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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
March 11, 1999
Date of Report (Date of earliest event reported):
CNL INCOME FUND VII, LTD.
(Exact name of Registrant as specified in its Charter)
Florida 0-19140 59-2963871
(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation or Organization) File Number) Identification Number)
400 E. South Street, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 650-1000
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
As previously disclosed in the most recent Quarterly Report on Form 10-Q
for CNL Income Fund VII, Ltd. (the "Partnership"), the general partners of the
Partnership (the "General Partners") were informed by CNL American Properties
Fund, Inc. ("APF"), a Maryland corporation and an affiliate of the General
Partners, that APF intends to increase significantly its asset base by proposing
to acquire affiliates of the General Partners which have similar restaurant
property portfolios, including the Partnership. APF is a real estate investment
trust (a "REIT") whose primary business is the ownership of restaurant
properties leased on a long-term, triple-net basis to operators of national and
regional restaurant chains. Accordingly, the General Partners anticipated that
APF would make an offer to acquire the Partnership in exchange for securities of
APF. As a result, the General Partners retained Legg Mason Wood Walker,
Incorporated ("Legg Mason") to render a fairness opinion that the consideration
to be paid to the Partnership would be fair from a financial point of view. In
addition, the General Partners retained Baker & Hostetler LLP as legal advisor
to assist them in negotiating any offer that may be proposed by APF.
On December 1, 1998, APF presented the General Partners with an offer to
acquire the Partnership for shares of common stock, $.01 par value (the "APF
Shares"). The parties negotiated the terms of APF's offer and came to a mutual
agreement in March 1999.
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF (the "Merger"). As consideration for the Merger, APF has
agreed to issue 3,202,371 APF Shares which, for the purposes of valuing the
merger consideration, have been valued by APF at $10.00 per APF Share, the price
paid by APF investors in APF's most recent public offering. In order to assist
the General Partners in evaluating the proposed merger consideration, the
General Partners retained Valuation Associates, a nationally recognized real
estate appraisal firm, to appraise the Partnership's restaurant property
portfolio. Based on Valuation Associates' appraisal, the Partnership's property
portfolio and other assets were valued on a going concern basis (meaning the
Partnership continues unchanged) at $31,543,529 as of December 31, 1998. Legg
Mason has rendered a fairness opinion that the APF Share consideration, payable
by APF, is fair to the Partnership from a financial point of view. The APF
Shares are expected to be listed for trading on the New York Stock Exchange
("NYSE") concurrently with the consummation of the Merger, and, therefore, will
be freely tradable at the option of the former limited partners of the
Partnership. Limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior to
consummation of the transaction.
In addition, in the event that the requisite number of limited partners
approve the Merger, limited partners may elect to receive their portions of the
merger consideration in the form of 10% cash and 90% notes based upon the
liquidation value of the Partnership, as determined by Valuation Associates, if
such limited partners have voted against the Merger and affirmatively elect to
receive cash and notes. The notes will bear a fixed rate of interest equal to
120 basis points plus the applicable federal rate, as reported on the date that
consent solicitations in respect of the acquisition are mailed. For example, if
the transaction had occurred on March 10, 1999, on which date the applicable
federal rate was 4.67%, the interest rate would have been 5.87%.
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If a limited partner of the Partnership is an individual or tax-paying
entity, the transaction will be taxable. Any such limited partner will have to
pay tax on its share of any gain recognized by the Partnership, as allocated to
that limited partner under the terms of the partnership agreement. The gain
recognized by the Partnership will generally equal the excess, if any, of the
value of the APF Shares received by the Partnership over the tax basis of the
limited partners' units of limited partnership interest. However, since the APF
Shares will be listed for trading on the NYSE, limited partners who are required
to pay taxes may, at their option, freely sell the APF Shares to cover any
income tax liabilities.
The Partnership is one of 18 CNL Income Funds (together, the "Income
Funds") that APF is seeking to acquire. In addition to acquiring the Income
Funds, APF has entered into agreements to acquire CNL Fund Advisors, Inc., APF's
and each Income Fund's external advisor (the "Advisor"), CNL Financial Corp. and
CNL Financial Services, Inc., affiliates of the Advisor that provide mortgage
loans and perform securitization transactions (together, "CNL Restaurant
Financial Services Group" and collectively with the Advisor, the "CNL Restaurant
Businesses").
APF, whose primary business, like that of the Partnership, is the ownership
of restaurant properties leased to operators of national and regional restaurant
chains on a triple-net basis, was formed in 1994. Upon the acquisition of the
CNL Restaurant Businesses, APF will become a full-service REIT, which will have
the ability to offer a complete range of restaurant property services to
prospective operators of national and regional restaurant chains, from triple-
net lease and mortgage financing to site selection, construction management
and build-to-suit development. Assuming all of the Income Funds and the
Restaurant Businesses are acquired, APF would become one of the largest owners
of restaurant properties in the United States with more than $1.5 billion in
assets at the time the Merger is consummated.
In evaluating the transaction, the General Partners considered, among
others, the following factors:
. Fairness Opinion. Legg Mason is of the opinion that the APF Share
consideration payable to the Partnership is fair from a financial
point of view.
. Liquidity. Because the APF Shares will be listed on the NYSE, the
transaction will provide the limited partners of the Partnership with
liquidity with respect to their investment, which to date has been
illiquid. As a result of being listed on the NYSE, the APF Shares
will be publicly valued, and there will be no restrictions on the
limited partners' ability to sell the APF Shares they receive.
. Growth Potential. The limited partners will be afforded an
opportunity to participate in a dynamic business as opposed to the
more static portfolio currently held by the Partnership.
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. Risk Diversification. The combination of the restaurant properties
owned by the Partnership with APF's existing restaurant properties,
as well as future property acquisitions that would be made by APF,
will diversify the investment of the limited partners over a larger
number of restaurant properties, a broader group of restaurant types
and tenants and geographic locations. In addition, the limited
partners' investment also will become more diversified because a
portion of the investment in APF would be represented by the mortgage
financings made by APF.
The transaction is subject to a number of conditions, including
(i) approval of the transaction by limited partners holding units constituting
greater than 50% of the outstanding limited partnership units of each of the
Income Funds, (ii) receipt by APF of stockholder approval for an increase in
the number of authorized APF Shares necessary to consummate the acquisitions of
all of the Income Funds, which is expected to be sought by APF in the
second quarter of 1999, (iii) consummation of the merger by not later than
December 31, 1999, (iv) completion of the acquisitions of the CNL Restaurant
Businesses, and (v) other customary closing conditions. Additionally, while the
acquisition of any Income Fund is not conditioned on the acquisition of any
other Income Fund, the acquisition of the Income Funds is conditioned upon, to
the extent that fewer than all Income Funds vote to be acquired, receipt by APF
of a fairness opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated
opining that the acquisition of fewer than all of the Income Funds is fair to
APF from a financial point of view.
The General Partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their recommendation,
the General Partners will solicit the consent of the limited partners at a
special meeting of the limited partners which is expected to be held in the
third quarter of 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CNL INCOME FUND VII, LTD.
Date: March 11, 1999 By: /s/ Robert A. Bourne
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Robert A. Bourne
General Partner
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[LETTERHEAD OF SHAW PITTMAN POTTS & TROWBRIDGE]
March 11, 1999
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: CNL Income Fund VII, Ltd.
Current Report on Form 8-K
File No. 0-19140
Ladies and Gentlemen:
Attached for filing on behalf of CNL Income Fund VII, Ltd. (the
"Partnership") is an EDGAR version of a Current Report on Form 8-K relating to
the proposed acquisition of the Partnership by CNL American Properties Fund,
Inc.
Please direct any comments or questions with respect to this matter to
me at (202) 663-8281 (or by facsimile at (202) 663-8007), or in my absence, to
John M. McDonald at (202) 663-8456.
Very truly yours,
/s/ Kimberly V. Mann
Kimberly V. Mann
Attachment
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