution of the Partnership under
the Act.
17.2 Reformation. Notwithstanding Article 17.1, in the event of a
dissolution pursuant to Article 17.1(d) or 17. 1(e) above, the Partnership shall
not be dissolved if either of the following conditions is met: (i) the remaining
General Partners elect to continue the business of the Partnership, or (ii) in
the event there are no General Partners remaining at such time, then if all of
the Limited Partners agree to continue the business of the Partnership on the
same terms and conditions as are contained herein and elect by vote of a
majority in interest of Limited Partners' Capital a substituted General Partner
admitted pursuant to Article 15.4 hereof within ninety (90) days following the
occurrence of one of the events specified in Article 17.1(d) or 17.1(e). If
either of the foregoing conditions are met, then the provisions of Article
Eighteen hereof shall not apply, the Partnership shall continue its business
without dissolving, and the interest in the Partnership of the General Partner
to whom one of the events specified in Article 17.1(d) or 17.1(e) applies shall
be purchased by the Partnership. In the event of such reformation, all of the
assets and liabilities of the Partnership shall be contributed to the new
partnership which shall be formed and all parties to this Agreement shall become
partners in such new partnership and, unless otherwise agreed to by unanimous
vote of the Limited Partners, this Agreement, as it may from time to time be
amended, shall continue as the Limited Partnership Agreement of such new
partnership.
ARTICLE EIGHTEEN
WINDING UP OF PARTNERSHIP
18.1 Liquidation of Assets. The Partnership shall not terminate upon a
dissolution, but shall cease to engage in further business except to the extent
necessary to wind up its affairs, perform existing contracts and preserve the
value of its assets. The General Partners or a liquidation trustee appointed by
the General Partners or, if there is no General Partner, a liquidation trustee
selected by a majority in interest of Limited Partners' Capital (the
"Liquidation Trustee") shall take full account of the Partnership's assets and
liabilities, file all certificates and notices of dissolution as are required by
law, wind up its affairs, and liquidate the Partnership's assets as promptly as
is consistent with obtaining the fair value thereof. The General Partners or the
Liquidation Trustee, as the case may be, shall have full power and authority to:
(a) sell or otherwise dispose of, at such prices and upon such terms as
they or it in their or its sole discretion may deem appropriate, all of the
Partnership's assets; and
(b) as promptly as possible after such liquidation, effect a
distribution of the assets of the Partnership in cash as set forth in Article
18.2.
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During the course of winding up, the Partners shall continue to share in Net
Income, Net Loss, Net Cash Flow, Gain and Loss as provided in this Agreement,
and all of the provisions of this Agreement shall continue to bind the parties
and apply to the activities of the Partnership except as specifically provided
to the contrary, but there shall be no distributions to the Partners except
pursuant to this Article Eighteen.
18.2 Distributions. Distribution of the proceeds of liquidation
pursuant to Article 18.1 hereof, any Net Sales Proceeds from a Liquidating Sale,
and the cash assets of the Partnership following a dissolution shall, subject to
Article 8.3, be made in the following order of priority:
(a) first, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than Partners;
(b) second, to the establishment of any reserves which the General
Partners or the Liquidation Trustee, as the case may be, may deem necessary for
any anticipated, contingent or unforeseen liabilities or obligations of the
Partnership arising out of the conduct of its business, which reserves will be
held in escrow until the expiration of such period of time as the General
Partners or the Liquidation Trustee, as the case may be, shall deem advisable,
at which time any balance of any such reserves not required to discharge such
liabilities or obligations shall be distributed as provided in subsections (c)
and (d) below;
(c) third, to the payment and discharge of all of the Partnership's
debts and liabilities, if any, to the Partners (other than in respect of their
Partnership Interests);
(d) fourth, after allocations of (i) Net Income or Net Loss, if any,
have been made pursuant to Article 9.1(a) hereof and (ii) Gain or Loss have been
made pursuant to Articles 9.1(b) or 9.1(c) hereof, to the Partners with positive
Capital Account balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero; and
(e) thereafter, any funds then remaining shall be distributed 95% to
the Limited Partners and 5% to the General Partners.
18.3 Distribution in Kind. The Partnership shall not make any
distribution in kind of tangible or intangible assets.
18.4 Time for Orderly Liquidation. A reasonable amount of time shall be
allowed for the orderly liquidation of the assets of the Partnership and the
discharge of liabilities to creditors so as to enable the General Partners or
the Liquidation Trustee, as the case may be, to minimize the normal losses
attendant upon such liquidation.
18.5 Indebtedness of Partners. Notwithstanding the foregoing, if any
Partner shall be indebted to the Partnership, then until payment of such amount
by him, the General Partners or the Liquidation Trustee, as the case may be,
shall retain such Partner's distributive share of the assets and apply such
assets or the income therefrom to the liquidation of such indebtedness and the
cost of holding such assets during the period of such liquidation. If such
amount has not been paid or otherwise liquidated at the expiration of six months
after the statement required by the first sentence of Article 18.7 hereof has
been given to such Patner, the General Partners or the Liquidation Trustee, as
the case may be, may sell the interest of such Partner at public or private sale
of the best price immediately obtainable which shall be determined in the sole
judgment of the General Partners or the Liquidation Trustee, as the case may be.
Proceeds of such sale shall be applied to the liquidation of the amount then due
under this Article Eighteen, and the balance of such proceeds, if any, shall be
delivered to such Partner.
18.6 Deficit Restoration. Notwithstanding any other provision of this
Agreement to the contrary, if, upon the liquidation of a General Partner's
partnership Interest (whether or not in connection with the liquidation of the
Partnership), such General Parnter has a negative balance in his Capital Account
(as detemined after taking into account Capital Account adjustments for the
Partnership taxable year during which such lliquidation occurs, other than those
made pursuant to this Article 18.6), then such General Parnter shall be required
to pay to the Partnership, by the end of such taxable year (or, if later, within
90 days after the date of such liquidation), an amount in cash equal to the
differnece btween such Partner's negative Capital Account and zero. The
aggregate of such payments by all General Partners having negative Capital
Accounts shall, upon liquidation of the Partnership, be distributed to the
Partnership's then-creditors, if any, and any excess among the Partners having
positive Capital Account balances.
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18.7 Final Accounting. Upon the dissolution of the Partnership pursuant
to Article Seventeen, the accountants for the Partnership shall promptly
prepare, and the General Partners or the Liquidation Trustee, as the case may
be, shall furnish to each Partner, a statement setting forth the assets and
liabilities of the Partnership upon its dissolution. Promptly following the
complete liquidation and distribution of Partnership property and assets, the
Partnership accountants shall furnish to all Partners, a statement showing the
manner in which the Partnership assets were liquidated and distributed.
18.8 Compliance with Law. The General Partners and each Liquidation
Trustee shall comply with any requirements of the Act or other applicable law
pertaining to the winding up of a limited partnership, upon the completion of
which the Partnership shall be deemed terminated. Upon the complete liquidation
and distribution of the Partnership's assets, the Partners shall cease to be
Partners of the Patnership and the General Partners or the Liquidation Trustee,
as the case may be, shall execute, acknowledge, and cause to be filed all
certificates and notices required by law to terminate the Partnership.
ARTICLE NINETEEN
INDEMNIFICATION
19.1 General. If any threatened, pending or completed action, suite or
proceeding to which a General Partner or an Affiliate, as defined below, was or
is a party or is threatened to be made a party by reason of the fact that such
General Partner or Affiliate (i) is or was a General Partner, or (ii) is an
Affiliate or a General Partner, the Partnership shall hold harmless and
indemnify such General Partner or Affiliate against any and all losses, harm,
liabilities, damages, costs and expenses (including, but not limited to
attorneys' fees, judgments and amounts paid in settlement) incurred by such
General Partner or Affiliate in connection with such action, suit or proceeding
if such General Partner or Affiliate acted in good faith, within the scope of
the General Partners' authority, and in a manner reasonably believed to be in
the best interests of the Partnership, and provided that such General Partner's
or Affiliate's conduct does not constitute negligence, misconduct, or breach of
fiduciary duty to the Limited Partners. Notwithstanding anything to the contrary
in this Agreement, for purposes of this Article 19.1 only, the term "Affiliate"
shall mean any person performing services on behalf of the Partnership who (a)
directly or indirectly controls, is controlled by, or is under common control
with a General Partner; or (b) owns or controls 10% or more of the outstanding
voting securities of a General Partner; or (c) is an officer, director, partner
or trustee of a General Partner; or (d) if a General Partner is an officer,
director, partner or trustee, is any company for which a General Partner acts in
any such capacity.
19.2 Securities Laws Violations. Notwithstanding anything to the
contrary in Article 19.1, the Partnership shall not indemnify a General Partner
or Affiliate, as the term Affiliate is defined in Article 19.1, for any
liability imposed by judgment, and costs associated therewith, including
attorneys fees, arising from or out of a violation of state or federal
securities laws associated with the offer and sale of Units; provided, however,
that indemnification will be allowed for any and all settlements and related
expenses of lawsuits alleging securities laws violations and for any and all
expenses incurred in successfully defending such lawsuits, if a court either (i)
approves the settlement and finds that indemnification of the settlement and
related costs should be made, or (ii) approves indemnification of litigation
costs if a successful defense is made. The General Partner or Affiliate agrees
to apprise the court from which approval of indemnification pursuant to this
Article 19.2 is sought, prior to seeking such approval, of the positions of the
Securities and Exchange Commission and all state securities agencies with which
the Partnership has registered Units for sale to the public with respect to
indemnification for securities laws violations.
19.3 Liability Insurance. The Partnership shall not incur the cost of
that portion of any liability insurance which insures a General Partner or
Affiliate, as the term Affiliate is defined in Article 19.1, against liabilities
as to which such General Partner or Affiliate may not be indemnified under this
Article Nineteen.
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ARTICLE TWENTY
POWER OF ATTORNEY
20.1 General Partners as Attorney-in-Fact. In order to induce the
General Partners to accept each Limited Partner as a Limited Partner of the
Partnership, and in consideration of the General Partners' agreement to serve as
General Partners of the Partnership, each Limited Partner, by the execution of
this Agreement (either individually or through his agent and attorney), does
irrevocably constitute and appoint the General Partners, and each of them, with
full power of substitution and ratification, his true and lawful attorney, in
his name, place and stead, to execute, acknowledge, swear to, file and record in
the appropriate public offices all documents, instruments and certificates of
whatsoever nature which the General Partners determine are necessary or
advisable to execute or conduct the business of the Partnership, including,
without limitation:
(a) those (including counterparts of this Agreement) which the General
Partners deem appropriate to qualify or continue the Partnership as a limited
partnership (or a partnership in commendam) in any jurisdiction in which the
Partnership may conduct business;
(b) those which the General Partners deem appropriate to reflect a
change or modification of the Partnership or this Agreement made in accordance
with the terms of this Agreement;
(c) those which the General Partners deem appropriate to reflect the
admission of additional Limited Partners or General Partners or Substituted
Limited Partners admitted to the Partnership in accordance with the terms of
this Agreement; and
(d) all conveyances and other documents, instruments and certificates
which the General Partners deem necessary, appropriate or convenient to sell,
assign, convey or transfer Partnership property in accordance with the terms of
this Agreement or to effect the dissolution, termination and liquidation of the
Partnership.
20.2 Special and Durable Power. The foregoing grant of authority is
hereby declared to be irrevocable, and a special power coupled with an interest
which shall survive the death, disability, dissolution, bankruptcy, incapacity
or insolvency of the Limited Partners. In the event of any conflict between the
provisions of this Agreement and any document executed or filed by any of the
General Partners pursuant to the Power of Attorney granted in this Article
Twenty, this Agreement shall govern. Each Limited Partner authorizes the General
Partners, and each of them, to take any further action which such General
Partner(s) shall consider necessary or advisable in connection with any of the
foregoing, hereby giving the General Partners full power and authority to do and
perform each and every act or thing whatsoever requisite or advisable to be done
relating to the foregoing as fully as such Limited Partner might or could do if
personally present, and hereby ratifying and confirming all that the General
Partners shall lawfully do or cause to be done by virtue hereof. This Power of
Attorney may be exercised by the General Partners by listing all of the Limited
Partners executing any agreement, certificate, instrument or document with the
single signature of the General Partners, or any of them, in their, his or its
capacity as attomey-in-fact for any and all of them; and shall survive the
delivery of a transfer by a Limited Partner of his Partnership Interest, except
that where the purchaser, transferee or assignee of the whole of such
Partnership Interest with the consent of the General Partner is admitted as a
Substituted Limited Partner, the Power of Attorney shall survive the delivery of
such transfer for the sole purpose of enabling such General Partner to sign,
execute, certify, acknowledge, swear to, file and record any such agreement,
certificate, instrument or document necessary to effect such substitution. The
power hereby conferred to make agreements, certificates, instruments, and
documents shall be deemed to include the power to sign, execute, acknowledge,
swear to, verify, deliver, file, record, and publish the same.
ARTICLE TWENTY-ONE
MISCELLANEOUS
2.11 Reliance upon General Partners. No person or entity dealing with
any General Partner shall be required to determine such General Partner's
authority to make any commitment or undertaking on behalf of the Partnership,
nor to determine any fact or circumstance bearing upon the existence of his or
its authority.
A-28
<PAGE>
21.2 Banking. All funds of the Partnership shall be deposited in such
bank account or accounts as shall be determined by the General Partners. Such
bank accounts shall be maintained separately from other bank accounts of any of
the General Partners. All withdrawals therefrom shall be made upon checks signed
by one of the General Partners or by a person authorized to do so by the General
Partners. The funds of the Partnership shall not be commingled with those of any
other person or entity.
21.3 Investment Company Act. The Partnership shall not operate in such
a manner as to be classified as an "investment company" for purposes of the
Investment Company Act of 1940.
21.4 Notices. Any notice or other communication required or permitted
to be given by any provision of this Agreement shall be in writing and shall be
deemed to have been delivered and given for all purposes (i) if delivered
personally to the party to whom the same is directed, or (ii) whether or not the
same is actually received, if sent by registered or certified mail, return
receipt requested, postage and charges prepaid, addressed to Robert A. Bourne,
Centennial Investment Company, 122 East Colonial Drive, Suite 202, Orlando,
Florida 32801, if to the Partnership or any General Partner, or to such other
address as any of the General Partners may from time to time specify by written
notice to the Limited Partners; and if to a Limited Partner, at such Limited
Partner's address as set forth on Schedule A hereto, or to such other address as
such Limited Partner may from time to time specify by written notice to the
Partnership in accordance herewith.
21.5 No Inducement to Advise. Neither the General Partners nor their
Affiliates shall directly or indirectly pay or award any commission or other
compensation to any person engaged by a potential investor for investment advice
as an inducement to such advisor to advise the purchase of Units; provided,
however, that this provision shall not prohibit the Selling Commissions
authorized in the Prospectus and this Agreement which are payable to a
registered broker-dealer or other properly licensed person or entity for selling
Units.
21.6 Nonrecourse Loans. No creditor who makes a nonrecourse loan to the
Partnership shall have, or acquire at any time as a result of making such loan,
any direct interest in the profits, capital or other property of the
Partnership, other than as a secured creditor.
21.7 Issuance of Senior Securities. The Partnership shall not issue
senior securities, except notes to banks and others.
21.8 Section Headings. All headings contained in this Agreement are for
convenience of reference only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provisions
hereof.
21.9 Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the remainder of this Agreement or any
valid clause of any invalid portion. Any such invalid or unenforceable provision
shall be replaced with a valid and enforceable provision which comes closest to
the intent of the parties with respect to such invalid or unenforceable
provision.
21.10 Governing Law. Florida law shall govern the validity of this
Agreement, the construction of its terms and the interpretation of the rights
and duties of the parties.
21.11 Counterpart Execution. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one Agreement.
21.12 Parties in Interest. Each and every covenant, term, provision and
agreement herein contained shall be binding upon, and inure to the benefit of,
the heirs, successors, assigns and legal representatives of the respective
parties hereto.
21.13 Gender and Number. As the context requires, all words used herein
in the singular number shall extend to and include the plural; all words used in
the plural number shall extend to and include the singular; and all words used
in any gender shall extend to and include all genders or be neutral.
21.14 Partition. Each of the parties hereof irrevocably waives during
the term of the Partnership any right, if any, to maintain an action for
partition with respect to Partnership property.
21.15 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof, and no
amendment, modification, or alteration of the terms shall be binding unless the
same be in writing, dated subsequent to the date hereof, and duly executed as
required by law.
A-29
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written by the General Partners, the Initial Limited Partner and the
Limited Partners.
GENERAL PARTNERS:
Sworn to this 31st day of December 1986:
/s/ Judith A. Helman /s/ Robert A. Bourne
- ---------------------------------------- ------------------------------
Notary Public in and for Robert A. Bourne
Orange County, Florida
/s/ Judith A. Helman /s/ James M. Seneff, Jr.
- ---------------------------------------- ------------------------------
Notary Public in and for James M. Seneff, Jr.
Orange County, Florida
CENTENNIAL REALTY CORPORATION
By: James M. Seneff, Jr.
------------------------------
/s/ Judith A. Helman James M. Seneff, Jr.
- --------------------------------------- Title: General Partner
Notary Public in and for
Orange County, Florida
ALL THE LIMITED PARTNERS LISTED ON
THE ATTACHED SCHEDULE A
Sworn to this 31st day of December, 1986.
By Robert A. Bourne, as
Attomey-in-Fact for the
Limited Partners set
forth on Schedule A
/s/ Judith A. Helman /s/ Robert A. Bourne
- ---------------------------------------- --------------------------------
Notary Public in and for Robert A. Bourne
Orange County, Florida
INITIAL LIMITED PARTNER:
/s/ Judith A. Helman /s/ Jeanne A. Wall
- ---------------------------------------- --------------------------------
Notary Public in and for Jeanne A. Wall
Orange County, Florida
A-30
<PAGE>
Exhibit 10.1
Management Agreement between CNL Income Fund, Ltd. and
CNL Investment Company
<PAGE>
PROPERTY MANAGEMENT AGREEMENT
This Property Management Agreement (the "Agreement") is made and
entered into as of this ________ day of __________ 1986, by and between CNL
Income Fund, Ltd., a Florida limited partnership (the "Partnership"), and
Centennial Investment Company, a Florida corporation ("CIC").
WHEREAS, the Partnership intends to acquire, or enter into joint
ventures or partnerships which will acquire, certain real properties upon which
fast-food restaurants are to be located;
WHEREAS, the Partnership further intends to lease such properties, and
the buildings located thereon, on a "triple net" basis to operators or
franchisees of certain national or regional fast-food restaurants; and
WHEREAS, the Partnership desires to have CIC perform the property
management services specified in this Agreement with respect to such properties,
and CIC desires to perform such services.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Partnership and CIC agree as
follows.
<PAGE>
1. Definitions. Whenever used in this Agreement, the following terms shall have
the following specified meanings. Unless the context otherwise clearly
indicates, all other terms used in this Agreement and having initial capital
letters shall have the same meanings as set forth in the Amended and Restated
Agreement and Certificate of Limited Partnership of CNL Income Fund, Ltd., a
form of which is attached hereto as Exhibit A.
1.1 "Expenses" shall mean the actual cost of any and all goods and
materials, other than overhead items, acquired by CIC from persons or entities
not affiliated with CIC or the general partners of the Partnership, which are
reasonably necessary for the performance of any of its obligations under this
Agreement.
1.2 "Joint Venture" shall mean any joint venture or partnership in
which the Partnership is a co-venturer or partner.
1.3 "Landlord" shall mean any person or entity designated as the
landlord or lessor under any Lease.
1.4. "Lease" shall mean any lease entered into by the Partnership or a
Joint Venture with a Tenant for the lease of any Property.
1.5 "Property" shall mean any real property owned by the Partnership or
a Joint Venture and described in Exhibit B, as such exhibit may be amended from
time to time by agreement of the parties, including any buildings located on
such real property and any equipment located therein or thereon to the extent
such equipment is owned by the Partnership or a Joint Venture.
2
<PAGE>
1.6 "Tenant" shall mean (i) any person or entity designated as a tenant
or lessee under a Lease, or (ii) any assignee or subtenant of a Tenant pursuant
to a valid assignment or subletting under a Lease. 2. Services. CIC shall
perform the following property management services for the Partnership with
respect to the Properties:
(a) assisting the Partnership and any Joint Venture in negotiating
Leases;
(b) visiting and inspecting each Property'upon request of the
Partnership and at such other time or times as CIC determines is
necessary or appropriate for the proper management of each such Property;
(c) with respect to Properties wholly owned by the Partnership,
collecting all rents payable under each Lease, depositing the rents so collected
in accounts designated by the Partnership, and rendering quarterly statements to
the Partnership of the rents so collected;
(d) at the request of the Partnership, inspecting the books, records or
financial statements of a Tenant to the extent permitted under the terms of the
applicable Lease, for the purpose of determining whether such Tenant has paid or
is paying the full amount of rent required to be paid under such Lease;
(e) notifying the Partnership of any material default by a Tenant under
a Lease; (f) except as otherwise directed by the Partnership, enforcing
any and all rights of
each Landlord under the applicable Lease, at such times and in such manner and
to such extent other than through the initiation of legal proceedings against a
Tenant, as CIC reasonably determines to be appropriate under the circumstances;
3
<PAGE>
(g) providing reasonable assistance to the Partnership in connection
with any legal action brought by a Landlord against a Tenant for default under a
Lease;
(h) notifying the Partnership of any request, submission, notice or
other communication from a Tenant (other than rental payments), and advising the
Partnership with respect to the appropriate response; and
(i) furnishing to the Partnership, within a reasonable time after its
request, such information with respect to any Property as the Partnership may
from time to time reasonably request.
3. Compensation.
3.1 Propertv Management Fee. Within sixty (60) days following the close
of each fiscal year of the Partnership in which the Limited Partners of the
Partnership have received or will receive an amount equal to their aggregate,
noncumulative 10% Preferred Return payable from Net Cash Flow, the Partnership
shall, to the extent of available Net Cash Flow, pay to CIC, an annual property
management fee equal to 1/2 of 1% of the Partnership assets (valued at cost)
under management pursuant to this Agreement; provided, however, that such fee-,
together with fees paid by the Partnership to persons or entities unaffiliated
with the general partners of the Partnership for property management services,
shall not exceed an amount equal to the lesser of (i) fees which are competitive
for similar services in the same geographic area, or (ii) 1% of the gross
revenues derived from Properties wholly owned by the Partnership plus, in the
case of Properties owned by any Joint Venture, the Partnership's
4
<PAGE>
allocable share, under the agreement governing the Joint Venture, of gross
operating revenues from any such Properties. CIC shall not receive a property
management fee under this paragraph 3.1 in any fiscal year of the Partnership in
which the Limited Partners do not receive an amount equal to their aggregate,
noncumulative 10% Preferred Return payable from Net Cash Flow. The property
management fee payable to CIC during the first and last years of this Agreement
shall be prorated based on the number of days during the Partnership's fiscal
year for which this Agreement is in effect.
3.2 Expenses. The Partnership shall within 30 days after receipt of a
request by CIC for reimbursement of Expenses, reimburse CIC for all such
Expenses. All such requests shall state in detail the nature of all Expenses for
which reimbursement is sought and shall be supported by appropriate
documentation. 4. Term of Agreement.
4.1 Commencement and Expiration. This Agreement shall commence as of
the date of this Agreement and, unless sooner terminated pursuant to Paragraph
4.2 hereof, or by operation of law, or otherwise, shall expire at such time as
the Partnership no longer has an ownership interest in any Property.
4.2 Termination. Either party may terminate this Agreement, without
penalty, by giving sixty (60) days' prior written notice to the other party.
5
<PAGE>
4.3 Obligations Surviving Expiration or Termination.
(a) In addition to any other obligations of the Partnership
which survive the expiration or termination of this Agreement, the Partnership
shall upon the expiration or termination of this Agreement (i) promptly
reimburse CIC for all Expenses for which CIC seeks reimbursement, and (ii) pay
to CIC the property management fee payable under Paragraph 3.1 as soon after
expiration or termination of this Agreement as is consistent with payment to the
Limited Partners of the Partnership an amount equal to their aggregate,
noncumulative 10% Preferred Return payable from Net Cash Flow.
(b) In addition to any other obligations of CIC which survive
the expiration or termination of this Agreement, CIC shall upon the expiration
or termination of this Agreement (i) promptly cause all funds received from
Tenants as payments under a Lease to be deposited in the appropriate accounts
designat'ed by the Partnership, and (ii) promptly deliver to the Partnership all
records and documents in its possession relating to the Properties. CIC-shall
use its best efforts to cooperate with the Partnership to accomplish an orderly
transfer of the management of the Properties to a party or parties designated by
the Partnership. 5. Indemnification.
5.1 By the Partnership. The Partnership releases and shall defend,
indemnify and hold harmless CIC from all claims, losses, harm, costs,
liabilities, damages and expenses (including, but not limited to, attorneys'
fees) arising, whether before or after the expiration
6
<PAGE>
or termination of this Agreement, out of or in connection with (a) CIC's
management of any Property, or (b) any accident or injury (including death) to
any person or damage to any property or environment occurring in or about any
Property or in connection with the possession, use, or occupancy of any
Property; provided, however, that the Partnership shall have no obligation under
this Paragraph 5.1 to release, defend, indemnify or hold harmless CIC from any
such claim, loss, harm, cost, liability, damage or expense, if the same arises
out of (i) an act by CIC which is not taken in good faith or in a manner
reasonably believed to be in the best interests of the Partnership, or (ii)
conduct by CIC constituting negligence, willful misconduct or breach of any of
its obligations under this Agreement.
5.2 Indemnification by CIC. CIC releases and shall defend, indemnify
and hold harmless the Partnership from all claims, losses, harm, costs,
liabilities, damages and expenses (including, but not limited to, attorneys'
fees) arising, whether before or after the expiration or termination of this
Agreement, solely out of conduct by CIC constituting negligence, willful
misconduct or breach of any of its obligations under this Agreement.
6. Miscellaneous.
6.1 Survival. Paragraphs 4.3 and 5 and all provisions of this Agreement
which may reasonably be interpreted or construed as surviving the expiration or
termination of this Agreement shall survive the expiration or termination of
this Agreement for a period of ten years.
7
<PAGE>
6.2 Independent Contractor. The parties hereby recognize that CIC is
serving as an independent contractor under this Agreement. Nothing contained in
this Agreement shall be interpreted or construed to create a partnership
relationship between CIC and the Partnership.
6.3 Notices. Any notice, approval, request, authorization, consent,
direction or other communication required or permitted under this Agreement
shall be given in writing and shall be deemed to be delivered when delivered in
person or deposited in the United States mail, properly addressed and stamped
with the required postage, registered or certified mail, return receipt
requested, to the intended recipient as follows:
If to the Partnership: CNL Income Fund, Ltd.
122 East Colonial Drive
Suite 201
Orlando, Florida 32801
Attention: James M. Seneff, Jr.
If to CIC: Centennial Investment Company
122 East Colonial Drive
Suite 202
Orlando, Florida 32801
Attention: Robert A. Bourne
Either party may change its address specified above by giving the other party
notice of such change in accordance with this Paragraph 6.3.
6.4 No Third Party Beneficiaries. Notwithstanding anything to the
contrary in this Agreement, the parties do not intend any person or entity not a
party to this Agreement to be a beneficiary of any provision of this Agreement,
and no pro'vision of this Agreement shall be interpreted or construed as being
for the benefit of any third party. Further, no third party shall by virtue of
any provision of this Agreement have a right of action or an enforceable legal
remedy against either party to this Agreement.
8
<PAGE>
6.5 Nonwaiver. The failure of either party to insist upon or enforce
strict performance by the other party of any provision of this Agreement or to
exercise any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, such provision or
right shall be and remain in full force and effect.
6.6 Successors and Assigns. Neither party shall assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest or benefit
under this Agreement without the prior written consent of the other party.
Subject to the foregoing, this Agreement shall be fully binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns.
9
<PAGE>
EXHIBIT B
(Provide name and address of each property under
management.)
(List of Properties Omitted)
<PAGE>
6.7 Entire Agreement. This Agreement sets forth the entire agreement of
the parties with regard to the subject matter hereof, and supersedes any and all
prior agreements of the parties with respect thereto.
6.8 Amendment. No change, amendment or-modification of any provision of
this Agreement shall be valid unless set forth in a written instrument signed by
the party to be bound thereby.
6.9 Applicable Law. This Agreement shall be interpreted, construed and
enforced in all respects in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first-above written.
The Partnership: CNL Income Fund, Ltd.
By: /s/ James M. Seneff, Jr.
----------------------------
James M. Seneff, Jr.
General Partner
By: /s/ Robert A. Bourne
---------------------------
Robert A. Bourne
General Partner
CIC: Centennial Investment Company
By: /s/ Robert A. Bourne
-------------------------------
Title: President
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund, Ltd. at December 31, 1997, and its statement of income
for the year then ended and is qualified in its entirety by reference to the
form 10-K of CNL Income Fund, Ltd. for the year ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 313,387<F1>
<SECURITIES> 0
<RECEIVABLES> 24,423
<ALLOWANCES> 3,092
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 10,358,378
<DEPRECIATION> 2,172,913
<TOTAL-ASSETS> 9,500,078
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,029,050
<TOTAL-LIABILITY-AND-EQUITY> 9,500,078
<SALES> 0
<TOTAL-REVENUES> 1,082,858
<CGS> 0
<TOTAL-COSTS> 317,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,248,757
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,248,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,248,757
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Total cash above includes $129,257 in restricted cash.
<F2>Due to the nature of its industry, CNL Income Fund, Ltd. has an unclassified
balance sheet; therefore, no values are shown above for current assets and
current liabilities.
</FN>
</TABLE>
