As filed with the Securities and Exchange Commission on October 10, 1997
Registration No.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
--------------------------------------------------------------
CNL AMERICAN PROPERTIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Address of principal executive offices)
JAMES M. SENEFF, JR.
Chief Executive Officer
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Name and Address of Agent for Service)
COPIES TO:
THOMAS H. McCORMICK, ESQUIRE
EDMUND D. GRAFF, ESQUIRE
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Approximate date of commencement of proposed sale
to the public: As soon as practicable after the
registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
===================================================================================================================================
Title of securities being Proposed maximum Proposed maximum Amount of
registered Amount being registered offering price per Share aggregate offering price registration fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $.01 par value 34,500,000 Shares $10.00 $345,000,000 $104,546
===================================================================================================================================
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
CNL AMERICAN PROPERTIES FUND, INC.
Shares of Common Stock
Minimum Purchase -- 250 Shares ($2,500)
100 Shares ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL AMERICAN PROPERTIES FUND, INC. (the "Company") is a Maryland
corporation which operates for federal income tax purposes as a real estate
investment trust (a "REIT"). The Company may sell up to 34,500,000 Shares in
this offering for a maximum of $345,000,000. The Company invests in restaurant
properties (the "Properties") located across the United States to be leased on a
long-term, "triple-net" basis to operators of selected national and regional
fast-food, family-style, and casual dining restaurant chains (the "Restaurant
Chains"). As of September 17, 1997, the Company owned a portfolio of 207
Properties, all of which were acquired with the proceeds of its initial public
offering (the "Initial Offering") which commenced in April 1995 and was
completed on February 6, 1997, and its second public offering (the "1997
Offering") which commenced in February 1997 and is expected to terminate in
December 1997 (collectively, the "Prior Offerings"). The Company is expected to
have a total portfolio of approximately 670 to 730 Properties, if the maximum
number of shares of common stock (the "Shares") of the Company is sold in this
offering. Under the Company's triple-net leases, the tenant is responsible for
property costs associated with ongoing operations, including repairs,
maintenance, property taxes, utilities, and insurance. In addition, the leases
are structured to require the tenant to pay base annual rent with (i) automatic
increases in the base rent and/or (ii) percentage rent based on certain
restaurant sales above a specified level. The Company also provides financing
(the "Mortgage Loans") on a limited basis for the purchase of buildings,
generally by tenants that lease the underlying land from the Company. To a
lesser extent, the Company offers furniture, fixture and equipment financing
("Secured Equipment Leases") to operators of Restaurant Chains. The aggregate
outstanding principal amount of Secured Equipment Leases will not exceed 10% of
gross proceeds of this offering, the Prior Offerings and any subsequent
offerings. The Company is not a mutual fund or other type of investment company
within the meaning of the Investment Company Act of 1940, and is not subject to
regulation thereunder. The Company is not affiliated with the United States
Government.
There are significant risks associated with an investment in the
Company (see "Risk Factors" at page 9), including the following:
o The Company will rely on CNL Fund Advisors, Inc. (the "Advisor") with
respect to all investment decisions subject to approval by the Board of
Directors in certain circumstances. The experience of the Advisor and
Directors of the Company with mortgage financing and equipment leasing is
limited, which could adversely affect the Company's business.
o The Advisor and its Affiliates are or will be engaged in other activities
for other entities that will result in potential conflicts of interest with
the services that the Advisor and Affiliates will provide to the Company,
and could take actions that are more favorable to such other entities than
to the Company.
o The Company owned, as of September 17, 1997, 207 Properties of the
anticipated total of 670 to 730 Properties, and investors therefore will
not have the opportunity to evaluate all of the Properties that the Company
will acquire.
o There is currently no public trading market for the Shares, and there is no
assurance that one will develop.
o If the Shares are not listed on a national securities exchange or
over-the-counter market ("Listing") by December 31, 2005, as to which there
can be no assurance, the Company will commence orderly sale of its assets
and the distribution of the proceeds. Listing does not assure liquidity.
o Market and economic conditions that the Company cannot control will have an
effect (either positive or negative) on the value of the Company's
investments and the amount of revenues that the Company receives from
tenants.
o Prior to meeting certain conditions, the Company may incur debt, including
debt to make Distributions to stockholders in order to maintain its status
as a REIT, but will not encumber Properties.
THE COMPANY'S PRIMARY INVESTMENT OBJECTIVES are to preserve, protect, and
enhance the Company's assets while (i) making quarterly Distributions; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and Distributions) and providing protection against inflation
through automatic increases in base rent and receipt of percentage rent, and
obtaining fixed income through the receipt of payments from Mortgage Loans and
Secured Equipment Leases; (iii) continuing to qualify as a REIT for federal
income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment within two to seven years after commencement of
this offering, either in whole or in part, through (a) Listing, or (b) the
commencement of orderly sales of the Company's assets and distribution of the
proceeds thereof (outside the ordinary course of business and consistent with
its objective of qualifying as a REIT). There can be no assurance that these
investment objectives will be met.
This Prospectus describes an investment in the Shares of the Company.
The Company will use stockholders' funds to purchase additional Properties and
make additional Mortgage Loans. No stockholder may hold more than 9.8% of the
total Shares. Of the proceeds from the sale of Shares in this offering,
approximately 84% will be used to acquire Properties and make Mortgage Loans,
and approximately 9% will be paid in fees and expenses to Affiliates of the
Company for their services and as reimbursement for Offering Expenses incurred
on behalf of the Company; the balance will be used to pay other expenses of the
offering. The Company has registered an offering of 34,500,000 Shares, with
2,000,000 of such Shares available only to stockholders who elect to participate
in the Company's reinvestment plan (the "Reinvestment Plan") and who purchase
Shares in this offering and receive a copy of this Prospectus, or who purchased
Shares in one of the Prior Offerings of the Company and who receive a copy of
this Prospectus. Any participation in such plan by a person who becomes a
stockholder otherwise than by participating in this offering or one of the Prior
Offerings must be made pursuant to a solicitation under a separate prospectus.
See "Summary of Reinvestment Plan." All subscription funds for Shares will be
deposited in an interest-bearing escrow account with SouthTrust Asset Management
Company of Florida, N.A., which will act as the escrow agent for this offering.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Selling Proceeds to
Public Commissions(1) Company(2)
-------------- ---------------- -------------
<S> <C>
Per Share .......... $ 10.00 $ 0.75 $ 9.25
- ---------
Total Maximum....... $ 345,000,000 $ 25,875,000(3) $ 319,125,000(3)
- -------------
</TABLE>
(footnotes on following page)
CNL SECURITIES CORP.
October , 1997
(1) CNL Securities Corp. (the "Managing Dealer") will receive Selling
Commissions of 7.5% on sales of Shares, subject to reduction in certain
circumstances. The Managing Dealer, which is an Affiliate of the
Company, may engage other broker-dealers that are members of the
National Association of Securities
-ii-
<PAGE>
Dealers, Inc. or other entities exempt from broker-dealer registration
(collectively, the "Soliciting Dealers") to sell Shares and reallow to
them commissions of up to 7% with respect to Shares which they sell.
The amounts indicated for Selling Commissions assume that reduced
Selling Commissions are not paid in connection with the purchase of any
Shares and do not include a 0.5% marketing support and due diligence
expense reimbursement fee payable to the Managing Dealer, all or a
portion of which may be reallowed to certain Soliciting Dealers, in the
Managing Dealer's sole discretion. Such amounts also do not include a
Soliciting Dealer Servicing Fee payable to the Managing Dealer by the
Company (see "Management Compensation"), all or a portion of which may
be reallowed to certain Soliciting Dealers in the Managing Dealer's
sole discretion. See "The Offering -- Plan of Distribution" for a
discussion of the circumstances under which reduced Selling Commissions
may be paid and a description of the marketing support and due
diligence expense reimbursement fee payable to the Managing Dealer.
(2) Before deducting (i) Offering Expenses of the Company estimated to be
3% of gross offering proceeds computed at $10.00 per Share sold ("Gross
Proceeds") on the sale of 34,500,000 Shares and (ii) the marketing
support and due diligence expense reimbursement fee. Offering Expenses
exclude Selling Commissions and the marketing support and due diligence
reimbursement fee. The Advisor will pay all Offering Expenses which
exceed 3% of the Gross Proceeds.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE BUREAU OF
SECURITIES OF THE STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF
THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS COMPANY IS PROHIBITED.
-iii-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
TABLE OF CONTENTS...............................................................................................
SUMMARY ........................................................................................................
CNL American Properties Fund, Inc..........................................................................
Risk Factors...............................................................................................
Estimated Use of Proceeds..................................................................................
Conflicts of Interest......................................................................................
Management.................................................................................................
Management Compensation....................................................................................
Summary of Reinvestment Plan...............................................................................
Business...................................................................................................
Investment Objectives and Policies.........................................................................
Description of Shares......................................................................................
Distribution Policy........................................................................................
Prior Performance of Affiliates............................................................................
Tax Status Of The Company..................................................................................
The Offering...............................................................................................
Definitions................................................................................................
RISK FACTORS....................................................................................................
Investment Risks...........................................................................................
Possible Inability to Further Diversify Investments....................................................
Reliance on Management.................................................................................
Reliance on Advisor....................................................................................
Leverage...............................................................................................
Conflicts of Interest..................................................................................
Competing Demands on Officers and Directors.......................................................
Timing of Sales and Acquisitions Impact...........................................................
Property Development..............................................................................
The Company May Invest With Affiliates of
the Advisor...................................................................................
No Independent Review of the Company or
the Prospectus by Managing Dealer.............................................................
No Separate Counsel for the Company,
Affiliates and Investors......................................................................
Lack of Liquidity of Shares............................................................................
Lack of Control over Joint Ventures....................................................................
Lack of Control of Property Management.................................................................
Mortgage Loans.........................................................................................
Real Estate Market Conditions.....................................................................
Interest Rate Fluctuations........................................................................
Delays in Liquidating Defaulted Mortgage Loans....................................................
Regulation........................................................................................
Secured Equipment Leases...............................................................................
Default by Lessee.................................................................................
Regulation........................................................................................
Tax Risks.........................................................................................
Impact of Inflation....................................................................................
Binding Nature of Majority Stockholder Vote............................................................
Significant Flexibility of the Board of Directors......................................................
Restrictions on Transfer Relating to REIT Status.......................................................
Limited Liability of Officers and Directors............................................................
Possible Effect of ERISA...............................................................................
Ability to Use Leverage to Make Distributions..........................................................
Real Estate and Financing Risks ...........................................................................
An Unspecified Property Offering.......................................................................
Inability of Potential Investors to
Evaluate Properties...........................................................................
No Limitation on Number of Properties
of a Particular Chain.........................................................................
-iv-
<PAGE>
No Assurance of Obtaining Suitable
Investments...................................................................................
Conflicts of Interest.............................................................................
Possible Delays in Investment..........................................................................
Lack of Control over Properties Under Construction.....................................................
Ground Lease Property Risks............................................................................
Impasse or Conflicts with Joint Venture Partner........................................................
Impasse with Joint Venture Partner................................................................
Interests of Joint Venture Partner................................................................
Limitations on the Ability of the Company to Liquidate.................................................
Inability to Control the Sale of Certain Properties....................................................
Real Property Investments..............................................................................
Lack of Control over Market and Business
Conditions....................................................................................
Multiple Property Leases or Mortgage Loans
with Individual Tenants or Borrowers..........................................................
Re-leasing of Properties..........................................................................
Third Party Franchise Agreements..................................................................
Lack of Adequate Insurance........................................................................
Impact of Adverse Trends...............................................................................
Competition............................................................................................
Possible Environmental Liabilities.....................................................................
Unspecified Secured Equipment Leases...................................................................
Tax Risks ..............................................................................................
REIT Qualification.....................................................................................
Property Lease Treatment...............................................................................
Secured Equipment Lease Treatment......................................................................
Effect of REIT Disqualification........................................................................
Effect of Distribution Requirements....................................................................
Restrictions on Maximum Share Ownership................................................................
Other Tax Liabilities..................................................................................
Changes in Tax Laws....................................................................................
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE .....................................................................
Suitability Standards......................................................................................
How to Subscribe...........................................................................................
ESTIMATED USE OF PROCEEDS ......................................................................................
MANAGEMENT COMPENSATION ........................................................................................
CONFLICTS OF INTEREST ..........................................................................................
Prior and Future Programs .................................................................................
Acquisition of Properties .................................................................................
Sales of Properties .......................................................................................
Joint Investment With An Affiliated Program ...............................................................
Competition for Management Time ...........................................................................
Compensation of the Advisor ...............................................................................
Relationship with Managing Dealer .........................................................................
Legal Representation ......................................................................................
Certain Conflict Resolution Procedures ....................................................................
SUMMARY OF REINVESTMENT PLAN ...................................................................................
General ..............................................................................................
Investment of Distributions................................................................................
Participant Accounts, Fees, and Allocation of Shares.......................................................
Reports to Participants....................................................................................
Election to Participate or Terminate Participation.........................................................
Federal Income Tax Considerations..........................................................................
Amendments and Termination.................................................................................
REDEMPTION OF SHARES ...........................................................................................
BUSINESS 34
General 34
Completed Investments......................................................................................
Pending Investments........................................................................................
Investment of Offering Proceeds............................................................................
Site Selection and Acquisition of Properties ..............................................................
-v-
<PAGE>
Standards for Investment in Properties ....................................................................
Description of Properties..................................................................................
Description of Property Leases ............................................................................
Joint Venture Arrangements ................................................................................
Mortgage Loans.............................................................................................
Management Services .......................................................................................
Borrowing ..............................................................................................
Sale of Properties, Mortgage Loans, and Secured Equipment Leases ..........................................
Franchise Regulation ......................................................................................
Competition 51
Regulation of Mortgage Loans and Secured Equipment Leases .................................................
SELECTED FINANCIAL DATA.........................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OF THE COMPANY ............................................................................................
Liquidity and Capital Resources............................................................................
Results of Operations......................................................................................
MANAGEMENT......................................................................................................
General 57
Fiduciary Responsibility of the Board of Directors ........................................................
Directors and Executive Officers...........................................................................
Independent Directors .....................................................................................
Committees of the Board of Directors ......................................................................
Compensation of Directors and Executive Officers ..........................................................
Management Compensation ...................................................................................
THE ADVISOR AND THE ADVISORY AGREEMENT .........................................................................
The Advisor 61
The Advisory Agreement ....................................................................................
CERTAIN TRANSACTIONS............................................................................................
PRIOR PERFORMANCE INFORMATION ..................................................................................
INVESTMENT OBJECTIVES AND POLICIES .............................................................................
General 70
Certain Investment Limitations ............................................................................
DISTRIBUTION POLICY ............................................................................................
General 73
Distributions .............................................................................................
SUMMARY OF THE ARTICLES OF INCORPORATION AND BYLAWS ............................................................
General 74
Description of Capital Stock ..............................................................................
Board of Directors ........................................................................................
Stockholder Meetings ......................................................................................
Advance Notice for Stockholder Nominations for
Directors and Proposals of New Business ...............................................................
Amendments to the Articles of Incorporation ...............................................................
Mergers, Combinations, and Sale of Assets .................................................................
Termination of the Company and REIT Status ................................................................
Restriction of Ownership ..................................................................................
Responsibility of Directors ...............................................................................
Limitation of Liability and Indemnification ...............................................................
Removal of Directors ......................................................................................
Inspection of Books and Records ...........................................................................
Restrictions on "Roll-Up" Transactions ....................................................................
FEDERAL INCOME TAX CONSIDERATIONS ..............................................................................
Introduction 81
Taxation of the Company ...................................................................................
Taxation of Stockholders ..................................................................................
State and Local Taxes .....................................................................................
Characterization of Property Leases .......................................................................
Characterization of Secured Equipment Leases ..............................................................
Investment in Joint Ventures ..............................................................................
REPORTS TO STOCKHOLDERS ........................................................................................
-vi-
<PAGE>
THE OFFERING ...................................................................................................
General 93
Plan of Distribution ......................................................................................
Subscription Procedures ...................................................................................
Escrow Arrangements .......................................................................................
ERISA Considerations ......................................................................................
Determination of Offering Price ...........................................................................
SUPPLEMENTAL SALES MATERIAL ....................................................................................
LEGAL OPINIONS .................................................................................................
EXPERTS ..............................................................................................
ADDITIONAL INFORMATION .........................................................................................
DEFINITIONS ..............................................................................................
Form of Amended Reinvestment Plan ................................................................... Exhibit A
Financial Information ............................................................................... Exhibit B
Prior Performance Tables ............................................................................ Exhibit C
Subscription Agreement .............................................................................. Exhibit D
</TABLE>
-vii-
<PAGE>
SUMMARY
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL STOCKHOLDERS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE COMPANY. THE FOLLOWING SUMMARY
THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS
PROSPECTUS AND THE SUPPORTING DOCUMENTS.
CNL AMERICAN PROPERTIES FUND, INC.
CNL American Properties Fund, Inc. (the "Company") is a Maryland
corporation which operates for federal income tax purposes as a real estate
investment trust (a "REIT"). The Company's address is 400 East South Street,
Suite 500, Orlando, Florida 32801, telephone (407) 422-1574 or toll free (800)
522-3863.
The Company was formed primarily to acquire properties (the
"Properties") to be leased on a long-term (generally, 15 to 20 years, plus
renewal options for an additional 10 to 20 years), "triple-net" basis, which
means that the tenant will be responsible for repairs, maintenance, property
taxes, utilities, and insurance. As of September 17, 1997, the Company owned a
portfolio of 207 Properties located across the United States and leased to
operators of selected national and regional fast-food, family-style and
casual-dining restaurant chains (the "Restaurant Chains"). The Company is
expected to have a total portfolio of approximately 670 to 730 Properties, if
the maximum number of Shares of Common Stock of the Company (the "Shares") is
sold in this offering. The Company structures the leases of its Properties to
provide for payment of base annual rent with (i) automatic increases in base
rent and/or (ii) percentage rent based on gross sales above a certain level. The
Company also offers financing for the purchase of buildings, generally by
tenants that lease the underlying land from the Company (the "Mortgage Loans").
However, because it prefers to focus on investing in Properties, which have the
potential to appreciate, the Company currently expects to provide Mortgage Loans
in the aggregate principal amount of approximately 5% to 10% of the Company's
total investments if the maximum number of Shares is sold in this offering. The
Company expects that the interest rates and terms (generally 10 to 20 years) of
the Mortgage Loans will be similar to those of its leases. To a lesser extent,
the Company offers furniture, fixtures and equipment ("Equipment") financing to
operators of Restaurant Chains pursuant to which the Company provides, through
direct financing leases or loans, the Equipment (collectively, the "Secured
Equipment Leases"). The aggregate outstanding principal amount of Secured
Equipment Leases will not exceed 10% of the gross proceeds of the Prior
Offerings, this offering and any subsequent offerings. See "Business" for
information regarding the Company's existing Properties, a description of the
types of Properties in which the Company invests, the Property selection and
acquisition processes, and the nature of the Mortgage Loans and Secured
Equipment Leases.
Under the Company's Articles of Incorporation, the Company
automatically will terminate and dissolve on December 31, 2005 unless the Shares
of the Company, including the Shares offered hereby, are listed on a national
securities exchange or over-the-counter market ("Listing"), in which event the
Company automatically will become a perpetual life entity. If Listing does not
occur by December 31, 2005, the Company will undertake, outside the ordinary
course of business and consistent with its objective of qualifying as a REIT,
the orderly Sale of the Company's assets, the distribution of Net Sales Proceeds
of such Sales to stockholders and the limitation of its activities to those
related to its orderly liquidation, unless the stockholders owning a majority of
the Shares elect to amend the Articles of Incorporation to extend the duration
of the Company. See "Risk Factors -- Real Estate and Financing Risks" for a
complete discussion of risks relating to future disposition of the Company's
assets. Until such time, if any, as Listing occurs, the Company may not encumber
Properties, although it may incur debt. If Listing occurs (which is not
assured), then the Board of Directors may elect to cause the Company to encumber
any or all of the Company's Properties in connection with any borrowing. The
Board of Directors anticipates that such borrowing, in the aggregate, will not
exceed 50% of Real Estate Asset Value, although the maximum amount the Company
may borrow is 300% of Net Assets (an amount which the Company anticipates will
correspond to approximately 75% of Real Estate Asset Value). In general, Net
Assets are the Company's total assets (other than intangibles), calculated at
cost, less total liabilities. As a perpetual life entity following Listing, the
Company would not be required to dissolve and return capital to stockholders. If
Listing occurs, in order to liquidate their investment, stockholders would have
to sell their Shares in the market on which the Shares are traded. Listing is no
assurance of liquidity. See "Risk Factors -- Investment Risks" for a discussion
of risks associated with the lack of liquidity of the Shares and with borrowing.
In addition, following Listing, the Company intends to reinvest proceeds from
Sales of Properties rather than distribute such proceeds to stockholders.
<PAGE>
RISK FACTORS
The "Risk Factors" section discusses in detail the more important risks
associated with an investment in the Company, including risks associated with an
investment in a real estate investment trust such as the Company, risks
associated with an investment in real estate such as the Properties, risks
associated with the Mortgage Loans, risks associated with Secured Equipment
Leases, and tax risks. These risks include the following:
o The Company will rely on the Advisor and the Board of Directors, which
together will have responsibility for the management of the Company and
its investments, subject to the ability of the stockholders to elect
the Directors.
o The services to be performed by the Advisor and its Affiliates for the
Company in connection with the offering, the selection and acquisition
of the Properties, the making of Mortgage Loans and Secured Equipment
Leases and the general operation of the Company will result in
conflicts of interest.
o Because, as of September 17, 1997, the Company owned only 207
Properties of the anticipated total of 670 to 730 Properties,
stockholders will not have the opportunity to evaluate all of the
Properties that the Company will acquire.
o The Board of Directors will have significant flexibility regarding the
Company's operations.
o The Company may make investments that will not appreciate in value over
time, such as building only Properties, with the land owned by a
third-party, and Mortgage Loans.
o Stockholders who must sell their Shares will not be able to sell them
quickly because it is not anticipated that there will be a public
market for the Shares in the near term, and there can be no assurance
that the Listing will occur.
o The amount of revenues the Company will receive from tenants, lessees
and borrowers cannot be predicted.
o The Company, prior to meeting certain conditions, may incur debt,
including debt to make Distributions in order to maintain its status as
a REIT, but will not encumber Properties.
o Tenants, lessees or borrowers may default resulting in decreased
income.
o The vote of stockholders owning at least a majority but less than all
of the Shares will bind all of the stockholders as to matters such as
the election of Directors and amendment of the Company's governing
documents.
o Restrictions on ownership of more than 9.8% of the shares of the
Company's Common Stock (the "Common Stock") by any single stockholder
or certain related stockholders may have the effect of inhibiting a
change in control of the Company even if such a change is in the
interest of a majority of the stockholders.
o The Company may not qualify or remain qualified as a REIT for federal
income tax purposes, which could result in subjecting the Company to
federal income tax on its taxable income at regular corporate rates,
thereby reducing the amount of funds available for paying Distributions
to stockholders.
ESTIMATED USE OF PROCEEDS
The Company will use the proceeds of the sale of the Shares to acquire
Properties, to make Mortgage Loans, generally in connection with such
acquisitions, and to pay expenses relating to the sale of the Shares. Management
of the Company and the Advisor have estimated an average purchase price of
$800,000 to $900,000 per Property based on their past experience in acquiring
similar properties and in light of current market conditions, although prices of
Properties may be lower or higher. Assuming the maximum of 34,500,000 Shares
($345,000,000) are sold, the Company will acquire approximately 320 to 360
additional Properties with the proceeds of this offering. See "Estimated Use of
Proceeds" and "Business -- General" for a more detailed description of the
anticipated use of offering proceeds. Management cannot estimate the number of
additional Mortgage Loans that may be entered into.
The Company currently anticipates providing Mortgage Loans in the aggregate
principal amount of approximately 5% to 10% of the Company's total investments
if the maximum number of Shares is sold in this offering. Secured Equipment
Leases will be funded solely from a portion of the proceeds of the $35,000,000
unsecured line of credit (the "Line of Credit") and the number of Secured
Equipment Leases will not depend on the amount raised in this offering.
-2-
<PAGE>
CONFLICTS OF INTEREST
Certain officers and Directors of the Company who are also officers or
directors of the Advisor will experience conflicts of interest in their
management of the Company. These arise principally from their involvement in
other activities that will conflict with those of the Company and include
matters related to (i) allocation of new investments and management time and
services between the Company and various partnerships and other entities, (ii)
the timing and terms of the investment in or sale of a Property, Mortgage Loan
or Secured Equipment Lease, (iii) development of Company Properties by
Affiliates, (iv) investments with Affiliates of the Advisor, (v) compensation of
the Advisor, (vi) the Company's relationship with the Managing Dealer, which is
an Affiliate of the Company and the Advisor, and (vii) the fact that the
Company's securities and tax counsel also serves as securities and tax counsel
for certain Affiliates of the Company, and that neither the Company nor the
stockholders will have separate counsel.
The Directors of the Company who are independent of the Advisor (the
"Independent Directors") are responsible for monitoring the activities of the
Advisor and must approve all of the Advisor's actions that involve a potential
conflict other than certain such actions specifically permitted by the Articles
of Incorporation. The "Conflicts of Interest" section discusses in more detail
the more significant of these potential conflicts of interest, as well as the
procedures that have been established to resolve a number of these potential
conflicts.
The Company has established certain conflict resolution procedures
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of investments
among certain affiliated entities. See "Conflicts of Interest -- Certain
Conflict Resolution Procedures."
MANAGEMENT
The Company has retained the Advisor, a Florida corporation organized
in March 1994, to provide management, advisory and administrative services to
the Company. Pursuant to an advisory agreement with the Company, the Advisor
will handle the day-to-day operations of the Company, select the Company's real
estate investments, and administer its Secured Equipment Lease program. The five
members of the Board of Directors will oversee the management of the Company.
Three of the Directors of the Company are independent of the Advisor and have
responsibility for reviewing its performance. The Directors are elected to the
Board of Directors annually by the stockholders.
All but one of the officers and directors of the Advisor also are
officers or Directors of the Company. The Advisor will have responsibility for
(i) selecting the Properties that the Company will acquire, formulating and
evaluating the terms of each proposed acquisition, and arranging for the
acquisition of the Property by the Company, (ii) identifying potential lessees
for the Properties and potential borrowers for the Mortgage Loans, and
formulating, evaluating, and negotiating the terms of each lease of a Property
and each Mortgage Loan, (iii) locating and identifying potential lessees and
formulating, evaluating, and negotiating the terms of each Secured Equipment
Lease, and (iv) negotiating the terms of any borrowing. All of the foregoing
actions are subject to approval by the Board of Directors. The Advisor also will
have the authority, subject to approval by a majority of the Board of Directors,
including a majority of the Independent Directors, to select assets for Sale in
keeping with the Company's investment objectives and based on an analysis of
economic conditions both nationally and in the vicinity of the asset being
considered for Sale.
See "Management" and "The Advisor and the Advisory Agreement" for a
description of the business background of the individuals responsible for the
management of the Company and the Advisor, as well as for a description of the
services that the Advisor will provide.
-3-
<PAGE>
MANAGEMENT COMPENSATION
The Advisor, the Managing Dealer, and other Affiliates of the Advisor
will receive compensation for services they will perform for the Company and
also will receive expense reimbursements from the Company for expenses they pay
on behalf of the Company. See "Management Compensation" for a complete
description. See also "Certain Transactions" for a description of compensation
paid to the Advisor, Managing Dealer and other Affiliates of the Company since
its inception. The following paragraphs summarize the more significant items of
compensation.
In connection with this offering, the Managing Dealer will receive
Selling Commissions of 7.5% (a maximum of $25,875,000 if 34,500,000 Shares are
sold), and a marketing support and due diligence expense reimbursement fee of
0.5% (a maximum of $1,725,000 if 34,500,000 Shares are sold), of the total
amount raised from the sale of Shares, computed at $10.00 per Share sold ("Gross
Proceeds"). The Managing Dealer in turn may reallow Selling Commissions of up to
7% on Shares sold, and all or a portion of the 0.5% marketing support and due
diligence expense reimbursement fee to certain Soliciting Dealers, who are not
Affiliates of the Company in the Managing Dealer's sole discretion. In addition,
the Company will incur a Soliciting Dealer Servicing Fee in the amount of .20%
of Invested Capital (as defined below) (a maximum of $690,000 if 34,500,000
Shares are sold). The Soliciting Dealer Servicing Fee will be payable on
December 31 of each year, commencing on December 31 of the year following the
year in which the related offering terminates, and generally will be payable to
the Managing Dealer, which in turn may reallow, in its sole discretion, all or a
portion of such fee to Soliciting Dealers whose clients held Shares on such
date. In general, the stockholders' investment in the Company ("Invested
Capital") is the number of Shares they own, multiplied by $10.00 per Share,
reduced by the portion of all prior Distributions received by stockholders from
the Sale of assets and by any amounts paid by the Company to repurchase Shares
pursuant to the redemption plan.
For identifying the Properties, structuring the terms of the
acquisition and leases of the Properties and structuring the terms of the
Mortgage Loans, the Advisor will receive Acquisition Fees equal to 4.5% of Gross
Proceeds (a maximum of $15,525,000 if 34,500,000 Shares are sold) from the sale
of Shares.
For managing the Properties and the Mortgage Loans, the Advisor will be
entitled to receive a monthly Asset Management Fee of one-twelfth of .60% of the
Company's Real Estate Asset Value (generally, the total amount invested in the
Properties, exclusive of Acquisition Fees and Acquisition Expenses) plus the
total outstanding amount of the Mortgage Loans as of the end of the preceding
month.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from the
Company a one-time Secured Equipment Lease Servicing Fee of 2% of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease.
Prior to Listing, the Advisor may receive a real estate disposition fee
of 3% of the gross sales price of one or more Properties for providing
substantial services in connection with the Sale, which will be deferred and
subordinated until the stockholders have received Distributions equal to the sum
of an aggregate, annual, cumulative, noncompounded 8% return on their Invested
Capital, (the "Stockholders' 8% Return") plus 100% of the stockholders'
aggregate Invested Capital. Upon Listing, if the Advisor has accrued but not
been paid such real estate disposition fee, then for purposes of determining
whether the subordination conditions have been satisfied, stockholders will be
deemed to have received a Distribution in an amount equal to the total number of
Shares outstanding multiplied by the average closing price of the Shares over a
period of 30 days during which the Shares are traded, with such period beginning
180 days after Listing. See "The Advisor and The Advisory Agreement -- The
Advisory Agreement."
A deferred, subordinated share of Net Sales Proceeds will be paid to
the Advisor upon the Sale of assets of the Company in an amount equal to 10% of
Net Sales Proceeds. This amount will be subordinated and paid only after the
stockholders have received Distributions equal to the sum of 100% of the
stockholders' aggregate Invested Capital plus the Stockholders' 8% Return.
Payment of certain fees is subject to conditions and restrictions or to
change under certain specified circumstances. The Advisor and its Affiliates
also may receive reimbursement for out-of-pocket expenses that they incur on
behalf of the Company, subject to certain expense limitations, and a
subordinated incentive fee if Listing occurs.
-4-
<PAGE>
SUMMARY OF REINVESTMENT PLAN
The Company has established the Reinvestment Plan pursuant to which
stockholders may elect to have their cash Distributions from the Company
automatically reinvested in Shares. See "Summary of Reinvestment Plan," "Federal
Income Tax Considerations -- Taxation of Stockholders," and the form of
Reinvestment Plan accompanying this Prospectus as Exhibit A for more specific
information about the Reinvestment Plan. Expenses incurred in connection with
the Reinvestment Plan, including Selling Commissions and marketing support and
due diligence expense reimbursement fees, will be paid by the Company. A person
who becomes a stockholder otherwise than by participating in this offering or
one of the Prior Offerings may purchase Shares through the Reinvestment Plan
only after receipt of a separate prospectus relating solely to the Reinvestment
Plan.
BUSINESS
As of September 17, 1997, the Company owned 207 Properties. It is
anticipated that the Company will acquire a total of 670 to 730 Properties if
the maximum number of Shares is sold in this offering (including 320 to 360
Properties to be acquired with the proceeds of this offering). A description of
the types of Properties which the Company purchases and leases to third parties
appears in the section entitled "Business." The Company invests in Properties of
selected national and regional restaurant chains, primarily fast-food,
family-style, and casual dining chains, the most rapidly growing segments of the
restaurant industry in recent years. Management structures the Company's
investments to allow it to participate, to the maximum extent possible, in any
sales growth in these industry segments, as reflected in the Properties that it
owns. The Properties, which typically are freestanding and are located across
the United States, are leased on a "triple-net" basis to operators of the
Restaurant Chains selected by the Advisor and approved by the Board of
Directors. The Properties consist of both land and building, the land underlying
the building with the building owned by the tenant or a third party, or the
building only with the land owned by a third party.
The Company has undertaken to supplement this Prospectus during the
offering period to describe the acquisition of Properties at such time as the
Company believes that a reasonable probability exists that a Property will be
acquired by the Company. Based upon the experience of management of the Company
and the Advisor and the proposed acquisition methods, a reasonable probability
that the Company will acquire a Property normally will occur as of the date on
which (i) a commitment letter is executed by a proposed lessee, (ii) a
satisfactory credit underwriting for the proposed lessee has been completed, and
(iii) a satisfactory site inspection has been completed.
As of September 17, 1997, the Company had provided Mortgage Loans to
the tenants of the 44 Properties that are land only to purchase the buildings on
these Properties and the buildings on two additional properties. It is expected
that Mortgage Loans will constitute from 5% to 10% of the Company's total
investments, if the maximum number of Shares is sold in this offering. In
general, the Company offers Mortgage Loans in circumstances in which the Company
owns the land underlying the building to be financed and the borrower under the
Mortgage Loan also enters into a long-term ground lease for the underlying land.
Management believes that this combined leasing and financing structure provides
the benefit of allowing the Company to receive the return of its initial
investment plus interest on each financed building, which is generally a
depreciating asset, while retaining the ownership of the underlying land, which
is generally an appreciating asset.
The Company has obtained a Line of Credit in an amount up to
$35,000,000, which will be used to finance Secured Equipment Leases and to
purchase and develop Properties and fund Mortgage Loans. Management believes
that, during the offering period, the Line of Credit will allow the Company to
take advantage of investment opportunities that might otherwise be lost if the
Company was forced to delay making the investments until it had raised a
sufficient amount of offering proceeds. In addition, management believes that
the use of the Line of Credit will enable the Company to reduce or eliminate the
instances in which the Company will be required to pay duplicate closing costs
as a result of an Affiliate of the Advisor purchasing Properties, pending
receipt by the Company of sufficient offering proceeds, in order to preserve the
investment opportunity for the Company, and the Company subsequently purchasing
the Properties from the Affiliate. Advances under the Line of Credit that are
used to purchase of develop Properties and fund Mortgage Loans will be repaid
using additional offering proceeds from the 1997 Offering or proceeds from this
offering or refinanced on a long-term basis. No Properties will be encumbered in
connection with the Line of Credit.
-5-
<PAGE>
As of September 17, 1997, the Company had 15 Secured Equipment Leases
and in connection with these leases had received advances under the Line of
Credit of approximately $5,139,000. The Secured Equipment Leases are funded
solely from the proceeds of the Line of Credit. Advances under the Line of
Credit that are used to finance Secured Equipment Leases will be repaid using
payments received from the Secured Equipment Leases and will be refinanced for
any advances not fully repaid at the end of the term of the Line of Credit. The
Company structures Secured Equipment Leases so that they will be treated as
loans secured by personal property for federal income tax purposes.
See "Business" for a description of the types of Properties in which
the Company invests, the Property selection and acquisition processes, the
Mortgage Loans, the Secured Equipment Leases and the Line of Credit.
INVESTMENT OBJECTIVES AND POLICIES
The Company's primary investment objectives are:
o to preserve, protect, and enhance the Company's assets.
o to make quarterly Distributions.
o to obtain fixed income through the receipt of base rent, as
well as to increase the Company's income (and Distributions)
and provide protection against inflation through automatic
increases in base rent and receipt of percentage rent, and to
obtain fixed income through the receipt of payments on
Mortgage Loans and Secured Equipment Leases.
o to qualify and remain qualified as a REIT for federal income
tax purposes.
o to provide stockholders of the Company with liquidity of their
investment within two to seven years after commencement of
this offering, although liquidity cannot be assured thereby,
either through (i) Listing or (ii) outside the ordinary course
of business and consistent with its objective of qualifying as
a REIT, the commencement of orderly Sales of the Company's
assets and distribution of the proceeds thereof.
The Company intends to meet these objectives by following certain
investment policies discussed herein, as summarized on the preceding pages. See
"Business -- General," "Business -- Site Selection and Acquisition of
Properties," "Business -- Description of Leases," and "Investment Objectives and
Policies" for a more complete description of the manner in which the structure
of the Company's business will facilitate the Company's ability to meet its
investment objectives. There can be no assurance that these objectives will be
met. The Company's investment objectives are subject to review by the
Independent Directors and may not be changed without the approval of
stockholders owning a majority of the shares of outstanding Common Stock.
DESCRIPTION OF SHARES
A stockholder's investment will be recorded on the books of the
Company. The Company will provide, upon the request of any stockholder wishing
to transfer his or her Shares, a transfer form to be completed and executed by
the stockholder and returned to the Company. The Company will not issue share
certificates other than to stockholders who make a written request to the
Company.
During any period in which the Company is not making a public offering
of Shares, any stockholder may request that the Company redeem for cash all or a
significant portion of such stockholder's Shares. The sole source of funds for
any such requested redemption will be the net proceeds available from the sale
of Shares pursuant to the Reinvestment Plan. There can be no assurance that such
net proceeds will be sufficient to permit the Company to redeem all such Shares
presented for redemption. See "Redemption of Shares."
An annual meeting of stockholders will be held each year for the
election of the Directors. Other business matters may be presented at the annual
meeting or at special stockholder meetings. Each Share is entitled to one vote
on each matter to be voted on by stockholders, including the election of the
Directors. Stockholders who do not vote with the majority of Shares entitled to
vote on questions presented nonetheless will be bound by the majority vote.
-6-
<PAGE>
Stockholder approval is required under Maryland law and the Company's
Articles of Incorporation and Bylaws for certain types of transactions.
Generally, the Articles of Incorporation and Bylaws may be amended upon a
majority vote of stockholders. Stockholders holding a majority of the Shares
must approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Stockholders
objecting to the terms of a merger, sale, or other disposition of substantially
all of the Company's assets have the right to petition a court for the appraisal
and payment of the fair value of their Shares in certain instances. The
affirmative vote of a majority of the Shares outstanding and entitled to vote is
required to approve the voluntary dissolution of the Company.
In order to facilitate compliance with certain restrictions imposed on
REITs by the Internal Revenue Code of 1986, as amended (the "Code"), the
Articles of Incorporation generally restrict direct or indirect ownership
(applying certain attribution rules) of more than 9.8% of the outstanding shares
of Common Stock by one Person, as defined in the Articles of Incorporation. See
"Summary of the Articles of Incorporation and Bylaws -Restriction on Ownership."
For a more complete description of the Shares and the capital structure
of the Company, please refer to the "Summary of the Articles of Incorporation
and Bylaws -- Description of Capital Stock" section of the Prospectus.
DISTRIBUTION POLICY
The following table reflects total Distributions and Distributions per
Share declared by the Company for each month since the Company commenced
operations.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
Month Total Per Share Total Per Share Total Per Share
- ----- ----------- --------- ---------- --------- ----------- ---------
<S> <C>
January $ - $ - $225,354 $0.058300 $ 827,978 $0.059375
February - - 255,649 0.058300 884,806 0.059375
March - - 287,805 0.058300 980,573 0.060416
April - - 323,721 0.058300 1,091,142 0.061458
May - - 368,155 0.058300 1,202,718 0.062500
June 15,148 0.030000 407,803 0.058300 1,295,253 0.062500
July 30,682 0.030000 458,586 0.059375 1,403,182 0.062500
August 57,739 0.035000 517,960 0.059375 1,516,974 0.062500
September 84,467 0.050000 559,599 0.059375 1,677,329 0.063540
October 104,733 0.050000 615,914 0.059375
November 155,665 0.058300 683,907 0.059375
December 190,184 0.058300 731,569 0.059375
</TABLE>
Consistent with the Company's objective of qualifying as a REIT, the
Company expects to continue to calculate and declare Distributions monthly
during the offering period, and quarterly thereafter, and make Distributions
quarterly. The Board of Directors, in its discretion, will determine the amount
of the Distributions made by the Company, which amount will depend primarily on
net cash from operations. The Company intends to increase Distributions in
accordance with increases in net cash from operations. Consistent with the
Company's objective of qualifying as a REIT, the Company expects to distribute
at least 95% of its real estate investment trust taxable income, although the
Board of Directors, in its discretion, may increase that percentage as it deems
appropriate. If the cash available to the Company is insufficient to make
Distributions, the Company may obtain the needed cash by borrowing funds,
issuing new securities, or selling assets. These methods of obtaining cash could
affect future Distributions by increasing operating costs or reducing income. In
such an event, it is possible that the Company could pay Distributions in excess
of its earnings and profits and, accordingly, that such Distributions could
constitute a return of capital for federal income tax purposes, although such
Distributions would not reduce stockholders' aggregate Invested Capital. For the
years ended December 31, 1996 and 1995, the Company declared and made
Distributions totalling $5,436,072 and $638,618, respectively (90.25% and
59.82%, respectively, of which were characterized as ordinary income and 9.75%
and 40.18%, respectively, as return of capital for federal income tax purposes).
For the six months ended June 30, 1997, the Company declared and made
Distributions totalling $6,282,470, 92% of which were characterized as ordinary
income and 8% as return of capital for federal income tax purposes. Due to the
fact that the Company had not acquired all of its Properties and was still in
its offering period as of June 30, 1997, the characterization of Distributions
for federal income tax purposes is not considered by management to be
necessarily representative of the characterization of Distributions in future
years.
-7-
<PAGE>
PRIOR PERFORMANCE OF AFFILIATES
The "Prior Performance Information" section of this Prospectus contains
a narrative discussion of the public and private real estate limited
partnerships sponsored by Affiliates of the Company and of the Advisor during
the past ten years, including 18 public limited partnerships formed to invest in
restaurants leased on a "triple-net" basis to operators of national and regional
fast-food and family-style restaurant chains. As of June 30, 1997, these
partnerships, which purchase properties similar to those to be acquired by the
Company, had purchased 691 fast-food and family-style restaurant properties.
Based on an analysis of the operating results of the 88 real estate limited
partnerships in which principals of the Company have served, individually or
with others, as general partners, the Company believes that each of such
partnerships has met, or currently is in the process of meeting, its principal
investment objectives. Certain statistical data relating to the public limited
partnerships with investment objectives similar to those of the Company, and the
offerings of which became fully subscribed between July 1992 and June 1997, are
contained in Exhibit C--Prior Performance Tables.
TAX STATUS OF THE COMPANY
The Company has made the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ending December 31, 1995. As a REIT for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. Under the
Code, REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute at least 95% of their taxable
income, as figured on an annual basis. If the Company fails to qualify for
taxation as a REIT in any taxable year, it will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following the year during
which qualification is lost. See "Risk Factors -- Tax Risks" and "Federal Income
Tax Considerations." Even if the Company qualifies as a REIT for federal income
tax purposes, it may be subject to certain federal, state, and local taxes on
its income and property and to federal income and excise taxes on its
undistributed income. See "Federal Income Tax Considerations."
THE OFFERING
A maximum of 34,500,000 Shares ($345,000,000) in the Company are being
offered at a price of $10.00 per Share. Of the Shares offered hereby, 2,000,000
will be available only to stockholders purchasing Shares in this offering who
receive a copy of this Prospectus, or to stockholders who purchased Shares in
one of the Prior Offerings of the Company and who received a copy of this
Prospectus, and who elect to participate in the Reinvestment Plan. Any
participation in such plan subsequent to this offering must be made pursuant to
solicitation under a separate prospectus. See "Summary of Reinvestment Plan."
The Shares are being offered by the Managing Dealer and other
broker-dealers that are members of the National Association of Securities
Dealers, Inc. or exempt from broker-dealer registration (the "Soliciting
Dealers") on a "best efforts" basis, which means that no one is guaranteeing
that any minimum number of Shares will be sold. Both the Company and the Advisor
are Affiliates of the Managing Dealer. See "The Offering -- Plan of
Distribution."
All subscription funds for Shares of the Company will be deposited in
an interest-bearing escrow account with SouthTrust Asset Management Company of
Florida, N.A. See "The Offering" for a description of the current status of the
offering.
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000), except for Iowa tax-exempt stockholders who must make a minimum
investment of 250 Shares ($2,500). For Minnesota stockholders only, IRAs and
qualified plans must make a minimum investment of 200 Shares ($2,000). In
addition, Nebraska, New York, and North Carolina stockholders must make a
minimum investment of 500 Shares ($5,000). Following an initial subscription for
at least the required minimum investment, any stockholder may make additional
purchases in increments of one Share. Maine stockholders, however, may not
purchase additional Shares in amounts less than the applicable minimum
investment except with respect to Shares purchased pursuant to the Reinvestment
Plan. See "The Offering -General," "The Offering -- Subscription Procedures,"
and "Summary of Reinvestment Plan."
-8-
<PAGE>
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and stockholders therefore
should review the "Definitions" section for a more complete understanding.
RISK FACTORS
The purchase of Shares involves significant risks and therefore is
suitable only for persons who understand the possible consequences of an
investment in the Company and who are able to bear the risk of loss of their
investment. Prospective stockholders should consider the following risks in
addition to other information describing an investment in the Shares set forth
elsewhere in this Prospectus.
INVESTMENT RISKS
Possible Inability to Further Diversify Investments. There can be no
assurance that the Company will sell the maximum number of Shares. The potential
ability of the Company to further diversify its investments, both geographically
and by type of restaurant Properties purchased, will be limited by the amount of
funds at its disposal.
Reliance on Management. Stockholders will be relying entirely on the
management ability of the Advisor and on the oversight of the Board of
Directors. Stockholders have no right or power to take part in the management of
the Company, except through the exercise of their stockholder voting rights.
Thus, no prospective stockholder should purchase any of the Shares offered
hereby unless the prospective stockholder is willing to entrust all aspects of
the management of the Company to the Advisor and the Board of Directors. See
"Conflicts of Interests" for a discussion of the potential for realization by
the Advisor and its Affiliates of substantial commissions, fees, compensation,
and other income and for a discussion of various other conflicts of interest.
Reliance on Advisor. The Advisor, with approval from the Board of
Directors, will be responsible for the daily management of the Company,
including all acquisitions, dispositions, and financings. The Advisor may be
terminated by the Board of Directors, with or without cause, but only subject to
payment and release from all guarantees and other obligations incurred in
connection with its role as Advisor. See "Management Compensation." Also, see
"Conflicts of Interest" for a discussion of the potential for realization by the
Advisor and its Affiliates of substantial commissions, fees, compensation, and
other income and for a discussion of various other conflicts of interest.
-9-
<PAGE>
Leverage. Other than the Line of Credit or to preserve its status as a
REIT, the Company does not intend to borrow money and until Listing occurs, the
Company will not encumber Properties in connection with any borrowing. At all
times, the maximum amount the Company may borrow is 300% of the Company's Net
Assets, although the Board of Directors anticipates that the aggregate amount of
any borrowing by the Company will not exceed 50% of Real Estate Asset Value. The
use of borrowing may present an element of risk in the event that the cash flow
from the Company's real estate and other investments are insufficient to meet
its debt obligations. In addition, lenders to the Company may seek to impose
restrictions on future borrowings, Distributions and operating policies of the
Company.
Conflicts of Interest. The Company will be subject to conflicts of
interest arising out of its relationship to the Advisor and its Affiliates,
including the material conflicts discussed below. See "Conflicts of Interest"
for a further discussion of the conflicts of interest between the Company and
the Advisor and its Affiliates and the Company's policies to reduce or eliminate
certain potential conflicts.
Competing Demands on Officers and Directors. Officers and
Directors of the Company and officers and directors of the Advisor have
management responsibilities for other entities, including entities that invest
in the same types of assets in which the Company will invest. For this reason,
the officers and Directors will share their management time and services among
those entities and the Company, will not devote all of their attention to the
Company, and could take actions that are more favorable to such other entities
than to the Company.
Timing of Sales and Acquisitions Impact. Investment or Sale of
an asset by the Company may result in the immediate realization by the Advisor
of substantial commissions, fees and other compensation. The Board of Directors
of the Company must approve such transactions, but the Advisor's recommendation
to the Board may be affected by the impact of the transaction on the Advisor's
compensation. None of the agreements between the Company and the Advisor
pursuant to which the Advisor will perform services and receive compensation was
the result of arms-length negotiations.
Property Development. Properties acquired by the Company may
require development prior to use of the Property by a tenant. Affiliates of the
Company may serve as developer and if so, the Affiliates would receive the
development fee that would otherwise be paid to an unaffiliated developer. The
Board of Directors, including the Independent Directors, must approve employing
an Affiliate of the Company to serve as a developer. There is a risk, however,
that the Company would acquire Properties that require development so that an
Affiliate would receive the development fee.
The Company May Invest With Affiliates of the Advisor. The
Company may invest in Joint Ventures with another program sponsored by the
Advisor or its Affiliates. The Board of Directors, including the Independent
Directors, must approve the transaction, but the Advisor's recommendation may be
affected by its relationship with one or more of the co-venturers.
No Independent Review of the Company or the Prospectus by
Managing Dealer. The Managing Dealer is an Affiliate of the Company and will not
make an independent review of the Company and the offering.
Accordingly, investors do not have the benefit of such independent review.
No Separate Counsel for the Company, Affiliates and Investors.
Each of the Company, its Affiliates and investors may have interests which
conflict with one another, but none of them currently has the benefit of
separate counsel.
For a description of the types and amounts of fees and other
compensation to be paid to Affiliates see "Management Compensation." For a
description of the types and amounts of fees previously paid to Affiliates of
the Company see "Exhibit B -- Financial Information -- Notes to Consolidated
Financial Statements." See also "Conflicts of Interest -- Certain Conflict
Resolution Procedures."
Lack of Liquidity of Shares. Stockholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Board of Directors, with or without the consent of the stockholders,
may apply for Listing if the Board of Directors (including a majority of
Independent Directors) determines Listing to be in the best interests of the
stockholders. There can be no assurance, however, that the Company will apply
for Listing, that any such application will be made before the passage of a
significant period of time, that any application will be accepted or, even if
accepted, that a public trading market will develop. If Listing occurs, the
business of the Company may continue indefinitely without any specific time
limitation by which the Company must distribute Net Sales Proceeds to the
stockholders. In that case, the stockholders would be dependent upon the sale of
their Shares for the return of their investment in the Company. There can be no
assurance that the price a stockholder would receive in a sale on an exchange or
in the over-the-counter market will be representative of the value of the assets
owned by the Company or that it will equal or exceed the amount a stockholder
paid for the Shares. In the event Listing occurs, Shares may be sold only
through the national securities exchange or the over-the-counter market on which
the Shares are listed.
-10-
<PAGE>
Lack of Control Over Joint Ventures. The Independent Directors of the
Company must approve all Joint Venture or general partnership arrangements to
which the Company is a party. Subject to such approval, the Company may enter
into a Joint Venture with an unaffiliated party to purchase a Property, and the
Joint Venture or general partnership agreement relating to that Joint Venture or
partnership may provide that the Company will share management control of the
Joint Venture with the unaffiliated party. In the event the Joint Venture or
general partnership agreement provides that the Company will have sole
management control of the Joint Venture, such agreement may be ineffective as to
a third party who has no notice of the agreement, and the Company therefore may
be unable to control fully the activities of such Joint Venture. In the event
that the Company enters into a Joint Venture with another program sponsored by
an Affiliate, it is anticipated that the Company will not have sole management
control of the Joint Venture.
Lack of Control of Property Management. The Company uses "triple-net"
leases and, therefore, day-to-day management of the Properties will be the
responsibility of the tenants of the Properties. In general, the Company intends
to enter into leasing agreements only with tenants having substantial prior
experience in the restaurant industry, but there can be no assurance that the
Company will be able to make such arrangements because, as of September 17,
1997, the Company had purchased only 207 Properties.
Mortgage Loans.
Real Estate Market Conditions. To the extent that the Company
makes Mortgage Loans, the results of the Company's operations will be affected,
to the extent there are defaults on such loans, by various factors, many of
which are beyond the control of the Company. The factors include local and other
economic conditions affecting real estate value and interest rate levels. The
results of the Company's operations from making Mortgage Loans will depend on,
among other things, the level of interest income generated by the Mortgage
Loans, the market value of Mortgage Loans and the supply of and demand for
Mortgage Loans. No assurance can be given that the values of the properties
securing the Mortgage Loans will remain at the levels existing on the dates of
origination of the Mortgage Loans.
Interest Rate Fluctuations. Fluctuations in interest rates may
adversely affect the Company to the extent it invests in fixed-rate, long-term
Mortgage Loans. In this situation, if interest rates rise, the Mortgage Loans
will yield a return lower than then-current market rates. If interest rates
decrease, the Company will be adversely affected to the extent that Mortgage
Loans are prepaid, because the Company will not be able to make new Mortgage
Loans at the previously higher interest rate.
Delays in Liquidating Defaulted Mortgage Loans. Even assuming
that the mortgaged properties underlying Mortgage Loans held by the Company
provide adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of defaulted Mortgage Loans, with
corresponding delays in the receipt of related proceeds by the Company. An
action to foreclose on a mortgaged property securing a Mortgage Loan is
regulated by state statutes and rules and is subject to many of the delays and
expenses of other lawsuits if defenses or counterclaims are interposed.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a mortgaged property. In the event of
default by a mortgagor, these restrictions, among other things, may impede the
ability of the Company to foreclose on or sell the mortgaged property or to
obtain proceeds sufficient to repay all amounts due on the related Mortgage
Loan.
Regulation. The Mortgage Loans may also be subject to regulation by
federal, state and local authorities and subject to various laws and judicial
and administrative decisions. The Company may determine not to make Mortgage
Loans in any jurisdiction in which it believes the Company has not complied in
all material respects with applicable requirements. See "Business -- Mortgage
Loans." See also "-- Real Estate and Financing Risks."
-11-
<PAGE>
Secured Equipment Leases.
Default by Lessee. In the event that a lessee defaults on a
Secured Equipment Lease, the Company may not be able to sell the subject
Equipment at a price that would enable the Company to recover its costs
associated with such Equipment.
Regulation. The Secured Equipment Lease program may also be
subject to regulation by federal, state and local authorities and subject to
various laws and judicial and administrative decisions. The Company may
determine not to operate the Secured Equipment Lease program in any jurisdiction
in which it believes the Company has not complied in all material respects with
applicable requirements.
Tax Risks. In addition, there are certain federal income tax
risks associated with the Secured Equipment Lease program. See "-- Tax Risks."
Impact of Inflation. Inflation may impact the value of some of the
Company's investments. For example, a substantial rise in inflation over the
term of an investment in Mortgage Loans and Secured Equipment Leases may reduce
the Company's actual return on those investments, if they do not otherwise
provide for adjustments based upon inflation. Investments in Properties may also
be adversely affected by inflation, although leases with percentage rent
provisions may not be so affected because inflation could cause those provisions
to be triggered earlier than they would otherwise become effective, and leases
with automatic increases in base rent may be sufficient to protect against the
effects of inflation.
Binding Nature of Majority Stockholder Vote. Stockholders may take
certain actions, including approving most amendments to the Articles of
Incorporation and Bylaws, by a vote of a majority of the Shares outstanding and
entitled to vote. All actions taken, if approved by the holders of the requisite
number of Shares, would be binding on all stockholders. Certain of these
provisions may discourage or make it more difficult for another party to acquire
control of the Company or to effect a change in the operation of the Company.
Significant Flexibility of the Board of Directors. The Board of
Directors has overall authority to conduct the Company's operations. This
authority includes significant flexibility. For example, the Board of Directors
can (i) prevent the ownership, transfer, and/or accumulation of Shares in order
to protect the status of the Company as a REIT, or, as otherwise deemed by the
Board of Directors, to be in the best interests of the stockholders (see
"Summary of the Articles of Incorporation and Bylaws - Restriction of
Ownership"); (ii) issue additional Shares without obtaining stockholder
approval, which could result in dilution to existing stockholders; (iii) change
the compensation of the Advisor, and employ and compensate Affiliates; (iv)
direct the Company's investments toward investments that will not appreciate
over time, such as building only Properties, with the land owned by a
third-party, and Mortgage Loans, and (v) change minimum credit worthiness
standards with respect to tenants.
Restrictions on Transfer Relating to REIT Status. The Articles of
Incorporation generally restrict direct or indirect ownership (applying certain
attribution rules) of more than 9.8% of the outstanding Common Stock or 9.8% of
any series of outstanding Preferred Stock by one Person (as defined in the
Articles of Incorporation). See "Summary of the Articles of Incorporation and
Bylaws -- Restriction of Ownership."
Limited Liability of Officers and Directors. The Articles of
Incorporation and Bylaws provide that an officer or Director's liability to the
Company, its stockholders, or third parties for monetary damages may be limited.
Generally, the Company is obligated under the Articles of Incorporation and the
Bylaws to indemnify its officers and Directors against certain liabilities
incurred in connection with their services in such capacities. The Company has
executed indemnification agreements with each officer and Director which will
indemnify the officer or Director for any such liabilities that he or she
incurs. Such indemnification agreements could limit the legal remedies available
to the Company and the stockholders against the Directors and Officers of the
Company. See "Summary of the Articles of Incorporation and Bylaws -- Limitation
of Director and Officer Liability."
Possible Effect of ERISA. The Company believes that the assets of the
Company will not be deemed, under ERISA, to be "plan assets" of any Plan that
invests in the Shares, although it has not requested an opinion of Counsel to
that effect. If the assets of the Company were deemed to be "plan assets" under
ERISA (i) it is not clear that the exemptions from the "prohibited transaction"
rules under ERISA would be available for the Company's transactions, and (ii)
the prudence standards of ERISA would apply to investments made by the Company
(and might not be met). ERISA makes plan fiduciaries personally responsible for
any losses resulting to the plan from any breach of fiduciary duty and the Code
imposes nondeductible excise taxes on prohibited transactions.
-12-
<PAGE>
Ability to Use Leverage to Make Distributions. The Company may incur
indebtedness if necessary to satisfy the requirement that the Company distribute
at least 95% of its real estate investment trust taxable income or otherwise, as
is necessary or advisable to assure that the Company maintains its qualification
as a REIT for federal income tax purposes. In such an event, it is possible that
the Company could make Distributions in excess of its earnings and profits and,
accordingly, that such Distributions could constitute a return of capital for
federal income tax purposes, although such Distributions would not reduce
stockholders' aggregate Invested Capital.
REAL ESTATE AND FINANCING RISKS
An Unspecified Property Offering.
Inability of Potential Investors to Evaluate Properties. The
Company has established certain criteria for evaluating Restaurant Chains,
particular Properties, and the operators of the Properties proposed for
investment by the Company. See "Business -- Standards for Investment" and
"Business -- General" for a description of these criteria and the types of
Properties in which the Company intends to invest. The Company has not set fixed
minimum standards relating to credit worthiness of tenants and therefore the
Board of Directors has flexibility in assessing potential tenants. Prospective
investors have no information to assist them in evaluating the merits of the 320
to 360 Properties expected to be acquired by the Company with the proceeds of
this offering or additional Properties to be acquired with the proceeds of the
1997 Offering.
No Limitation on Number of Properties of a Particular Chain.
There is no limit on the number of restaurant Properties of a particular
Restaurant Chain which the Company may acquire, although the Board of Directors
currently does not anticipate that the Company will invest more than 25% of its
Gross Proceeds in Properties of any one Restaurant Chain.
No Assurance of Obtaining Suitable Investments. No assurance
can be given that the Company will be successful in obtaining suitable
investments on financially attractive terms or that, if investments are made,
the objectives of the Company will be achieved. There also can be no assurance
that all of the Properties will operate profitably or that defaults will not
occur.
Conflicts of Interest. The Advisor or its Affiliates from time
to time may acquire properties on a temporary basis with the intention of
subsequently transferring the properties to one or more of the CNL Group, Inc.
("CNL") programs, including the Company, although the Company has adopted
guidelines to minimize such conflicts. See "Conflicts of Interest -- Acquisition
of Properties." Potential investors will not have the opportunity to evaluate
the manner in which these conflicts of interest are resolved.
Possible Delays in Investment. To the extent consistent with the
Company's objective of qualifying as a REIT, the offering proceeds may remain
uninvested for up to the later of two years from the initial date of this
Prospectus or one year after termination of the offering, although it is
expected that substantially all net offering proceeds will be invested prior to
the end of such period. See "Prior Performance Information" for a summary
description of the investment experience of Affiliates and the Advisor in prior
CNL programs, which is not necessarily indicative of the rate at which the
proceeds of this offering will be invested.
An extended offering period, the inability of the Advisor to find
suitable Properties, or the fact that a program formed by Affiliates of the
Advisor currently is in the process of acquiring fast-food and family-style
restaurant properties to substantially complete its acquisition program prior to
the time that the Company has funds available to invest in Properties may result
in delays in investment of Company funds in Properties and in the receipt of a
return from real property investments.
Revenues received by the Company pending investment in Properties or
making Mortgage Loans will be limited to the rates of return available on
short-term, highly liquid investments with appropriate safety of principal.
These rates of return, which affect the amount of cash available to make
Distributions to the stockholders, are expected to be lower than the Company
would receive under its Property leases or Mortgage Loans. Further, to the
extent consistent with the Company's objective of qualifying as a REIT, any
funds of the Company required to be invested in Properties and not so invested
or reserved for Company purposes within the later of two years from the initial
date of this Prospectus, or one year after the termination of this offering,
will be distributed pro rata to the then stockholders of the Company in
accordance with the Articles of Incorporation.
-13-
<PAGE>
Lack of Control Over Properties Under Construction. The Company intends
to acquire sites on which a particular restaurant to be owned by the Company is
to be built as well as existing restaurants (including restaurants which require
renovation). To the extent that the Company acquires a Property on which
improvements are to be constructed or completed or renovations are to be made,
the Company may be subject to certain risks in connection with the developer's
ability to control construction costs, and the timing of completion of
construction, or to build in conformity with plans, specifications, and
timetables. The Company's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Company generally will have the right to require the tenant
to repurchase the Property that is under development at a pre-established price
designed to reimburse the Company for all costs incurred by the Company in
connection with the acquisition and development of the Property. There can be no
assurance, however, that under such circumstances, the tenant will have
sufficient funds to fulfill its obligations. See "Business -- Site Selection and
Acquisition Properties."
Ground Lease Property Risks. If the Company invests in ground lease
Properties, the Company will not own or, except to the extent of rights set
forth in any assignment of lease or tripartite agreement that the Company may
enter into, have a leasehold interest in the underlying land. Thus, with respect
to ground lease Properties, the Company will have no economic interest in the
land or building at the expiration of the lease on the underlying land, although
it generally will retain partial ownership of, and will have the right to
remove, any equipment that the Company may own in the building. The Company will
not share in any appreciation of the land associated with any ground lease
Property. The Company, however, will share in appreciation of the income stream
derived from the lease.
Impasse or Conflicts with Joint Venture Partner.
Impasse with Joint Venture Partner. In the event that the
Company enters into a Joint Venture with another program formed by Affiliates of
the Advisor, there will be a potential risk of impasse in certain joint venture
decisions since the approval of the Company and of each co-venturer is required
for certain decisions. In any Joint Venture with an affiliated program, however,
the Company will have the right to buy the other co-venturer's interest or to
sell its own interest on specified terms and conditions in the event of an
impasse regarding a Sale. Under such circumstances, it is possible that neither
party will have the funds necessary to consummate the transaction. See "Business
- -- Joint Venture Arrangements." In addition, the Company may experience
difficulty in locating a third party purchaser for its Joint Venture interest
and in obtaining a favorable sale price for such Joint Venture interest.
Interests of Joint Venture Partner. Investments in Joint
Ventures may involve the risk that the Company's co-venturer may have economic
or business interests or goals which, at a particular time, are inconsistent
with the interests or goals of the Company, that such co-venturer may be in a
position to take action contrary to the Company's instructions, requests,
policies or objectives, or that such co-venturer may experience financial
difficulties. Among other things, actions by a co-venturer might subject
property owned by the Joint Venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement or to other adverse
consequences.
Limitations on the Ability of the Company to Liquidate. For the first
two to seven years after commencement of this offering, the Company intends to
use any proceeds from the Sale of Properties or Mortgage Loans that are not
required to be distributed to stockholders in order to preserve the Company's
status as a REIT for federal income tax purposes to acquire additional
Properties, make additional Mortgage Loans and repay outstanding indebtedness on
the Line of Credit. The proceeds from the Sale of Secured Equipment Leases will
be used to fund additional Secured Equipment Leases, or to reduce the Company's
outstanding indebtedness on the Line of Credit. If Listing occurs, the proceeds
from Sales may be reinvested in other Properties, Mortgage Loans, or Secured
Equipment Leases for an indefinite period of time. Unless Listing occurs within
seven years after commencement of the offering, the Company will undertake, to
the extent consistent with the Company's objective of qualifying as a REIT, the
orderly Sale of the Company's assets, the distribution of the Net Sales Proceeds
of such Sales to stockholders, and will engage only in activities related to its
orderly liquidation unless the stockholders elect otherwise. Neither the Advisor
nor the Board of Directors may be able to control the timing of Sales due to
market conditions, and there can be no assurance that the Company will be able
to sell its assets so as to return stockholders' aggregate Invested Capital, to
generate a profit for the stockholders, or to fully satisfy its debt
obligations. Invested Capital, in the aggregate, will be returned to
stockholders upon disposition of the Properties only if the Properties are sold
for more than their original purchase price, although return of capital, for
federal income tax purposes, is not necessarily limited to stockholder
distributions following Sales of Properties. See "Federal Income Tax
Considerations." In the event that a purchase money obligation is taken in
partial payment of the sales price of a Property, the proceeds of the Sale will
be realized over a period of years. Further, entering into Mortgage Loans with
terms of 15 to 20 years and Secured Equipment Leases with terms of seven years
may cause any intended liquidation of the Company to be delayed beyond the time
of disposition of the Properties and until such time as the Mortgage Loans and
Secured Equipment Leases expire or are sold.
-14-
<PAGE>
Inability to Control the Sale of Certain Properties. Certain tenants
are expected to have the right to purchase the Property from the Company,
commencing a specified number of years after the date of the lease, which may
lessen the ability of the Advisor and the Board of Directors to freely control
the Sale of the Property. The leases also generally provide the tenant with a
right of first refusal on any proposed sale provisions. See "Business --
Description of Leases -- Right of Tenant to Purchase." A tenant will have no
obligation to purchase the restaurant it leases.
Real Property Investments.
Lack of Control Over Market and Business Conditions. The value
of Properties such as those to be acquired by the Company, the ability of the
tenants to pay rent on a timely basis, and the amount of the rent, and the
ability of borrowers to make Mortgage Loan payments on a timely basis may be
adversely affected by certain changes in general or local economic or market
conditions, increased costs of energy or food products, increased costs and
shortages of labor, competitive factors, fuel shortages, quality of restaurant
management, the ability of a Restaurant Chain to fulfill any obligations to
operators of its restaurants, limited alternative uses for the building,
changing consumer habits, condemnation or uninsured losses, changing
demographics, changing traffic patterns, inability to remodel outmoded
restaurants as required by the franchise or lease agreement, voluntary
termination by a tenant of its obligations under a lease, and other factors.
Neither the Company nor the Board of Directors can control these factors.
Multiple Property Leases or Mortgage Loans with Individual
Tenants or Borrowers. Tenants may lease more than one Property and borrowers may
enter into more than one Mortgage Loan. Events such as the default or financial
failure of a tenant or borrower therefore could cause one or more Properties to
become vacant under certain circumstances. Vacancies would reduce the cash
receipts of the Company and, at least until the Company is able to re-lease any
such Properties, could decrease their ultimate resale value. The value of the
Company's Properties will depend principally upon the value of the leases of the
Properties. Minor defaults by a tenant or borrower may continue for some time
before the Advisor or Board of Directors determines that it is in the interest
of the Company to evict that tenant or foreclose on the property of the
borrower.
Re-leasing of Properties. If a Property becomes vacant, the
Company may be unable either to release the Property for the rent due under the
prior lease or to re-lease the Property without incurring additional
expenditures relating to the Property. The Company could experience delays in
enforcing its rights against, and collecting rents (and, under certain
circumstances, real estate taxes and insurance costs) due from, a defaulting
tenant.
Third Party Franchise Agreements. The Company will not be a
party to any franchise agreement between a Restaurant Chain and a tenant, and
such agreement could therefore be modified or canceled without notice to, or the
prior consent of, the Company. In that event, the tenant could be required to
cease its operations at a Property, although the tenant's obligation to pay rent
to the Company would continue. Before operations at the Property could resume,
however, the Company would be required to locate a new tenant acceptable to a
Restaurant Chain.
Lack of Adequate Insurance. If the Company, as lessor, incurs
any liability which is not fully covered by insurance, the Company would be
liable for such amounts, and returns to the stockholders could be reduced. See
"Business -- Description of Leases - Insurance, Taxes, Maintenance, and Repairs"
for a description of the types of insurance that the leases of the Properties
will require the tenant to obtain.
The inability of tenants to make lease payments or of borrowers to make
Mortgage Loan payments as a result of any of these factors could result in a
decrease in the amount of cash available to make Distributions to the
stockholders.
Impact of Adverse Trends. The success of the future operations of
fast-food, family-style, and casual dining segments will depend largely on their
ability to adapt to dominant trends in the restaurant industry, including
greater competitive pressures, increased consolidation of the leading fast-food
chains, industry overbuilding, dependence on consumer spending and dining
patterns and changing demographics, the introduction of new concepts and menu
items, availability of labor, levels of food prices, and general economic
conditions. See "Business -- General" for a description of the size and nature
of the restaurant industry and current trends in the industry. The success of a
particular Restaurant Chain concept, the Restaurant Chain's ability to fulfill
any obligations to operators of its restaurants, and trends in the fast-food,
family-style, and casual dining segments of the restaurant industry will affect
the income that the Company derives from restaurants which are part of such
Restaurant Chain.
-15-
<PAGE>
Competition. The Company will compete with other entities, including
Affiliates, for the acquisition of restaurant sites and completed restaurants.
See "Conflicts of Interest -- Prior and Future Programs." In addition, the
restaurant business is highly competitive, and it is anticipated that any
restaurant Property acquired by the Company will compete with other restaurants
in the vicinity. The extent to which the Company will be entitled to receive
rent, in the form of percentage rent, in excess of the base rent (including
automatic increases in the base rent) for the Properties will depend in part on
the ability of the tenants to compete successfully with other restaurants in the
vicinity. In addition, the Company will compete with other financing sources for
suitable tenants and properties.
Possible Environmental Liabilities. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
at the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to
satisfactory Phase I environmental assessments or satisfactory Phase II
environmental assessments. A Phase I or Phase II environmental assessment may be
determined by the Board of Directors or the Advisor to be satisfactory if a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has agreed in writing to indemnify the Company. There
can be no assurance, however, that any seller will be able to pay under an
indemnity obtained by the Company. Further, no assurances can be given that all
environmental liabilities have been identified or that no prior owner, operator
or current occupant has created an environmental condition not known to the
Company. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants and occupants of the Properties, by the condition of land or operations
in the vicinity of the Properties (such as the presence of underground storage
tanks), or by third parties unrelated to the Company.
Unspecified Secured Equipment Leases. Prospective stockholders have no
information to assist them in evaluating the merits of any Secured Equipment
Lease entered into after the date of this Prospectus. No assurance can be given
that the Company will be successful in identifying additional operators or
negotiating additional Secured Equipment Leases on financially attractive terms
or that lessees will fulfill their obligations under Secured Equipment Leases.
TAX RISKS
REIT Qualification. The Company operates as a REIT for federal income
tax purposes. A qualified REIT generally is not taxed at the corporate level on
income it currently distributes to its stockholders, so long as it distributes
at least 95% of its real estate investment trust taxable income. See "Federal
Income Tax Considerations -- Taxation of the Company." The Company expects to
have qualified as a REIT in its taxable years ending through December 31, 1996,
but no assurance can be given that it did so qualify or that it will continue to
qualify in the future. In this regard, based on certain representations and
assumptions, the Company has received an opinion of tax counsel to the Company
("Counsel") to the effect that the Company qualified as a REIT for the taxable
years ending through December 31, 1996, that the Company is organized in
conformity with the requirements for qualification as a REIT, and that the
Company's proposed method of operation will enable it to meet the requirements
for qualification as a REIT for federal income tax purposes. Qualification as a
REIT, however, involves the application of highly technical and complex Code
provisions as to which there are only limited judicial and administrative
interpretations. Certain facts and circumstances which may be wholly or
partially beyond the Company's control may affect its ability to qualify on an
ongoing basis as a REIT. In addition, no assurance can be given that future
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws (or the application thereof) with
respect to qualification as a REIT for federal income tax purposes or the
federal income tax consequences of such qualification. The opinion of Counsel is
not binding on the Internal Revenue Service ("IRS") or the courts.
-16-
<PAGE>
Property Lease Treatment. Counsel is of the opinion, based upon certain
assumptions, that the leases of Properties where the Company owns the underlying
land constitute leases for federal income tax purposes. However, with respect to
the Properties where the Company does not own the underlying land, Counsel is
unable to render this opinion. If the lease of a Property does not constitute a
lease for federal income tax purposes, it would be treated as a financing
arrangement. In the opinion of Counsel, the income derived from such a financing
arrangement would satisfy the 75% and the 95% gross income tests for REIT
qualification because it would be considered to be interest on an obligation
secured by an interest in real property. Nevertheless, the recharacterization of
a lease in this fashion may have adverse tax consequences for the Company, in
particular that the Company would not be entitled to claim depreciation
deductions with respect to such Property (although the Company would be entitled
to treat part of the payments it would receive under the arrangement as the
repayment of principal). In such event, in certain taxable years the Company's
taxable income, and the corresponding obligation to distribute 95% of such
income, would be increased.
Secured Equipment Lease Treatment. In order to qualify as a REIT for
federal income tax purposes, not more than 25% of the Company's total assets may
be represented by personal property, or loans secured by personal property on
certain testing dates. In addition, loans secured by personal property made to
each borrower must represent less than 5% of the Company's total assets on such
testing dates. Counsel is of the opinion, based on certain assumptions, that the
Secured Equipment Leases will be treated as loans secured by personal property
for federal income tax purposes. The Company believes that the value of the
Secured Equipment Leases together with any personal property owned by the
Company, will in the aggregate represent less than 25% of the Company's total
assets and that the value of the Secured Equipment Leases entered into with any
particular lessee will represent less than 5% of the Company's total assets.
Counsel has relied on the representations of the Company regarding such values
in rendering its opinion as to the qualification of the Company as a REIT. If
the Company fails to satisfy the 25% test or the 5% test either at the time of
the offering or on any subsequent testing date, the Company will fail to qualify
(or cease to qualify, as the case may be) as a REIT for federal income tax
purposes. In addition, if, contrary to the opinion of Counsel, the Secured
Equipment Leases are not treated as loans, but are instead treated as leases for
federal income tax purposes, income from the Secured Equipment Leases will
generally not satisfy either the 95% or the 75% gross income tests for REIT
qualification. See "Federal Income Tax Considerations -Taxation of the
Company,"and "-- Characterization of the Secured Equipment Leases."
Effect of REIT Disqualification. If, in any taxable year, the Company
were to fail to qualify as a REIT for federal income tax purposes, it would not
be allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which REIT qualification is lost.
The additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available to make Distributions to
stockholders. Distributions to stockholders generally would be taxable as
ordinary income to the extent of current and accumulated earnings and profits
and, subject to certain limitations, would be eligible for the corporate
dividends received deduction. Although the Company intends to operate in a
manner designed to permit it to qualify as a REIT for federal income tax
purposes, it is possible that future economic, market, legal, tax, or other
events or circumstances could cause it to fail to so qualify. See "Federal
Income Tax Considerations -- Taxation of the Company."
Effect of Distribution Requirements. The Company may be required, under
certain circumstances, to accrue as income for tax purposes interest, rent and
other items treated as earned for tax purposes but not yet received. In
addition, the Company may be required not to accrue as expenses for tax purposes
certain items which actually have been paid or certain of the Company's
deductions might be disallowed by the Service. In any such event, the Company
could have taxable income in excess of cash available for distribution. If the
Company has taxable income in excess of cash available for distribution, the
Company could be required to borrow funds or liquidate investments on
unfavorable terms in order to meet the distribution requirement applicable to a
REIT. See "Federal Income Tax Considerations -- Taxation of the Company --
Distribution Requirements."
Restrictions on Maximum Share Ownership. In order for the Company to
qualify as a REIT, no more than 50% of the value of the outstanding equity
securities may be owned, directly or indirectly (applying certain attribution
rules), by five or fewer individuals (or certain entities) at any time during
the last half of the Company's taxable year. To ensure that the Company will not
fail to qualify as a REIT under this test, the Company's Articles of
Incorporation include certain provisions restricting the accumulation of Shares.
These restrictions may (i) discourage a change of control of the Company; (ii)
deter individuals and entities from making tender offers for Shares, which
offers may be attractive to stockholders; or (iii) limit the opportunity for
stockholders to receive a premium for their Shares in the event a stockholder is
making purchases of Shares in order to acquire a block of Shares.
-17-
<PAGE>
Other Tax Liabilities. Even if the Company qualifies as a REIT for
federal income tax purposes, it may be subject to certain federal, state and
local taxes on its income and property. See "Federal Income Tax Considera- tions
- -- State and Local Taxes."
Changes in Tax Laws. The discussions of the federal income tax aspects
of the offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof, and court
decisions. Consequently, future events that modify or otherwise affect those
provisions may result in treatment for federal income tax purposes of the
Company and the stockholders that is materially and adversely different from
that described in this Prospectus, both for taxable years arising before and
after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Shares offered hereby are suitable only as a long-term investment
for persons of adequate financial means who have no need for liquidity in this
investment. Initially, there is not expected to be any public market for the
Shares, which means that it may be difficult to sell Shares. See "Summary of the
Articles of Incorporation and Bylaws -- Restrictions on Ownership" for a
description of the transfer requirements. As a result, the Company has
established suitability standards which require investors to have either (i) a
net worth (exclusive of home, furnishings, and personal automobiles) of at least
$45,000 and an annual gross income of at least $45,000, or (ii) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $150,000.
Iowa, Maine, Massachusetts, Missouri, New Hampshire, North Carolina,
Ohio, Pennsylvania and Tennessee have established suitability standards
different from those established by the Company, and Shares will be sold only to
investors in those states who meet the special suitability standards set forth
below.
IOWA, MASSACHUSETTS, MISSOURI, NORTH CAROLINA AND TENNESSEE -- The
investor has either (i) a net worth (exclusive of home, furnishings, and
personal automobiles) of at least $60,000 and an annual gross income of at least
$60,000, or (ii) a net worth (exclusive of home, furnishings, and personal
automobiles) of at least $225,000.
MAINE -- The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
NEW HAMPSHIRE -- The investor has either (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $250,000.
OHIO -- The investor's investment in the Shares shall not exceed 10% of
the investor's net worth (exclusive of home, furnishings, and personal
automobiles).
PENNSYLVANIA -- The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten times the investor's
investment in the Company, and (ii) either (a) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $45,000 and an annual gross
income of at least $45,000, or (b) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $150,000.
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their Shares only to persons who meet similar standards, and the Company may
require certain assurances that such standards are met. Investors should read
carefully the requirements in connection with resales of Shares as set forth in
the Articles of Incorporation and as summarized under "Summary of the Articles
of Incorporation and Bylaws -- Restrictions of Ownership."
In purchasing Shares, custodians or trustees of employee pension
benefit plans or IRAs may be subject to the fiduciary duties imposed by the
Employee Retirement Income Security Act of 1974 ("ERISA") or other applicable
laws and to the prohibited transaction rules prescribed by ERISA and related
provisions of the Code. See "Federal Income Tax Considerations -- Retirement
Plan Stockholders." In addition, prior to purchasing Shares, the trustee or
custodian of an employee pension benefit plan or an IRA should determine that
such an investment would be permissible under the governing instruments of such
plan or account and applicable law. For information regarding "unrelated
business taxable income," see "Federal Income Tax Considerations -- Taxation of
Stockholders -- Tax-Exempt Stockholders."
In order to insure adherence to the suitability standards described
above, requisite suitability standards must be met, as set forth in the
Subscription Agreement in one of the forms attached hereto as Exhibit D. In
addition, Soliciting Dealers who sell Shares have the responsibility to make
every reasonable effort to determine that the purchase of Shares is a suitable
and appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See "The Offering --
Subscription Procedures." Executed Subscription Agreements will be maintained in
the Company's records for six years.
-18-
<PAGE>
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to "SouthTrust Asset
Management Company of Florida, N.A., Escrow Agent." See "The Offering --
Subscription Procedures." Certain Soliciting Dealers who have "net capital," as
defined in the applicable federal securities regulations, of $250,000 or more
may instruct their customers to make their checks for Shares subscribed for
payable directly to the Soliciting Dealer. Care should be taken to ensure that
the Subscription Agreement is filled out correctly and completely. Partnerships,
individual fiduciaries signing on behalf of trusts, estates, and in other
capacities, and persons signing on behalf of corporations and corporate trustees
may be required to obtain additional documents from Soliciting Dealers. Any
subscription may be rejected by the Company in whole or in part, regardless of
whether the subscriber meets the minimum suitability standards.
Certain Soliciting Dealers may permit investors who meet the
suitability standards described above to subscribe for Shares by telephonic
order to the Soliciting Dealer. This procedure may not be available in certain
states. See "The Offering -- Subscription Procedures" and "The Offering -- Plan
of Distribution."
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000), except for Iowa tax-exempt investors who must make a minimum
investment of 250 Shares ($2,500). For Minnesota investors only, IRAs and
qualified plans must make a minimum investment of 200 Shares ($2,000). In
addition, Nebraska, New York, and North Carolina investors must make a minimum
investment of 500 Shares ($5,000). Following an initial subscription for at
least the required minimum investment, any investor may make additional
purchases in increments of one Share. Maine investors, however, may not make
additional purchases in amounts less than the applicable minimum investment
except with respect to Shares purchased pursuant to the Reinvestment Plan. See
"The Offering -- General," "The Offering -- Subscription Procedures," and
"Summary of Reinvestment Plan."
-19-
<PAGE>
ESTIMATED USE OF PROCEEDS
The table set forth below summarizes certain information relating to
the anticipated use of offering proceeds by the Company, assuming that
34,500,000 Shares are sold. The Company estimates that 84% of Gross Proceeds
will be available for the purchase of Properties and the making of Mortgage
Loans, and approximately 9% of Gross Proceeds will be paid in fees and expenses
to Affiliates of the Company for their services and as reimbursement for
Offering Expenses incurred on behalf of the Company. While the estimated use of
proceeds set forth in the table below is believed to be reasonable, this table
should be viewed only as an estimate of the use of proceeds that may be
achieved.
<TABLE>
<CAPTION>
Maximum of
34,500,000 Shares (1)
---------------------
Amount Percent
------ -------
<S> <C>
GROSS PROCEEDS TO THE COMPANY (2)............................................... $345,000,000 100.0%
Less:
Selling Commissions to CNL
Securities Corp. (2)...................................................... 25,875,000 7.5%
Marketing Support and Due Diligence
Expense Reimbursement Fee to
CNL Securities Corp. (2).................................................. 1,725,000 0.5%
Offering Expenses (3)........................................................ 10,350,000 3.0%
------------ ------
NET PROCEEDS TO THE COMPANY..................................................... 307,050,000 89.0%
Less:
Acquisition Fees to the Advisor (4).......................................... 15,525,000 4.5%
Acquisition Expenses (5)..................................................... 1,725,000 0.5%
Initial Working Capital Reserve.............................................. (6)
--------- -------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
AND THE MAKING OF MORTGAGE LOANS
BY THE COMPANY (7)........................................................... $289,800,000 84.0%
============ ======
</TABLE>
- --------------------------------------------
FOOTNOTES:
(1) Includes 2,000,000 Shares that may be sold only pursuant to the
Reinvestment Plan.
(2) Gross Proceeds of the offering are calculated as if all Shares are sold at
$10.00 per Share and do not take into account any reduction in Selling
Commissions. See "The Offering -- Plan of Distribution" for a description
of the circumstances under which Selling Commissions may be reduced,
including commission discounts available for purchases by registered
representatives or principals of the Managing Dealer or Soliciting Dealers,
certain Directors and officers and certain investment advisers. Selling
Commissions are calculated assuming that reduced commissions are not paid
in connection with the purchase of any Shares. The Shares are being offered
to the public through CNL Securities Corp., which will receive Selling
Commissions of 7.5% on all sales of Shares and will act as Managing Dealer.
The Managing Dealer is an Affiliate of the Advisor. Other broker-dealers
may be engaged as Soliciting Dealers to sell Shares and reallowed Selling
Commissions of up to 7% with respect to Shares which they sell. In
addition, all or a portion of the marketing support and due diligence
expense reimbursement fee may be reallowed to certain Soliciting Dealers
for expenses incurred by them in selling the Shares, including
reimbursement for bona fide expenses incurred in connection with due
diligence activities, in the Managing Dealer's sole discretion. See "The
Offering -- Plan of Distribution" for a more complete description of this
fee.
(3) Offering Expenses include legal, accounting, printing, escrow, filing,
registration, qualification, and other expenses of the organization of the
Company and the offering of the Shares, but exclude Selling Commissions and
the marketing support and due diligence expense reimbursement fee. The
Advisor will pay all Offering Expenses which exceed 3% of Gross Proceeds.
(4) Acquisition Fees include all fees and commissions paid by the Company to
any person or entity in connection with the purchase, development or
construction of any Property or investing in any Mortgage Loan, including
to Affiliates or nonaffiliates. Acquisition Fees do not include Acquisition
Expenses.
(5) Represents Acquisition Expenses that are neither reimbursed to the Company
nor included in the purchase price of the Properties, and on which rent is
not received, but does not include certain expenses associated with
Property acquisitions that are part of the purchase price of the
Properties, that are included in the basis of the Properties, and on which
rent is received. Acquisition Expenses include any and all expenses
incurred by the Company, the Advisor, or any Affiliate of the Advisor in
connection with the selection or acquisition of any Property or the making
of any Mortgage Loan, whether or not acquired or made, including, without
limitation, legal fees and expenses, travel and communication expenses,
costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, taxes, and title insurance, but
exclude Acquisition Fees. The expenses that are attributable to the seller
of the Properties and part of the purchase price of the Properties is
anticipated to range between 1% and 2% of Gross Proceeds.
(6) Because leases will be on a "triple-net" basis, it is not anticipated that
a permanent reserve for maintenance and repairs will be established.
However, to the extent that the Company has insufficient funds for such
purposes, the Advisor may, but is not required to, contribute to the
Company an aggregate amount of up to 1% of the net offering proceeds
available to the Company for maintenance and repairs. The Advisor also may,
but is not required to, establish reserves from offering proceeds,
operating funds, and the available proceeds of any Sales.
(7) Offering proceeds designated for investment in Properties or the making of
Mortgage Loans temporarily may be invested in short-term, highly liquid
investments with appropriate safety of principal.
-20-
<PAGE>
MANAGEMENT COMPENSATION
The table below summarizes the types, recipients, methods of
computation, and estimated amounts of all compensation, fees, reimbursements,
and distributions to be paid directly or indirectly by the Company to the
Advisor and its Affiliates, exclusive of any distributions to which the Advisor
or its Affiliates may be entitled by reason of their purchase and ownership of
Shares. See "The Advisor and the Advisory Agreement." For information concerning
compensation and fees paid to the Advisor and its Affiliates since the date of
inception of the Company, see"Certain Transactions." For information concerning
compensation to the Directors, see "Management."
A maximum of 34,500,000 Shares ($345,000,000) may be sold. This amount
includes 2,000,000 Shares that may be sold only pursuant to the Reinvestment
Plan.
The following arrangements for compensation and fees to the Advisor and
its Affiliates were not determined by arm's-length negotiations. See "Conflicts
of Interest." There is no item of compensation and no fee that can be paid to
the Advisor or its Affiliates under more than one category.
Capitalized terms used but not defined in this section are defined at the
end of this Prospectus under "Definitions."
-21-
<PAGE>
<TABLE>
<CAPTION>
TYPE OF
COMPENSATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
- ---------------------------------------------------------------------------------------
Offering Stage
<S> <C>
Selling Selling Commissions of 7.5% per Share on all $ 25,875,000 if
Com- Shares sold, subject to reduction under certain 34,500,000 Shares are
missions circumstances as described in "The sold.
to Offering Plan of Distribution." Soliciting
Managing Dealers may be reallowed Selling Commissions of
Dealer and up to 7% with respect to Shares they sell.
Soliciting
Dealers
Marketing Expense allowance of 0.5% of Gross Proceeds to $1,725,000 if 34,500,000
support the Managing Dealer, all or a portion of which Shares are sold.
and due may be reallowed to Soliciting Dealers in the
diligence Managing Dealer's sole discretion. The Managing
expense Dealer will pay all sums attributable to bona
reimbursem- fide due diligence expenses from this fee.
ent fee to
Managing
Dealer and
Soliciting
Dealers
Reimburse- Actual expenses incurred, except that the Advisor Amount is not
ment to the will pay all such expenses in excess of 3% of determinable at this
Advisor Gross Proceeds. time but will not exceed
and its 3% of Gross Proceeds,
Affiliates $6,900,000 if 34,500,000
for Shares are sold.
Offering
Expenses
Acquisition Stage
Acquisition 4.5% of Gross Proceeds payable to the Advisor as $15,525,000 if
Fee to Acquisition Fees. 34,500,000 Shares are
the sold.
Advisor
Other Any fees paid to Affiliates of the Advisor in Amount is not
Acquisition connection with the financing, development, determinable at this
Fees to construction or renovation of a Property. Such time.
Affiliates fees are in addition to 4.5% of Gross Proceeds
of the payable to the Advisor as Acquisition Fees, and
Advisor payment of such fees will be subject to approval
by the Board of Directors, including a majority
of the Independent Directors, not otherwise
interested in the transaction.
Reimburse- Reimbursement to the Advisor and its Affiliates Acquisition Expenses,
ment of for expenses actually incurred. which are based on a
Acquisition number of factors,
Expenses including the purchase
to the price of the Properties,
Advisor are not determinable at
and its this time.
Affiliates
-22-
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
- ---------------------------------------------------------------------------------------
<S> <C>
The total of all Acquisition Fees and any
Acquisition Expenses payable to the Advisor and
its Affiliates shall be reasonable and shall not
exceed an amount equal to 6% of the Real Estate
Asset Value of a Property, or in the case of a
Mortgage Loan, 6% of the funds advanced, unless a
majority of the Board of Directors, including a
majority of the Independent Directors not
otherwise interested in the transaction, approves
fees in excess of this limit subject to a
determination that the transaction is
commercially competitive, fair and reasonable to
the Company. Acquisition Fees shall be reduced
to the extent that, and if necessary to limit,
the total compensation paid to all persons
involved in the acquisition of any Property to
the amount customarily charged in arms-length
transactions by other persons or entities
rendering similar services as an ongoing public
activity in the same geographical location and
for comparable types of Properties, and to the
extent that other acquisition fees, finder's
fees, real estate commissions, or other similar
fees or commissions are paid by any person in
connection with the transaction. "Real Estate
Asset Value" means the amount actually paid or
allocated to the purchase, development,
construction, or improvement of a Property,
exclusive of Acquisition Fees and Acquisition
Expenses.
-23-
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
- ---------------------------------------------------------------------------------------
<S> <C>
Operational Stage
Asset A monthly Asset Management Fee in an amount equal Amount is not
Management to one-twelfth of .60% of the Company's Real determinable at this
Fee to the Estate Asset Value and the outstanding principal time. The amount of the
Advisor amount of the Mortgage Loans as of the end of the Asset Management Fee
preceding month. Specifically, Real Estate Asset will depend upon, among
Value equals the amount invested in the other things, the cost
Properties wholly owned by the Company, of the Properties and
determined on the basis of cost, plus, in the the amount invested in
case of Properties owned by any Joint Venture or Mortgage Loans.
partnership in which the Company is a co-venturer
or partner, the portion of the cost of such
Properties paid by the Company, exclusive of
Acquisition Fees and Expenses. The Asset Manage-
ment Fee, which will not exceed fees which are
competitive for similar services in the same
geographic area, may or may not be taken, in
whole or in part as to any year, in the sole
discretion of the Advisor. All or any portion of
the Asset Management Fee not taken as to any
fiscal year shall be deferred without interest
and may be taken in such other fiscal year as the
Advisor shall determine.
Reimburse- Operating Expenses (which, in general, are those Amount is not
ment to the expenses relating to administration of the determinable at this
Advisor Company on an ongoing basis) will be reimbursed time.
and by the Company. To the extent that Operating
Affiliates Expenses payable or reimbursable by the Company,
for in any four consecutive fiscal quarters (the
operating "Expense Year"), exceed (the "Excess Amount")
expenses the greater of 2% of Average Invested Assets or
25% of Net Income (the "2%/25% Guidelines") and
the Independent Directors determine that the
Excess Amount was justified based on unusual
nonrecurring factors which they deem sufficient,
the Excess Amount may be carried over and
included in Operating Expenses in subsequent
Expense Years, and reimbursed to the Advisor in
one or more of such years, but only to the extent
such reimbursement would not cause the Company's
Operating Expenses to exceed the 2%/25%
Guidelines in any Expense Year. Within 60 days
after the end of any fiscal quarter of the
Company for which total Operating Expenses (for
the Expense Year) exceed the 2%/25% Guidelines
and the Independent Directors determine that the
Excess Amount was justified, there shall be sent
to the stockholders a written disclosure of such
fact, together with an explanation of the factors
the Independent Directors considered in
determining that such Excess Amount was
justified. In the event the Independent
Directors do not determine that such Excess
Amount was justified, the Advisor shall reimburse
the Company at the end of the Expense Year the
amount by which the total Operating Expenses paid
or incurred by the Company exceed the limitations
herein provided.
Soliciting An annual fee of .20% of Invested Capital on Amount is not
Dealer December 31 of each year, commencing on December determinable at this
Servicing 31 of the year following the year in which the time. Until such time
Fee to related offering terminates, generally payable to as assets are sold, the
Managing the Managing Dealer, which in turn may reallow estimated amounts
Dealer all or a portion of such fee to Soliciting payable to the Managing
Dealers whose clients hold Shares on such date. Dealer for each of the
In general, Invested Capital is the amount of years following the year
cash paid by the stockholders to the Company for of termination of the
their Shares, reduced by certain prior offering are expected to
Distributions to the stockholders from the Sale be $690,000 if
of one or more Properties, Mortgage Loans or 34,500,000 Shares are
Secured Equipment Leases. The Soliciting Dealer sold. The maximum total
Servicing Fee will terminate as of the beginning amount payable to the
of any year in which the Company is liquidated or Managing Dealer through
in which Listing occurs, provided, however, that December 31, 2005 is
any previously accrued but unpaid portion of the $4,140,000 if 34,500,000
Soliciting Dealer Servicing Fee may be paid in Shares are sold.
such year or any subsequent year.
-24-
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
- ---------------------------------------------------------------------------------------
<S> <C>
Deferred, A deferred, subordinated real estate disposition Amount is not
sub- fee, payable upon Sale of one or more Properties, determinable at this
ordinated in an amount equal to the lesser of (i) one-half time. The amount of
real of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
estate 3% of the sales price of such Property or payable, will depend
disposition Properties. Payment of such fee shall be made upon the price at which
fee only if the Advisor provides a substantial amount Properties are sold.
payable to of services in connection with the Sale of a
the Property or Properties and shall be subordinated
Advisor to receipt by the stockholders of Distributions
from a equal to the sum of (i) their aggregate
Sale or Stockholders' 8% Return and (ii) their aggregate
Sales of a Invested Capital. If, at the time of a Sale,
Property payment of the disposition fee is deferred
not in because the subordination conditions have not
liquidation been satisfied, then the disposition fee shall be
of the paid at such later time as the subordination
Company conditions are satisfied. Upon Listing, if the
Advisor has accrued but not been paid such real
estate disposition fee, then for purposes of
determining whether the subordination conditions
have been satisfied, stockholders will be deemed
to have received a Distribution in the amount
equal to the product of the total number of
Shares outstanding and the average closing price
of the Shares over a period, beginning 180 days
after Listing, of 30 days during which the Shares
are traded. "Stockholders' 8% Return," as of
each date, means an aggregate amount equal to an
8% cumulative, noncompounded, annual return on
Invested Capital.
Subordinat- At such time, if any, as Listing occurs, the Amount is not
ed Advisor shall be paid the Subordinated Incentive determinable at this
Incentive Fee in an amount equal to 10% of the amount by time.
Fee which (i) the market value of the Company (as
payable to defined below) plus the total Distributions made
the to stockholders from the Company's inception
Advisor at until the date of Listing exceeds (ii) the sum of
such time, (A) 100% of Invested Capital and (B) the total
if any, as Distributions required to be made to the stock-
Listing holders in order to pay the Stockholders' 8%
occurs Return from inception through the date the market
value is determined. For purposes of calculating
the Subordinated Incentive Fee, the market value
of the Company shall be the average closing price
or average of bid and asked price, as the case
may be, over a period of 30 days during which the
Shares are traded with such period beginning 180
days after Listing. The Subordinated Incentive
Fee will be reduced by the amount of any prior
payment to the Advisor of a deferred,
subordinated share of Net Sales Proceeds from
Sales of assets of the Company.
-25-
<PAGE>
<CAPTION>
TYPE OF
COMPENSATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
- ---------------------------------------------------------------------------------------
<S> <C>
Deferred, A deferred, subordinated share equal to 10% of Amount is not
sub- Net Sales Proceeds from Sales of assets of the determinable at this
ordinated Company payable after receipt by the stockholders time.
share of of Distributions equal to the sum of (i) the
Net Sales Stockholders' 8% Return and (ii) 100% of Invested
Proceeds Capital. Following Listing, no share of Net
from Sales Sales Proceeds will be paid to the Advisor.
of assets
of the
Company
not in
liquidation
of the
Company
payable to
the
Advisor
Secured A fee paid to the Advisor out of the proceeds of Amount is not
Equipment the Line of Credit for negotiating Secured determinable at this
Lease Ser- Equipment Leases and supervising the Secured time.
vicing Fee Equipment Lease program equal to 2% of the
to the purchase price of the Equipment subject to each
Advisor Secured Equipment Lease and paid upon entering
into such lease. No other fees will be payable
in connection with the Secured Equipment Lease
program.
Reimburse- Repayment by the Company of actual expenses Amount not determinable
ment to the incurred. at this time.
Advisor
and
Affiliates
for
Secured
Equipment
Lease
servicing
expenses
Liquidation Stage
Deferred, A deferred, subordinated real estate disposition Amount is not
sub- fee, payable upon Sale of one or more Properties, determinable at this
ordinated in an amount equal to the lesser of (i) one-half time. The amount of
real of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
estate 3% of the sales price of such Property or payable, will depend
disposi- Properties. Payment of such fee shall be made upon the price at which
tion fee only if the Advisor provides a substantial amount Properties are sold.
payable to of services in connection with the Sale of a
the Property or Properties and shall be subordinated
Advisor to receipt by the stockholders of Distributions
from a equal to the sum of (i) their aggregate
Sale or Stockholders' 8% Return and (ii) their aggregate
Sales in Invested Capital. If, at the time of a Sale,
liquida- payment of the disposition fee is deferred
tion of the because the subordination conditions have not
Company been satisfied, then the disposition fee shall be
paid at such later time as the subordination
conditions are satisfied.
Deferred, A deferred, subordinated share equal to 10% of Amount is not
sub- Net Sales Proceeds from Sales of assets of the determinable at this
ordinated Company payable after receipt by the stockholders time.
share of of Distributions equal to the sum of (i) the
Net Sales Stockholders' 8% Return and (ii) 100% of Invested
Proceeds Capital. Following Listing, no share of Net
from Sales Sales Proceeds will be paid to the Advisor.
of assets
of the
Company in
liquidation
of the
Company
payable to
the
Advisor
</TABLE>
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising
out of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Advisor and
those Affiliates that will provide services to the Company.
<TABLE>
<S> <C>
------------------------------------- -----------------------------------
| CNL AMERICAN PROPERTIES | | |
| FUND, INC. | | CNL Group, Inc. (1) |
| (the Company) | | |
------------------------------------- -----------------------------------
| |
| |
|
(Advisory Agreement) | 100%
|
|
----------------------------------------------------------
| |
------------------------------ ---------------------------
| CNL FUND ADVISORS, INC. | | CNL Securities Corp. |
| (Advisor to Company) | | (Managing Dealer) |
------------------------------- ---------------------------
</TABLE>
- ---------------
(1) James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer
of the Company, shares ownership and voting control of CNL Group, Inc.
with Dayle L. Seneff, his wife.
PRIOR AND FUTURE PROGRAMS
In the past, Affiliates of the Advisor have organized over 100 other
real estate investments, currently have other real estate holdings, and in the
future expect to form, offer interests in, and manage other real estate programs
in addition to the Company, and make additional real estate investments. Some of
these (including 18 public partnerships, one unlisted public REIT and one listed
public REIT) involve and will involve Affiliates of the Advisor in the
ownership, operation, leasing, and management of fast-food, family-style, and
casual dining, including restaurants that may be suitable for the Company.
Certain of these affiliated public or private real estate programs
invest or may invest solely in fast-food, family-style, and casual dining
restaurants, may purchase properties concurrently with the Company and may lease
fast-food, family-style, and casual dining restaurant properties to operators
who also lease or operate certain of the Company's Properties. These properties,
if located in the vicinity of, or adjacent to, Properties acquired by the
Company may affect the Properties' gross revenues. Additionally, such other
programs may offer mortgage or equipment financing to the same or similar
entities as those targeted by the Company, thereby affecting the Company's
Mortgage Loan and Secured Equipment Lease programs. Such conflicts between the
Company and affiliated programs may affect the value of the Company's
investments as well as its Net Income. The Company believes that the Advisor has
established guidelines to minimize such conflicts. See "Certain Conflict
Resolution Procedures" below.
An Affiliate of the Advisor currently is purchasing properties for a
private program that was organized to purchase, lease and/or finance fast-food,
family-style and casual dining restaurant facilities, including furniture,
fixtures, equipment and start-up costs associated therewith. Such program
generally will purchase restaurant properties or an interest therein only when
furniture, fixtures, equipment and start-up costs also will be supplied by the
program. It is not expected that the financing offered by such program will be
segregable and, therefore, the program will not compete with the Company for
lessees. If the equipment arrangement offered by such program becomes
segregable, a conflict could arise between such program and the Company for
lessees.
-26-
<PAGE>
ACQUISITION OF PROPERTIES
Affiliates of the Advisor regularly have opportunities to acquire
restaurant properties of a type suitable for acquisition by the Company as a
result of their existing relationships and past experience with various
fast-food, family-style and casual dining restaurant chains and their
franchisees. See "Business -- General." A purchaser who wishes to acquire one or
more of these properties must do so within a relatively short period of time,
occasionally at a time when the Company (due to insufficient funds, for example)
may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities for the Company (and other entities with which the Advisor or its
Affiliates are affiliated), Affiliates of the Advisor maintain lines of credit
which enable them to acquire restaurant properties on an interim basis.
Typically, no more than ten to 15 restaurant properties are temporarily owned by
Affiliates of the Advisor on this interim basis at any particular time. These
restaurant properties generally will be purchased from Affiliates of the
Advisor, at their cost, by one or more existing or future public or private
programs formed by Affiliates of the Advisor.
The Advisor could experience potential conflicts of interest in
connection with the negotiation of the purchase price and other terms of the
acquisition of a Property, as well as the terms of the lease of a Property, due
to its relationship with its Affiliates and the ongoing business relationship of
its Affiliates with operators of Restaurant Chains.
The Advisor or its Affiliates also may be subject to potential
conflicts of interest at such time as the Company wishes to acquire a property,
make a mortgage loan or enter into a secured equipment lease that also would be
a suitable investment for an Affiliate of CNL. Affiliates of the Advisor serve
as Directors of the Company and, in this capacity, have a fiduciary obligation
to act in the best interest of the stockholders of the Company and, as general
partners or directors of CNL Affiliates, to act in the best interests of the
stockholders in other programs with investments that may be similar to those of
the Company and will use their best efforts to assure that the Company will be
treated as favorably as any such other program. See "Management -- Fiduciary
Responsibility of the Board of Directors." In addition, the Company has
developed procedures to resolve potential conflicts of interest in the
allocation of properties between the Company and certain of its Affiliates. See
"Certain Conflict Resolution Procedures" below.
The Company will supplement this Prospectus during the offering period
to disclose the acquisition of a Property at such time as the Advisor believes
that a reasonable probability exists that the Company will acquire the Property,
including an acquisition from the Advisor or its Affiliates. Based upon the
experience of management of the Company and the Advisor and the proposed
acquisition methods, a reasonable probability that the Company will acquire a
Property normally will occur as of the date on which (i) a commitment letter is
executed by a proposed lessee, (ii) a satisfactory credit underwriting for the
proposed lessee has been completed and (iii) a satisfactory site inspection has
been completed.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's
determination as to whether or not to sell a Property, since the interests of
the Advisor and the stockholders may differ as a result of their distinct
financial and tax positions and the compensation to which the Advisor or its
Affiliates may be entitled upon the Sale of a Property. See "Compensation of the
Advisor," below for a description of these compensation arrangements. In order
to resolve this potential conflict, the Board of Directors will be required to
approve each Sale of a Property. In the unlikely event that the Company and
another CNL program attempted to sell similar properties at the same time, a
conflict could arise since the two programs potentially could compete with each
other for a suitable purchaser. In order to resolve this potential conflict, the
Advisor has agreed not to approve the sale of any of the Company's Properties
contemporaneously with the sale of a property owned by another CNL program if
the two properties are part of the same Restaurant Chain and are within a
three-mile radius of each other, unless the Advisor and the principals of the
other CNL program are able to locate a suitable purchaser for each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored
by the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers.
-27-
<PAGE>
COMPETITION FOR MANAGEMENT TIME
The officers and directors of the Advisor and the officers and
Directors of the Company currently are engaged, and in the future will engage,
in the management of other business entities and properties and in other
business activities. They will devote only as much of their time to the business
of the Company as they, in their judgment, determine is reasonably required,
which will be substantially less than their full time. These officers and
Directors of the Company and officers and directors of the Advisor may
experience conflicts of interest in allocating management time, services, and
functions among the Company and the various entities, investor programs (public
or private), and any other business ventures in which any of them are or may
become involved.
COMPENSATION OF THE ADVISOR
The Advisor has been and will be engaged to perform various services
for the Company and has and will receive fees and compensation for such
services. None of the agreements for such services were the result of
arm'slength negotiations. All such agreements, including the Advisory Agreement,
require approval by a majority of the Board of Directors, including a majority
of the Independent Directors, not otherwise interested in such transactions, as
being fair and reasonable to the Company and on terms and conditions no less
favorable than those which could be obtained from unaffiliated entities. The
timing and nature of fees and compensation to the Advisor could create a
conflict between the interests of the Advisor and those of the stockholders. A
transaction involving the purchase, lease, and sale of any Property, or the
entering into or sale of a Mortgage Loan or a Secured Equipment Lease by the
Company may result in the immediate realization by the Advisor and its
Affiliates of substantial commissions, fees, compensation, and other income.
Although the Advisory Agreement authorizes the Advisor to take primary
responsibility for all decisions relating to any such transaction, the Board of
Directors must approve all of the Company's acquisitions and Sales of Properties
and the entering into and Sales of Mortgage Loans or Secured Equipment Leases.
Potential conflicts may arise in connection with the determination by the
Advisor on behalf of the Company of whether to hold or sell a Property, Mortgage
Loan, or Secured Equipment Lease as such determination could impact the timing
and amount of fees payable to the Advisor. See "The Advisor and the Advisory
Agreement."
RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the
Company. Certain of the officers and Directors of the Company are also officers,
directors, and registered principals of the Managing Dealer. This relationship
may create conflicts in connection with the fulfillment by the Managing Dealer
of its due diligence obligations under the federal securities laws. Although the
Managing Dealer will examine the information in the Prospectus for accuracy and
completeness, the Managing Dealer is an Affiliate of the Company and will not
make an independent review of the Company and the offering. Accordingly, the
investors do not have the benefit of such independent review. Certain of the
Soliciting Dealers have made, or are expected to make, their own independent due
diligence investigations. The Managing Dealer is not prohibited from acting in
any capacity in connection with the offer and sale of securities offered by
entities that may have some or all investment objectives similar to those of the
Company and is expected to participate in other offerings sponsored by one or
more of the officers or Directors of the Company.
LEGAL REPRESENTATION
Shaw, Pittman, Potts & Trowbridge, which serves as securities and tax
counsel to the Company in this offering, also serves as securities and tax
counsel for certain of its Affiliates, including other real estate programs, in
connection with other matters. In addition, certain members of the firm of Shaw,
Pittman, Potts & Trowbridge have invested as limited partners in prior programs
sponsored by Affiliates of the Advisor in aggregate amounts which do not exceed
one percent of the amounts sold by any of these programs, and members of the
firm also may invest in the Company. Neither the Company nor the stockholders
will have separate counsel. In the event any controversy arises following the
termination of this offering in which the interests of the Company appear to be
in conflict with those of the Advisor or its Affiliates, other counsel may be
retained for one or both parties.
-28-
<PAGE>
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, the Articles of Incorporation contain a number of restrictions
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of restaurant
properties, mortgage loans and secured equipment leases among certain affiliated
entities. These restrictions include the following:
1. No goods or services will be provided by the Advisor or its
Affiliates to the Company except for transactions in which the Advisor or its
Affiliates provide goods or services to the Company in accordance with the
Articles of Incorporation which provides that a majority of the Directors
(including a majority of the Independent Directors) not otherwise interested in
such transactions must approve such transactions as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties and not less favorable than those
available from the Advisor or its Affiliates in transactions with unaffiliated
third parties.
2. The Company will not purchase or lease Properties in which the
Advisor or its Affiliates has an interest without the determination, by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction, that such transaction is
competitive and commercially reasonable to the Company and at a price to the
Company no greater than the cost of the asset to the Advisor or its Affiliate
unless there is substantial justification for any amount that exceeds such cost
and such excess amount is determined to be reasonable. In no event shall the
Company acquire any such asset at an amount in excess of its appraised value.
The Company will not sell or lease Properties to the Advisor or its Affiliates
unless a majority of the Directors (including a majority of the Independent
Directors) not interested in the transaction determine the transaction is fair
and reasonable to the Company.
3. The Company will not make any loans to Affiliates. The Advisor and
its Affiliates will not make loans to the Company, or to Joint Ventures in which
the Company is a co-venturer, for the purchase of Properties. Any loans to the
Company by the Advisor or its Affiliates for other purposes must be approved by
a majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction as fair, competitive, and
commercially reasonable, and no less favorable to the Company than comparable
loans between unaffiliated parties. It is anticipated that the Advisor or its
Affiliates shall be entitled to reimbursement, at cost, for actual expenses
incurred by the Advisor or its Affiliates on behalf of the Company or Joint
Ventures in which the Company is a co-venturer, subject to the 2%/25% Guidelines
(2% of Average Invested Assets or 25% of Net Income) described under "The
Advisor and the Advisory Agreement -- The Advisory Agreement."
4. Until completion of this offering, the Advisor and its Affiliates
will not offer or sell interests in any subsequently formed public program that
has investment objectives and structure similar to those of the Company and that
intends to (i) invest, on a cash and/or leveraged basis, in a diversified
portfolio of solely restaurant properties (either existing properties or
properties upon which restaurants are to be constructed) to be leased on a
"triple-net" basis to operators of national and regional fast-food,
family-style, and casual dining Restaurant Chains, and (ii) offer Secured
Equipment Leases. The Advisor and its Affiliates also will not purchase property
or offer a mortgage loan or secured equipment lease for any such subsequently
formed public program that has investment objectives and structure similar to
the Company and that intends to invest on a cash and/or leveraged basis
primarily in a diversified portfolio of solely restaurant properties (either
existing properties or properties upon which restaurants are to be constructed)
to be leased on a "triple-net" basis to operators of national and regional
fast-food, family-style, and casual dining Restaurant Chains until substantially
all (generally, 80%) of the funds available for investment (Net Offering
Proceeds) by the Company have been invested or committed to investment. (For
purposes of the preceding sentence only, funds are deemed to have been committed
to investment to the extent written agreements in principle or letters of
understanding are executed and in effect at any time, whether or not any such
investment is consummated, and also to the extent any funds have been reserved
to make contingent payments in connection with any Property, whether or not any
such payments are made.) Affiliates of the Advisor are currently purchasing
restaurant properties, including furniture, fixtures and equipment, and
incurring related costs for public and private programs, which have investment
objectives that are not identical, and/or a structure not similar to, those of
the Company, but which make investments that include "triple-net" leases of
fast-food, family-style, and casual dining restaurant properties. The Advisor or
its Affiliates currently and in the future may offer interests in one or more
public or private programs organized to purchase and lease fast-food,
family-style, and casual dining restaurants on a "triple-net" basis.
5. The Board of Directors and the Advisor have agreed that, in the
event that an investment opportunity becomes available which is suitable for
both the Company and a public or private entity with which the Advisor or its
Affiliates are affiliated, for which both entities have sufficient uninvested
funds, then the entity which has had the longest period of time elapse since it
was offered an investment opportunity will first be offered the investment
opportunity. An investment opportunity will not be considered suitable for a
program if the requirements of Item 4 above could not be satisfied if the
program were to make the investment. In determining whether or not an investment
opportunity is suitable for more than one program, the Advisor and its
Affiliates will examine such factors, among others, as the cash requirements of
each program, the effect of the acquisition both on diversification of each
program's investments by types of restaurants and geographic area, and on
diversification of the tenants of its properties (which also may affect the need
for one of the programs to prepare or produce audited financial statements for a
property or a tenant), the anticipated cash flow of each program, the size of
the investment, the amount of funds available to each program, and the length of
time such funds have been available for investment. If a subsequent development,
such as a delay in the closing of a property or a delay in the construction of a
property, causes any such investment, in the opinion of the Advisor and its
Affiliates, to be more appropriate for an entity other than the entity which
committed to make the investment, however, the Advisor has the right to agree
that the other entity affiliated with the Advisor or its Affiliates may make the
investment. The Advisor and certain other Affiliates of the Company are
affiliated with CNL American Realty Fund, Inc. and CNL Income Fund XVIII, Ltd.,
public programs, and CNL Income & Growth Fund VIII, Ltd., a private program,
offerings of securities of which are ongoing. As of September 17, 1997, CNL
American Realty Fund, Inc. had not yet received the minimum amount of offering
proceeds necessary to release funds from escrow and, therefore, did not have any
uninvested proceeds. As of September 17, 1997, CNL Income Fund XVIII, Ltd. had
invested or committed for investment all proceeds received to date and CNL
Income & Growth Fund VIII, Ltd. had approximately $2,649,000 available for
investment. In the future, other public and private programs affiliated with the
Advisor and other Affiliates of the Company are expected to engage in offerings
of securities and have offering proceeds available for investment.
6. With respect to Shares owned by the Advisor, the Directors, or any
Affiliate, neither the Advisor, nor the Directors may vote or consent on matters
submitted to the stockholders regarding the removal of the Advisor, Directors,
or any Affiliate or any transaction between the Company and any of them. In
determining the requisite percentage in interest of Shares necessary to approve
a matter on which the Advisor, Directors, and any Affiliate may not vote or
consent, any Shares owned by any of them shall not be included.
Additional conflict resolution procedures are identified under "--Sale
of Properties," "-- Joint Investment With An Affiliated Program," and "-- Legal
Representation."
-29-
<PAGE>
SUMMARY OF REINVESTMENT PLAN
The Company has adopted the Reinvestment Plan pursuant to which
stockholders may elect to have the full amount of their cash Distributions from
the Company reinvested in additional Shares of the Company. Each prospective
investor who wishes to participate in the Reinvestment Plan should consult with
such investor's Soliciting Dealer as to the Soliciting Dealer's position
regarding participation in the Reinvestment Plan. The following discussion
summarizes the principal terms of the Reinvestment Plan. The Reinvestment Plan
is attached hereto as Exhibit A.
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Escrow and Transfer Agency, Inc., will act on behalf of the participants in the
Reinvestment Plan (the "Participants"). For any period during which the Company
is making a public offering of Shares, the Reinvestment Agent will invest all
Distributions attributable to Shares owned by Participants in Shares of the
Company at the public offering price per Share, which during the term of this
offering is $10.00 per Share. If no public offering is ongoing, and until
Listing, the price per Share will be determined by (i) quarterly appraisal
updates performed by the Company based on a review of the existing appraisal and
lease of each Property, focusing on a re-examination of the capitalization rate
applied to the rental stream to be derived from that Property; and (ii) a review
of the outstanding Mortgage Loans and Secured Equipment Leases focusing on a
determination of present value by a re-examination of the capitalization rate
applied to the stream of payments due under the terms of each Mortgage Loan and
Secured Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by Participants in the Reinvestment Plan prior
to Listing will be determined by the Advisor in its sole discretion. The factors
that the Advisor will use to determine the capitalization rate include (i) its
experience in selecting, acquiring and managing restaurant properties similar to
the Properties; (ii) an examination of the conditions in the market; and (iii)
capitalization rates in use by private appraisers, to the extent that the
Advisor deems such factors appropriate, as well as any other factors that the
Advisor deems relevant or appropriate in making its determination. The Company's
internal accountants then convert the most recent quarterly balance sheet of the
Company from a "GAAP" balance sheet to a "fair market value" balance sheet.
Based on the "fair market value" balance sheet, the internal accountants then
assume a sale of the Company's assets and the liquidation of the Company in
accordance with its constitutive documents and applicable law and compute the
appropriate method of distributing the cash available after payment of
reasonable liquidation expenses, including closing costs typically associated
with the sale of assets and shared by the buyer and seller, and the creation of
reasonable reserves to provide for the payment of any contingent liabilities.
All Shares available for purchase under the Reinvestment Plan either are
registered pursuant to this Prospectus or will be registered under the
Securities Act of 1933 through a separate prospectus relating solely to the
Reinvestment Plan. Until this offering has terminated, Shares will be available
for purchase out of the additional 2,000,000 Shares registered with the
Securities and Exchange Commission (the "Commission") in connection with this
offering. See "The Offering -- Plan of Distribution" and "Summary of the
Articles of Incorporation and Bylaws -- Description of Capital Stock." After the
offering has terminated, Shares will be available from any additional Shares
which the Company elects to register with the Commission for the Reinvestment
Plan. The Reinvestment Plan may be amended or supplemented by an agreement
between the Reinvestment Agent and the Company at any time, including but not
limited to an amendment to the Reinvestment Plan to add a voluntary cash
contribution feature or to substitute a new Reinvestment Agent to act as agent
for the Participants or to increase the administrative charge payable to the
Reinvestment Agent, by mailing an appropriate notice at least 30 days prior to
the effective date thereof to each Participant at his or her last address of
record; provided, that any such amendment must be approved by a majority of the
Independent Directors of the Company. Such amendment or supplement shall be
deemed conclusively accepted by each Participant except those Participants from
whom the Company receives written notice of termination prior to the effective
date thereof.
Stockholders who have received a copy of this Prospectus and
participate in this offering or one of the Prior Offerings can elect to
participate in and purchase Shares through the Reinvestment Plan at any time and
would not need to receive a separate prospectus relating solely to the
Reinvestment Plan. A person who becomes a stockholder otherwise than by
participating in this offering may purchase Shares through the Reinvestment Plan
only after receipt of a separate prospectus relating solely to the Reinvestment
Plan.
At any time that the Company is not engaged in an offering, the price
per Share purchased pursuant to the Reinvestment Plan shall be the fair market
value of the Shares based on quarterly appraisal updates of the Company's assets
until such time, if any, as Listing occurs. Upon Listing, the Shares to be
acquired for the Reinvestment Plan may be acquired either through such market or
directly from the Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per-Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of purchase.
The Company is unable to predict the effect which such a proposed listing would
have on the price of the Shares acquired through the Reinvestment Plan.
-30-
<PAGE>
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly
following the payment date with respect to such Distributions, to purchase
Shares on behalf of the Participants from the Company. All such Distributions
shall be invested in Shares within 30 days after such payment date. Any
Distributions not so invested will be returned to Participants.
At this time, Participants will not have the option to make voluntary
contributions to the Reinvestment Plan to purchase Shares in excess of the
amount of Shares that can be purchased with their Distributions. The Board of
Directors reserves the right, however, to amend the Reinvestment Plan in the
future to permit voluntary contributions to the Reinvestment Plan by
Participants, to the extent consistent with the Company's objective of
qualifying as a REIT.
PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF SHARES
For each Participant, the Reinvestment Agent will maintain a record
which shall reflect for each fiscal quarter the Distributions received by the
Reinvestment Agent on behalf of such Participant. The Company shall be
responsible for all administrative charges and expenses charged by the
Reinvestment Agent. Any interest earned on such Distributions will be paid to
the Company to defray certain costs relating to the Reinvestment Plan. The
administrative charge for each fiscal quarter will be the lesser of 5% of the
amount reinvested for the Participant or $2.50, with a minimum charge of $0.50.
The maximum annual charge is $10.00.
The Reinvestment Agent will use the aggregate amount of Distributions
to all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants exceeds
the amount required to purchase all Shares then available for purchase, the
Reinvestment Agent will purchase all available Shares and will return all
remaining Distributions to the Participants within 30 days after the date such
Distributions are made. The purchased Shares will be allocated among the
Participants based on the portion of the aggregate Distributions received by the
Reinvestment Agent on behalf of each Participant, as reflected in the records
maintained by the Reinvestment Agent. The ownership of the Shares purchased
pursuant to the Reinvestment Plan shall be reflected on the books of the
Company.
Subject to the provisions of the Articles of Incorporation relating to
certain restrictions on and the effective dates of transfer, Shares acquired
pursuant to the Reinvestment Plan will entitle the Participant to the same
rights and to be treated in the same manner as those purchased by the
Participants in the offering. Accordingly, the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under "The Offering -- Plan of Distribution") and a marketing support
and due diligence fee of .5%. The Company will also pay the Advisor Acquisition
Fees of 4.5% of the purchase price of the Shares sold pursuant to the
Reinvestment Plan until the termination of the offering. Thereafter, Acquisition
Fees will be paid by the Company only in the event that proceeds of the sale of
Shares are used to acquire Properties or to invest in Mortgage Loans. As a
result, aggregate fees payable to Affiliates of the Company will total between
8.0% and 12.5% of the proceeds of reinvested Distributions, up to 7.5% of which
may be reallowed to Soliciting Dealers.
The allocation of Shares among Participants may result in the ownership
of fractional Shares, computed to four decimal places.
-31-
<PAGE>
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares purchased during the quarter, the per Share purchase price for such
Shares, the total administrative charge paid by the Company on behalf of each
Participant (see "Participant Accounts, Fees, and Allocation of Shares" above),
and the total number of Shares purchased on behalf of the Participant pursuant
to the Reinvestment Plan. Until such time, if any, as Listing occurs, the
statement of account also will report the most recent fair market value of the
Shares, determined as described above. See "General" above.
Tax information for income earned on Shares under the Reinvestment Plan
for the calendar year will be sent to each participant by the Company or the
Reinvestment Agent.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Stockholders of the Company who purchase Shares in this offering may
become Participants in the Reinvestment Plan by making a written election to
participate on their Subscription Agreements at the time they subscribe for
Shares. Any other stockholder who receives a copy of this Prospectus or a
separate prospectus relating solely to the Reinvestment Plan and who has not
previously elected to participate in the Reinvestment Plan may so elect at any
time by written notice to the Board of Directors of such stockholder's desire to
participate in the Reinvestment Plan. Participation in the Reinvestment Plan
will commence with the next Distribution made after receipt of the Participant's
notice, provided it is received at least ten days prior to the record date for
such Distribution. Subject to the preceding sentence, the election to
participate in the Reinvestment Plan will apply to all Distributions
attributable to the fiscal quarter in which the stockholder made such written
election to participate in the Reinvestment Plan and to all fiscal quarters
thereafter, whether made (i) upon subscription or subsequently for stockholders
who participate in this offering, or (ii) upon receipt of a separate prospectus
relating solely to the Reinvestment Plan for stockholders who do not participate
in this offering. Participants will be able to terminate their participation in
the Reinvestment Plan at any time without penalty by delivering written notice
to the Board of Directors ten business days before the end of a fiscal quarter.
A Participant who chooses to terminate participation in the
Reinvestment Plan must terminate his or her entire participation in the
Reinvestment Plan and will not be allowed to terminate in part. If a Participant
terminates his or her participation the Reinvestment Agent will send him or her
a check in payment for any fractional Shares in his or her account based on the
then market price of the Shares and the record books of the Company will be
revised to reflect the ownership of records of his or her whole Shares. There
are no fees associated with a Participant's terminating his or her interest in
the Reinvestment Plan. A Participant in the Reinvestment Plan who terminates his
or her interest in the Reinvestment Plan will be allowed to participate in the
Reinvestment Plan again by notifying the Reinvestment Agent and completing any
required forms.
The Board of Directors reserves the right to prohibit Qualified Plans
from participating in the Reinvestment Plan if such participation would cause
the underlying assets of the Company to constitute "plan assets" of Qualified
Plans. See "The Offering -- ERISA Considerations."
-32-
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
Stockholders subject to federal taxation who elect to participate in
the Reinvestment Plan will incur a tax liability for Distributions allocated to
them even though they have elected not to receive their Distributions in cash
but rather to have their Distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. A stockholder designating a Distribution for
reinvestment will be taxed on the amount of such Distribution as ordinary income
to the extent such Distribution is from current or accumulated earnings and
profits, unless the Company has designated all or a portion of the Distribution
as a capital gain dividend. In such case, such designated portion of the
Distribution will be taxed as long-term capital gain.
AMENDMENTS AND TERMINATION
The Company reserves the right to renew, extend, or amend any aspect of
the Reinvestment Plan without the consent of stockholders, provided that notice
of the amendment is sent to Participants at least 30 days prior to the effective
date thereof. The Company also reserves the right to terminate the Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.
REDEMPTION OF SHARES
At any time during which the Company is not engaged in a public
offering and prior to such time, if any, as Listing occurs, any stockholder who
purchases Shares in this offering or otherwise from the Company or who has held
Shares for not less than one year (other than the Advisor) may present all or
any portion equal to at least 25% of such stockholder's Shares to the Company
for redemption at any time, in accordance with the procedures outlined herein.
At such time, the Company may, at its option, subject to the conditions
described below, redeem such Shares presented for redemption for cash to the
extent it has sufficient net proceeds ("Reinvestment Proceeds") from the sale of
Shares under the Reinvestment Plan. There is no assurance that there will be
Reinvestment Proceeds available for redemption and, accordingly, a stockholder's
Shares may not be redeemed. The full amount of Reinvestment Proceeds
attributable to any quarter will be used to redeem Shares presented for
redemption during such quarter. If the full amount of Reinvestment Proceeds
available for any given quarter exceeds the amount necessary for such
redemptions, the remaining amount shall be held for subsequent redemptions
unless such amount is sufficient to acquire an additional Property (directly or
through a Joint Venture). In that event, the Company may use all or a portion of
such amount to acquire one or more additional Properties, or to make one or more
additional Mortgage Loans, provided that the Company (or, if applicable, the
Joint Venture) enters into a binding contract to purchase such Property or
Properties, or enter into such Mortgage Loan or Mortgage Loans, prior to payment
of the next Distribution and the Company's receipt of requests for redemption of
Shares. If the full amount of Reinvestment Proceeds for any given quarter is
insufficient to fund all of the requested redemptions, the Company will redeem
the Shares presented for redemption in order of receipt.
A stockholder (other than a resident of Nebraska) who wishes to have
his or her Shares redeemed must mail or deliver a written request on a form
provided by the Company and executed by the stockholder, its trustee or
authorized agent, to the Company. Nebraska stockholders must deliver the same
type of request to a broker-dealer registered in Nebraska and must have his or
her Shares redeemed through such broker-dealer, who will communicate directly
with the Company. Within 30 days following the Company's receipt of the
stockholder's request, the Company will forward to such stockholder the
documents necessary to effect the redemption, including any signature guarantee
the Company may require. The Company will effect such redemption for the
calendar quarter provided that the Company receives the properly completed
redemption documents relating to the Shares to be redeemed from the stockholder
at least one calendar month prior to the last day of the current calendar
quarter and has sufficient Reinvestment Proceeds to redeem such Shares. The
effective date of any redemption will be the last date during a quarter during
which the Company receives the properly completed redemption documents. As a
result, the Company anticipates that, assuming sufficient Reinvestment Proceeds,
the effective date of redemptions will be no later than thirty days after the
quarterly determination of the availability of Reinvestment Proceeds.
Upon the Company's receipt of notice for redemption of Shares, the
redemption price will be on such other terms as the Reinvestment Agent shall
determine. It is not anticipated that there will be a market for the Shares
before Listing occurs (although liquidity is not assured thereby). The
redemption plan will terminate, and the Company no longer shall accept Shares
for redemption, if and when Listing occurs. See "Risk Factors -Investment Risks
- -- Lack of Liquidity of Shares." Accordingly, in determining the "market price"
of the Shares for this purpose, it is expected that the purchase price for
Shares purchased from stockholders will be determined by reference to the
following factors, as well as any others deemed relevant or appropriate by the
Reinvestment Agent: (i) the price at which Shares have been purchased from
stockholders, either pursuant to the Reinvestment Plan or outside of the
Reinvestment Plan (to the extent the Company has information regarding the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation provided to certain stockholders (see "Reports to
Stockholders"), and (iii) the price at which stockholders are willing to sell
their Shares. Shares purchased during any particular period of time therefore
may be purchased at varying prices. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part of its regular
communications with stockholders. Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.
A stockholder may present fewer than all his or her Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which must be presented for redemption shall be at least 25% of his or her
Shares, and (ii) if such stockholder retains any Shares, he or she must retain
at least 250 Shares (100 Shares for an IRA, Keogh Plan or pension plan).
The Directors, in their sole discretion, may amend or suspend the
redemption plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they determine, in their sole discretion, that such redemption
impairs the capital or the operations of the Company; (ii) they determine, in
their sole discretion, that an emergency makes such redemption not reasonably
practical; (iii) any governmental or regulatory agency with jurisdiction over
the Company so demands for the protection of the stockholders; (iv) they
determine, in their sole discretion, that such redemption would be unlawful; (v)
they determine, in their sole discretion, that such redemption, when considered
with all other redemptions, sales, assignments, transfers and exchanges of
Shares in the Company, could cause direct or indirect ownership of Shares of the
Company to become concentrated to an extent which would prevent the Company from
qualifying as a REIT under the Code; or (vi) such other reasons as the
Directors, in their sole discretion, deem to be in the best interest of the
Company. For a discussion of the tax treatment of such redemptions, see "Federal
Income Tax Considerations -- Taxation of Stockholders."
-33-
<PAGE>
BUSINESS
GENERAL
The Company acquires Properties which are leased on a long-term
(generally, 15 to 20 years, plus renewal options for an additional 10 to 20
years), "triple-net" basis. With proceeds of this offering, the Company intends
to purchase fast-food, family-style, and casual dining restaurant Properties.
"Triple-net" means that the tenant will be responsible for repairs, maintenance,
property taxes, utilities and insurance. The Properties may consist of land and
building, the land underlying the restaurant building with the building owned by
the tenant or a third party, and the building only with the land owned by a
third party. The Company also provides financing (the "Mortgage Loans") for the
purchase of buildings, generally by tenants that lease the underlying land from
the Company. To a lesser extent, the Company offers furniture, fixture and
equipment ("Equipment") financing to operators of Restaurant Chains pursuant to
which the Company will finance, through direct financing leases or loans, the
Equipment (collectively, the "Secured Equipment Leases.")
As of September 17, 1997, the Company owned 207 Properties. It is
anticipated that the Company will acquire a total of 670 to 730 Properties if
the maximum number of Shares is sold in this offering (including 320 to 360
Properties to be acquired with the proceeds of this offering).
The Properties, which typically are freestanding and are located across
the United States, are leased to operators of the Restaurant Chains selected by
the Advisor and approved by the Board of Directors. Each Property acquisition
and Mortgage Loan commitment by the Company is subject to the approval of the
Board of Directors. Properties purchased by the Company are leased under
arrangements requiring base annual rent equal to a specified percentage of the
Company's cost of purchasing a particular Property, with automatic rent
increases, and/or percentage rent based on gross sales. See "Description of
Leases -- Computation of Lease Payments," below.
The Company invests in Properties of selected Restaurant Chains that
are national and regional restaurant chains, primarily fast-food, family-style,
and casual dining chains. Fast-food restaurants feature quality food and quick
service, which often includes drive-through service, and offer a variety of menu
items such as hamburgers, steaks, seafood, chili, pizza, pasta dishes, chicken,
hot and cold sandwiches, and salads. Family-style restaurants feature services
that generally are associated with full-service restaurants, such as full table
service and cooked-to-order food, but at more moderate prices. The casual dining
(or dinner house) concept features a variety of popular contemporary foods, full
table service, moderate prices, and surroundings that are appealing to families.
The casual dining segment of the restaurant industry, like the family-style
segment, features services that generally are associated with the full-service
restaurant category. According to forecasts appearing in the January 1, 1997
issue of Restaurants and Institutions, it is projected that the casual dining
segment of full-service restaurants sales will experience 3.8% real growth in
sales this year, with sales predicted to reach $49 billion. The top 15 casual
dining chains by sales have a total of 2,977 restaurants throughout the United
States.
The restaurant industry is one of the largest industries in the United
States in volume of sales and number of employees (more than 9 million persons)
and includes fast-food outlets, cafeterias, lunchrooms, convenience stores,
family-style restaurants, casual dining facilities, full-service restaurants,
and contract and industrial feeders. By the year 2000, food service sales are
expected to exceed $392 billion. Industry publications project that restaurant
industry sales will increase from $173.7 billion in 1985 to $320 billion in
1997. Restaurant industry sales for 1996 are projected to be $307.6 billion. In
1996, nominal growth, which is comprised of real growth and inflationary growth,
was 4.6% and is estimated to be 4.2% in 1997. Real growth of the restaurant
industry in 1996 was 1.7%, and industry analysts currently estimate that the
restaurant industry will achieve 1.4% real growth in 1997; however, according to
the National Restaurant Association, fast-food restaurants should outpace the
industry average for real growth, with a projected 2.5% increase over 1996.
Sales in this segment of the restaurant industry are projected to be $103.5
billion for 1997.
The Company invests in the fast-food, family-style, and casual dining
segments of the restaurant industry, the most rapidly growing segments in recent
years. According to the National Restaurant Association, 51% of adults eat at a
quick-service restaurant and 42% of adults patronize a moderately-priced family
restaurant at least once each week. In addition, the National Restaurant
Association indicates that Americans spend approximately 43 cents of every food
dollar on dining away from home. Surveys published in Restaurant Business
indicate that families with children choose quick-service restaurants four out
of every five times they dine out. Additionally, according to The Wall Street
Journal (May 11, 1992), the average American spends $19,791 on fast-food in a
lifetime. Further, according to Nation's Restaurant News, the 100 largest
restaurant chains posted an average of 4.59% growth in their systemwide sales
figures for 1996. Casual-theme dining concepts are the chains showing the
strongest growth. In 1996, the family-style segment experienced sales growth of
3.61% over 1995 figures, and, the casual dining segment experienced systemwide
sales growth in 1996 of 12.37%, compared to 12.99% in 1995. Management believes
that the Company will have the opportunity to participate in this growth through
the ownership of Properties leased to operators of the Restaurant Chains.
The fast-food, family-style and casual dining segments of the
restaurant industry have demonstrated their ability to adapt to changes in
consumer preferences, such as health and dietary issues, decreases in the
disposable income of consumers and environmental awareness, through various
innovative techniques, including special value pricing and promotions, increased
advertising, menu changes featuring low-calorie, low-cholesterol menu items, and
new packaging and energy conservation techniques.
-34-
<PAGE>
The table set forth below provides information with respect to certain
Restaurant Chains in which the Company and Affiliates of the Company (consisting
of a listed public REIT, 18 public partnerships and 8 private partnerships) have
invested, as of June 30, 1997:
<TABLE>
<CAPTION>
Aggregate
Dollars Invested by Percentage of Number of
Name Company Affiliates Dollars Invested Prior Programs
- ---- ------------------ ---------------- --------------
<S> <C>
Golden Corral $143,663,000 16.7% 26
Burger King 105,659,000 12.3% 25
Denny's 91,365,000 10.6% 20
Jack in the Box 90,060,000 10.5% 15
Hardee's 58,599,000 6.8% 13
Boston Market 46,259,000 5.4% 8
Shoney's 35,663,000 4.2% 13
Long John Silver's 32,029,000 3.7% 6
Wendy's 30,011,000 3.5% 16
TGI Friday's 28,184,000 3.3% 9
Darryl's 22,296,000 2.6% 4
Checkers 21,263,000 2.5% 7
Perkins 16,311,000 1.9% 9
Pizza Hut 15,578,000 1.8% 8
KFC 13,642,000 1.6% 10
Popeyes 10,589,000 1.2% 9
Taco Bell 6,915,000 0.8% 7
Black-eyed Pea 6,432,000 0.8% 4
Arby's 5,573,000 0.7% 5
Houlihan's 4,741,000 0.6% 1
</TABLE>
Management structures the Company's investments to allow it to
participate, to the maximum extent possible, in any sales growth in these
industry segments, as reflected in the Properties that it owns. The Company
therefore generally structures its leases with percentage rent requirements
which are based on gross sales of the particular restaurant. Gross sales may
increase even absent real growth because increases in the restaurant's costs
typically are passed on to the consumers through increased prices, and increased
prices are reflected in gross sales. In an effort to provide regular cash flow
to the Company, the Company generally structures its leases to provide a minimum
level of rent, with automatic increases in the minimum rent, which is payable
regardless of the amount of gross sales at a particular Property. The Company
also endeavors to maximize growth and minimize risks associated with ownership
and leasing of real estate that operates in these industry segments through
careful selection and screening of its tenants (as described in "Standards for
Investment" below) in order to reduce risks of default; monitoring statistics
relating to restaurant chains and continuing to develop relationships in the
industry in order to reduce certain risks associated with investment in real
estate; and acquisition of properties which will not be encumbered prior to
Listing. See "Standards for Investment" below for a description of the standards
which the Board of Directors employs in selecting Restaurant Chains and
particular restaurant Properties within a Restaurant Chain for investment.
Management acquires Properties in part with a view to diversification
among Restaurant Chains and the geographic location of the Properties. There are
no restrictions on the geographic area or areas within the United States in
which Properties acquired by the Company may be located.
Management believes that freestanding, "triple-net" leased restaurant
properties of the type in which the Company invests are attractive to tenants
because freestanding properties typically offer high visibility to passing
traffic, ease of access from a busy thoroughfare, tenant control over the site
to set hours of operation and maintenance standards and distinctive building
designs conductive to customer name recognition.
-35-
<PAGE>
COMPLETED INVESTMENTS
As of September 17, 1997, the Company had invested or committed for
investment approximately $225,400,000 of the net proceeds from the Prior
Offerings in 207 Properties (154 Properties which consist of land and building,
44 Properties which consist of land only and nine Properties which consist of
building only), in providing mortgage financing to the tenants of the 44
Properties consisting of land only to purchase the buildings on these Properties
and the buildings on two additional properties through Mortgage Loans, and to
pay related acquisition fees and acquisition expenses. See "Certain
Transactions." All of the Properties are owned directly by the Company, except
for one Property which is owned through a joint venture arrangement. All of the
Properties were acquired since the Company commenced operations on June 1, 1995
and have leases expiring from 14 to 25 years after the date on which each lease
commenced.
The following tables set forth information for the Properties owned by
the Company as of September 17, 1997, including the number of Properties by
Restaurant Chain and the number of Properties by state.
<TABLE>
<CAPTION>
Restaurant Number of Properties
---------- --------------------
<S> <C>
Applebee's 2
Arby's 8
Bennigan's 1
Black-eyed Pea 6
Boston Market 32
Burger King 9
Charley's Place 2
Darryl's 15
Denny's 4
Einstein Bros. Bagels 2
Golden Corral 25
Houlihan's 3
IHOP 8
Jack in the Box 26
Kenny Rogers Roasters 1
KFC 1
Mr. Fable's 1
Pizza Hut 44
Popeyes 1
Ruby Tuesday's 1
Ruth's Chris Steak House 1
Ryan's Family Steak House 1
Shoney's 3
TGI Friday's 1
Tumbleweed Southwest Mesquite Grill & Bar 5
Wendy's 4
----
Total 207
====
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
State Number of Properties
----- --------------------
<S> <C>
Alabama 5
Arizona 3
California 19
Colorado 4
Connecticut 1
Delaware 1
Florida 13
Georgia 2
Idaho 1
Illinois 5
Indiana 5
Iowa 1
Kansas 1
Kentucky 4
Maryland 5
Michigan 7
Minnesota 2
Missouri 6
Nebraska 1
Nevada 2
New Mexico 1
North Carolina 9
Ohio 35
Oklahoma 4
Oregon 1
Pennsylvania 4
Tennessee 13
Texas 31
Utah 1
Virginia 8
Washington 2
West Virginia 10
---
Total 207
===
</TABLE>
-37-
<PAGE>
PENDING INVESTMENTS
As of September 17, 1997, the Company had initial commitments to
acquire 36 properties, including 23 properties consisting of land and building
and 13 properties consisting of building only. In connection with four of the
properties in which the Company anticipates owning only the buildings and not
the underlying land, the Company anticipates entering into landlord estoppel
agreements with the landlord of the land and collateral assignments of the
ground leases with the lessee in order to provide the Company with certain
rights with respect to the land on which the buildings are located. In
connection with the remaining eight properties in which the Company anticipates
owning only the building and not the underlying land, the Company anticipates
entering into tri-party agreements with the lessee and the landlord of the land
in order to provide the Company with certain rights with respect to the land on
which the buildings are located. The acquisition of each of these properties is
subject to the fulfillment of certain conditions, including, but not limited to,
a satisfactory environmental survey and property appraisal. There can be no
assurance that any or all of the conditions will be satisfied or, if satisfied,
that one or more of these properties will be acquired by the Company. If
acquired, the leases of all 36 of these properties are expected to be entered
into on substantially the same terms described in "Business -- Description of
Property Leases."
INVESTMENT OF OFFERING PROCEEDS
The Company has undertaken to supplement this Prospectus during the
offering period to disclose the use of the proceeds of this offering to acquire
Properties at such time as the Board of Directors believes that a reasonable
probability exists that any such Property will be acquired by the Company. Based
upon the experience and acquisition methods of the Affiliates of the Company and
the Advisor this normally will occur, with regard to acquisition of Properties,
as of the date on which (i) a commitment letter is executed by a proposed
lessee, (ii) a satisfactory credit underwriting for the proposed lessee has been
completed, and (iii) a satisfactory site inspection has been completed. The
initial disclosure of any proposed acquisition, however, cannot be relied upon
as an assurance that the Company ultimately will consummate such proposed
acquisition or that the information provided concerning the proposed acquisition
will not change between the date of such supplement and the actual purchase or
extension of financing.
Acquisition of a restaurant Property generally involves an investment
in land and building of approximately $400,000 to $1,250,000, although higher or
lower figures for individual Properties are possible. The Company estimates that
it will acquire 320 to 360 additional Properties, based on an estimated average
purchase price of $800,000 to $900,000 per Property, if the maximum of
34,500,000 Shares is sold. Management has estimated the average purchase price
of a Property based on its past experience in acquiring similar properties and
in light of current market conditions. In certain cases, the Company may become
a co-venturer in a Joint Venture that will own the Property. In each such case,
the Company's cost to purchase an interest in such Property will be less than
the total purchase price and the Company therefore will be able to acquire
interests in a greater number of Properties. Management estimates that
approximately 30% to 50% of the Company's investment in a Property generally is
for the cost of land, and 50% to 70% generally is for the cost of the building.
See "Joint Venture Arrangements" below and "Risk Factors -- Investment Risks --
Possible Inability to Further Diversify Investments."
Although management cannot estimate the number of additional Mortgage
Loans that may be entered into, management currently expects to invest
approximately 5% to 10% of Gross Proceeds of this offering, assuming the maximum
of 34,500,000 Shares is sold, in Mortgage Loans.
Additional Secured Equipment Leases will be funded with the proceeds of
the Line of Credit. No portion of Gross Proceeds of this offering will be used
to fund Secured Equipment Leases. Although management cannot estimate the number
of additional Secured Equipment Leases that may be entered into, the aggregate
outstanding principal amount of Secured Equipment Leases will not exceed 10% of
the gross proceeds of this offering, the Prior Offerings and any subsequent
offerings, including the approximately $5,139,000 advanced under the Line of
Credit as of September 17, 1997. The Board of Directors may determine to obtain
additional financing to be used by the Company to fund Secured Equipment Leases,
provided that the amount of such additional financing may not exceed 10% of
Gross Proceeds of this offering and gross proceeds of any subsequent offering.
Management has undertaken, consistent with its objective of qualifying as a REIT
for federal income tax purposes, to ensure that the total value of all Secured
Equipment Leases will not exceed 25% of the Company's total assets, and that
Secured Equipment Leases to a single lessee, in the aggregate, will not exceed
5% of total assets.
-38-
<PAGE>
SITE SELECTION AND ACQUISITION OF PROPERTIES
General. The Restaurant Chains selected by the Advisor, and as approved
by the Board of Directors, have full-time staffs engaged in site selection and
evaluation. All new sites must be approved by the Restaurant Chains. The
Restaurant Chains generally conduct or require the submission of studies which
typically include such factors as traffic patterns, population trends,
commercial and industrial development, office and institutional development,
residential development, per capita or household median income, per capita or
household median age, and other factors. The Restaurant Chains also review and
approve all proposed tenants and restaurant sites. The Restaurant Chains or the
operators generally make their site evaluations and analyses, as well as
financial information regarding proposed tenants, available to the Company.
The Board of Directors, on behalf of the Company, elects to purchase
and lease Properties based principally on an examination and evaluation by the
Advisor of the potential value of the site, the financial condition and business
history of the proposed tenant, the demographics of the area in which the
restaurant Property is located or to be located, the proposed purchase price and
proposed lease terms, geographic and market diversification, and potential sales
expected to be generated by the restaurant. In addition, the potential tenant
must meet at least the minimum standards established by a Restaurant Chain for
its operators. The Advisor also performs an independent break-even analysis of
the potential profitability of a restaurant property using historical data and
other data developed by the Company and provided by the Restaurant Chains.
Although the Restaurant Chains that are selected by the Advisor approve
each tenant and each Property, the Board of Directors will exercise its own
judgment as to, and will be solely responsible for, the ultimate selection of
both tenants and Properties. Therefore, some of the properties approved by a
Restaurant Chain may not be purchased by the Company.
In each Property acquisition, the Advisor negotiates the lease
agreement with the tenant. In certain instances, the Advisor may negotiate an
assignment of an existing lease, in which case the terms of the lease may vary
substantially from the Company's standard lease terms, if the Board of
Directors, based on the recommendation of the Advisor, determines that the terms
of an acquisition and lease of a Property, taken as a whole, are favorable to
the Company. It is expected that the structure of the long-term "triple-net"
lease agreements, which provide for monthly rental payments and automatic
increases in base rent at specified times during the lease terms and/or a
percentage of gross restaurant sales over specified levels, will increase the
value of the Properties and provide an inflation hedge. See "Description of
Leases" below for a discussion of the terms of the Company's leases. In
connection with a Property acquisition, in the event the tenant does not enter
into a Secured Equipment Lease with the Company, the tenant provides at its own
expense all Equipment (such as deep fryers, grills, refrigerators, and freezers)
necessary to operate the Company's Property as a restaurant. Generally, a tenant
either pays cash or obtains a loan from a third party to purchase such items. If
the tenant obtains such a loan, the tenant will own this personal property
subject to the tenant's obligations under its loan. In the experience of the
Affiliates of the Company and the Advisor, there may be rare circumstances in
which a tenant defaults under such a loan, in which event the lender may attempt
to remove the personal property from the building, resulting in the Property
becoming inoperable as a restaurant until new Equipment can be purchased and
installed. In order to prevent repossession of this personal property by the
lender, and only on an interim basis in order to preserve the value of a
Property, the Company may elect (but only to the extent consistent with the
Company's objective of qualifying as a REIT) to use Company reserves to purchase
this personal property from the lender, generally at a discount for the
remaining unpaid balance under the tenant's loan. The Company then would expect,
consistent with the Company's objective of qualifying as a REIT, to resell the
personal property to a new tenant in connection with the transfer of the lease
to that tenant.
-39-
<PAGE>
Some lease agreements provide the tenant with the opportunity to
purchase the Property under certain conditions, generally either at a price not
less than fair market value (determined by appraisal or otherwise) or through a
right of first refusal to purchase the Property. In either case, the lease
agreements provide that the tenant may exercise these rights only to the extent
consistent with the Company's objective of qualifying as a REIT. See "Sale of
Properties, Mortgage Loans, and Secured Equipment Leases" below and "Federal
Income Tax Considerations -- Characterization of Leases."
The purchase of each Property is supported by an appraisal of the real
estate prepared by an independent appraiser. The Advisor, however, relies on its
own independent analysis and not on such appraisals in determining whether or
not to recommend the Company to acquire a particular Property. The purchase
price of each such Property, plus any Acquisition Fees paid by the Company in
connection with such purchase, may not exceed the Property's appraised value.
(In connection with the acquisition of a Property which is to be constructed or
renovated, the comparison of the purchase price and the appraised value of such
Property ordinarily will be based on the "when constructed" price and value of
such Property.) It should be noted that appraisals are estimates of value and
should not be relied upon as measures of true worth or realizable value. Each
appraisal will be maintained in the Company's records for at least five years
and will be available for inspection and duplication by any stockholder.
The titles to Properties purchased by the Company will be insured by
appropriate title insurance policies and/or abstract opinions consistent with
normal practices in the jurisdictions in which the Properties are located.
Construction and Renovation. In some cases, construction or renovation
is required after the purchase contract has been entered into, but before the
total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated and as to which the Company
will own both the land and the building or building only, the Company generally
advances funds for construction or renovation costs, as they are incurred,
pursuant to a development agreement with the developer. The developer may be the
tenant or an Affiliate of the Company. An Affiliate may serve as a developer and
enter into the development agreement with the Company if the transaction is
approved by a majority of the Directors, including a majority of the Independent
Directors. The Company believes that the ability to have an Affiliate capable of
serving as the developer provides the Company an advantage by enhancing its
relationship with key tenants and by giving it access to tenant opportunities at
an earlier stage of the development cycle. As a result, the Company believes it
has a greater number of opportunities for investment presented to it than it
might otherwise have and it is able to obtain better terms by negotiating the
terms of its investment at an earlier stage in the development cycle when there
are fewer competitive alternatives to the tenant.
The developer will enter into all construction contracts and will
arrange for and coordinate all aspects of the construction or renovation of the
restaurant improvements. The developer is responsible for the construction or
renovation of the restaurant improvements, although it may employ co-developers
or sub-agents in fulfilling its responsibilities under the development
agreement. All general contractors performing work in connection with such
restaurant improvements must provide a payment and performance bond or other
satisfactory form of guarantee of performance. All construction and renovation
must be performed or supervised by persons or entities acceptable to the
Advisor. The Company is obligated, as construction or renovation costs are
incurred, to make the remaining payments due as part of the purchase price for
the Properties, provided that the construction or renovation conforms to
definitive plans, specifications, and costs approved by the Advisor and the
Board of Directors and embodied in the construction contract.
Under the terms of the development agreement, the Company generally
advances its funds on a monthly basis to meet construction draw requests of the
developer. The Company, in general, only advances its funds to meet the
developer's draw requests upon receipt of an inspection report and a
certification of draw requests from an inspecting architect or engineer suitable
to the Company, and the Company may retain a portion of any advance until
satisfactory completion of the project. The certification generally must be
supported by color photographs showing the construction work completed as of the
date of inspection. The total amount of the funds advanced to the developer
(including the purchase price of the land plus closing costs and certain other
costs) generally does not exceed the maximum amount specified in the development
agreement. Such maximum amount is based on the Company's estimate of the costs
of such construction or renovation.
-40-
<PAGE>
In some cases, construction or renovation is required before the
Company acquires the Property. In this situation, the Company may have made a
deposit on the Property in cash or by means of a letter of credit. The
renovation or construction may be made by an Affiliate or a third party. The
Company may permit the proposed developer to arrange for a bank or another
lender, including an Affiliate, to provide construction financing to the
developer. In such cases, the lender may seek assurance from the Company that it
has sufficient funds to pay to the developer the full purchase price of the
Property upon completion of the construction or renovation. In the event that
the Company segregates funds as assurance to the lender of its ability to
purchase the Property, the funds will remain the property of the Company, and
the lender will have no rights with respect to such funds upon any default by
the developer under the development agreement or under the loan agreement with
such lender, or if the closing of the purchase of the Property by the Company
does not occur for any reason, unless the transaction is supported by a letter
of credit in favor of the lender.
Under the development agreement, the developer generally is obligated
to complete the construction or renovation of the restaurant improvements within
120 to 180 days from the date of the development agreement. If the construction
or renovation is not completed within that time and the developer fails to
remedy this default within 10 days after notice from the Company, the Company
has the option to grant the developer additional time to complete the
construction, to take over construction or renovation of the restaurant
improvements, or to terminate the development agreement and require the
developer to purchase the Property at a price equal to the sum of (i) the
Company's purchase price of the land, including all fees, costs, and expenses
paid by the Company in connection with its purchase of the land, (ii) all fees,
costs, and expenses disbursed by the Company pursuant to the development
agreement for construction of the restaurant improvements, and (iii) the
Company's "construction financing costs." The "construction financing costs" of
the Company is an amount equal to a return, at the annual percentage rate used
in calculating the minimum annual rent under the lease, on all Company payments
and disbursements described in clauses (i) and (ii) above.
The Company also generally enters into an indemnification and put
agreement (the "Indemnity Agreement") with the developer and any guarantor of
the obligations of the tenant under the lease in connection with the acquisition
of Properties to be constructed or renovated. The Indemnity Agreement will
provide for certain additional rights to the Company unless certain conditions
are met. In general, these conditions are (i) the developer's acquisition of all
permits, approvals, and consents necessary to permit commencement of
construction or renovation of the restaurant within a specified period of time
after the date of the Indemnity Agreement (normally, 60 days), or (ii) the
completion of construction or renovation of the restaurant as evidenced by the
issuance of a certificate of occupancy, within a specified period of time
(generally, 120 to 180 days) after the date of the Indemnity Agreement. If such
conditions are not met, the Company has the right to grant the developer
additional time to satisfy the conditions or to require the developer to
purchase the Property from the Company at a purchase price equal to the total
amount disbursed by the Company in connection with the acquisition and
construction or renovation of the Property (including closing costs), plus an
amount equal to the return described in item (iii) of the preceding paragraph.
Failure of the developer to purchase the Property from the Company upon demand
by the Company under the circumstances specified above entitles the Company to
declare the developer in default under the lease and to declare each guarantor
in default under any guarantee of the developer's obligations to the Company.
In certain situations where construction or renovation is required for
a restaurant Property, the Company will pay a negotiated maximum amount upon
completion of construction or renovation rather than providing financing to the
developer, with such amount to be based on the developer's costs and fees of
such construction or renovation.
Affiliates of the Company also may provide construction financing to
the developer of a Property. In addition, the Company may purchase from an
Affiliate of the Company a Property that has been developed, constructed or
renovated by the Affiliate. Any fees paid to Affiliates of the Company in
connection with the financing, construction or renovation of a Property acquired
by the Company will be considered Acquisition Fees and will be subject to
approval by a majority of the Board of Directors, including a majority of the
Independent Directors, not otherwise interested in the transaction. See
"Management Compensation" and "Conflicts of Interest -- Certain Conflict
Resolution Procedures." Any such fees will be included in the cost of the
Property and, therefore, will be included in the calculation of base rent.
In all situations where construction or renovation of a restaurant
Property is required, the Company also has the right to review the tenant's
books, records, and agreements during and following completion of construction
to verify actual costs.
Interim Acquisitions. The Affiliates of the Advisor regularly have
opportunities to acquire restaurant properties of a type suitable for
acquisition by the Company as a result of their existing relationships and past
experience with various Restaurant Chains and restaurant operators. See
"General" above. These acquisitions often must be made within a relatively short
period of time, occasionally at a time when the Company may be unable to make
the acquisition. In an effort to address these situations and preserve the
acquisition opportunities of the Company (and other entities with which the
Company is affiliated), the Advisor and its Affiliates maintain lines of credit
which enable them to acquire these restaurant properties on an interim basis and
temporarily own them for the purpose of facilitating their acquisition by the
Company (or other entities with which the Company is affiliated). At such time
as a Property acquired on an interim basis is determined to be suitable for
acquisition by the Company, the interim owner of the Property will sell its
interest in the Property to the Company at a price equal to the lesser of its
cost (which includes carrying costs and, in instances in which an Affiliate of
the Company has provided real estate brokerage services in connection with the
initial purchase of the Property, indirectly includes fees paid to an Affiliate
of the Company) to purchase such interest in the Property or the Property's
appraised value, provided that a majority of Directors, including a majority of
the Independent Directors, determine that the acquisition is fair and reasonable
to the Company. See "Conflicts of Interest -- Certain Conflict Resolution
Procedures." Appraisals of Properties acquired from such interim owners will be
obtained in all cases.
Acquisition Services. Acquisition services performed by the Advisor
include, but are not limited to, site selection and/or approval; review and
selection of tenants and negotiation of lease agreements and related documents;
monitoring Property acquisitions; and the processing of all final documents
and/or procedures to complete the acquisition of Properties and the commencement
of tenant occupancy and lease payments.
The Company will pay the Advisor an Acquisition Fee not to exceed 4.5%
of the Gross Proceeds from the sale of Shares. See "Management Compensation."
The total of all Acquisition Fees and Acquisition Expenses shall be reasonable
and shall not exceed an amount equal to 6% of the Real Estate Asset Value of a
Property, or in the case of a Mortgage Loan, 6% of the funds advanced, unless a
majority of the Board of Directors, including a majority of the Independent
Directors, not otherwise interested in the transaction approves fees in excess
of these limits subject to a determination that the transaction is commercially
competitive, fair and reasonable to the Company. The total of all Acquisition
Fees payable to all persons or entities will not exceed the compensation
customarily charged in arm's-length transactions by others rendering similar
services as an ongoing activity in the same geographical location and for
comparable types of properties.
The Advisor engages counsel to perform legal services, and such counsel
also may provide legal services to the Company in connection with the
acquisition of Properties. The legal fees payable to such counsel by the Company
will not exceed those generally charged for similar services.
-41-
<PAGE>
STANDARDS FOR INVESTMENT IN PROPERTIES
Selection of Restaurant Chains. The selection of Restaurant Chains by
the Advisor, as approved by the Board of Directors, is based on an evaluation of
the operations of restaurants in the Restaurant Chain, the number of restaurants
operated throughout the Restaurant Chain's system, the relationship of average
restaurant gross sales to the average capital costs of a restaurant, the
Restaurant Chain's relative competitive position among the same type of
restaurants offering similar types of food, name recognition, and market
penetration. The Restaurant Chains may not be affiliated with the Advisor, the
Company or an Affiliate.
Selection of Properties and Tenants. In making investments in
Properties, the Advisor considers relevant real property and financial factors,
including the condition, use, and location of the Property, income-producing
capacity, the prospects for long-term appreciation, the relative success of the
Restaurant Chain in the geographic area in which the Property is located, and
the management capability and financial condition of the tenant. The Company
obtains an independent appraisal for each Property it purchases. In selecting
tenants, the Advisor will consider the prior experience of the tenant in the
restaurant industry, the net worth of the tenant, past operating results of
other restaurants currently or previously operated by the tenant, and the
tenant's prior experience in managing restaurants within a particular Restaurant
Chain.
In selecting specific Properties within a particular Restaurant Chain
and in selecting lessees for the Company's Properties, the Advisor, as approved
by the Board of Directors, applies the following minimum standards.
1. Each Property will be in what the Advisor believes is a prime
business location.
2. Base (or minimum) annual rent will provide a specified minimum
return on the Company's cost of purchasing and, if applicable, developing the
Property, and the lease typically also will provide for automatic increases in
base rent at specified times during the lease term and for payment of percentage
rent based on gross restaurant sales over specified levels.
3. The initial lease term typically will be at least 15 to 20 years.
4. The Company will reserve the right to approve or reject any tenant
and restaurant site selected by a Restaurant Chain.
5. In evaluating prospective tenants, the Company will examine, among
other factors, the tenant's ranking in its market segment, trends in per store
sales, overall changes in consumer preferences, and the tenant's ability to
adapt to changes in market and competitive conditions, the tenant's historical
financial performance, and its current financial condition.
6. In general, the Company will not acquire a Property, if, as a
result, more than 25% of its Gross Proceeds would be invested in Properties of a
single Restaurant Chain or if more than 30% of its Gross Proceeds would be
invested in Properties in a single state.
-42-
<PAGE>
DESCRIPTION OF PROPERTIES
The 207 Properties owned by the Company as of September 17, 1997
conform generally to the following specifications of size, cost, and type of
land and buildings and based on these Properties and on past experience and
knowledge of the fast-food, family-style, and casual dining restaurant industry,
the Advisor expects that the Properties purchased by the Company with the
remaining proceeds of the 1997 Offering and with the proceeds of this offering
will also conform generally to the following specifications. These
specifications may vary substantially if the Company invests in any full-service
restaurant Properties.
Land. Lot sizes generally range from 25,000 to 60,000 square feet
depending upon building size and local demographic factors. Restaurants located
on land within shopping centers will be freestanding and may be located on
smaller parcels if sufficient common parking is available. Restaurant sites
purchased by the Company are in locations zoned for commercial use which have
been reviewed for traffic patterns and volume of traffic. There is substantial
competition for quality sites; accordingly, land costs may be high and generally
range from $150,000 to $500,000, although the cost of the land for particular
Properties may be higher or lower in some cases.
Buildings. Either before or after construction or renovation, the
restaurant Properties acquired by the Company are one of a Restaurant Chain's
approved designs. Prior to purchase of all restaurant Properties, other than
those purchased prior to completion of construction, the Company receives a copy
of the certificate of occupancy issued by the local building inspector or other
governmental authority which permits the use of the Property as a restaurant,
and receives a certificate from the Restaurant Chain to the effect that (i) the
Property is operational and (ii) the Property and the tenant are in compliance
with all of the Restaurant Chain's requirements, including, but not limited to,
building plans and specifications approved by the Restaurant Chain. The Company
also receives a certificate of occupancy for each restaurant for which
construction has not been completed at the time of purchase, prior to the
Company's payment of the final installment of the purchase price for the
restaurant Property.
The restaurant buildings generally are rectangular and constructed from
various combinations of stucco, steel, wood, brick, and tile. Building sizes
generally range from 2,500 to 6,000 square feet, with the larger restaurants
having greater seating and equipment areas. Building and site preparation costs
vary depending upon the size of the building and the site and the area in which
the restaurant Property is located. It is estimated that building and site
preparation costs generally range from $250,000 to $1,250,000 for each
restaurant Property.
Generally, Properties acquired by the Company consist of both land and
building, although in a number of cases the Company may acquire only the land
underlying the restaurant building with the building owned by the tenant or a
third party, and also may acquire the building only with the land owned by a
third party. In general, the Properties are freestanding and surrounded by paved
parking areas. Buildings are suitable for conversion to various uses, although
modifications will be required prior to use for other than restaurant
operations.
A tenant generally is required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish restaurant
buildings, premises, signs, and equipment so as to comply with the tenant's
obligations under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are paid by the tenant
during the term of the lease.
-43-
<PAGE>
DESCRIPTION OF PROPERTY LEASES
The terms and conditions of any lease entered into by the Company with
regard to a restaurant Property may vary from those described below. The Advisor
in all cases uses its best efforts to obtain terms at least as favorable as
those described below. If the Board of Directors determines, based on the
recommendation of the Advisor, that the terms of an acquisition and lease of a
Property, taken as a whole, are favorable to the Company, the Board of Directors
may, in its sole discretion, cause the Company to enter into leases with terms
which are substantially different than the terms described below, but only to
the extent consistent with the Company's objective of qualifying as a REIT. In
making such determination, the Advisor considers such factors as the type and
location of the restaurant, the creditworthiness of the tenant, the purchase
price of the Property, the prior performance of the tenant, and the prior
business experience of management of the Company and the Company's Affiliates
with a Restaurant Chain or restaurant operator.
General. In general, the leases are "triple-net" leases, which means
that the tenants are required to pay for all repairs, maintenance, property
taxes, utilities, and insurance. The tenants also are required to pay for
special assessments, sales and use taxes, and the cost of any renovations
permitted under the leases. The Company will be the lessor under each lease
except in certain circumstances in which it may be a party to a Joint Venture
which will own the Property. In those cases, the Joint Venture, rather than the
Company, will be the lessor, and all references in this section to the Company
as lessor therefore should be read accordingly. See "Joint Venture Arrangements"
below.
Term of Leases. Properties are generally leased on a "triple-net" basis
for an initial term of either 15 or 20 years with up to five, five-year renewal
options. The minimum rental payment under the renewal option generally is
greater than that due for the final lease year of the initial term of the lease.
Upon termination of the lease, the tenant will surrender possession of the
Property to the Company, together with any improvements made to the Property
during the term of the lease, except that for Properties in which the Company
owns only the land underlying the building, the tenant may in certain cases
retain ownership of the building.
Computation of Lease Payments. During the initial term of the lease,
the tenant pays the Company, as lessor, minimum annual rent equal to a specified
percentage of the Company's cost of purchasing the Property. Typically, the
leases provide for automatic increases in the minimum annual rent at
predetermined intervals during the term of the lease. In the case of Properties
that are to be constructed or renovated pursuant to a development agreement, the
Company's costs of purchasing the Property include the purchase price of the
land, including all fees, costs, and expenses paid by the Company in connection
with its purchase of the land, and all fees, costs, and expenses disbursed by
the Company for construction of restaurant improvements. See "Site Selection and
Acquisition of Properties -- Construction and Renovation" above.
-44-
<PAGE>
In addition to minimum annual rent, the tenant pays the Company
"percentage rent." Percentage rent is computed as a percentage of the restaurant
gross sales at a particular Property. The leases generally provide that
percentage rent will commence in the first lease year in which gross sales
exceed a specified amount. Certain leases, however, provide that percentage rent
is to be paid quarterly beginning at the end of the first two years of the lease
and each succeeding quarter thereafter to the extent the restaurant gross sales
in that quarter exceed the average quarterly gross sales during the first two
lease years. The leases also generally provide that the tenant will receive a
credit against percentage rent for the amount of the escalations in the minimum
annual rent due under the lease. Gross sales include sales of all products and
services of the restaurant, excluding sales taxes, tips paid to serving people,
and sales from vending machines.
In the case of Properties in which the Company owns only the building,
the Company will structure its leases to have recovered its investment in the
building by the expiration of the lease.
Assignment and Sublease. In general, leases may not be assigned or
subleased without the Company's prior written consent (which may not be
unreasonably withheld) except to a tenant's corporate franchisor, corporate
affiliate or subsidiary, a successor by merger or acquisition, or, in certain
cases, another franchisee, if such assignee or subtenant agrees to operate the
same type of restaurant on the premises, but only to the extent consistent with
the Company's objective of qualifying as a REIT. The leases set forth certain
factors (such as the financial condition of the proposed tenant or subtenant)
that are deemed to be a reasonable basis for the Company's refusal to consent to
an assignment or sublease. In addition, the Company may refuse to permit any
assignment or sublease that would jeopardize the Company's continued
qualification as a REIT. The original tenant generally will remain fully liable,
however, for the performance of all tenant obligations under the lease following
any such assignment or sublease unless the Company agrees in writing to release
the original tenant from its lease obligations.
Alterations to Premises. A tenant generally has the right, without the
prior consent of the Company and at the tenant's own expense, to make certain
immaterial structural modifications to the restaurant building and improvements
(with a cost of up to $10,000) or, with the Company's prior written consent and
at the tenant's own expense, to make material structural modifications that may
include demolishing and rebuilding the restaurant. Under certain leases, the
tenant, at its own expense, may make any type of alterations to the leased
premises without the Company's consent but must provide the Company with plans
of any proposed structural modifications at least 30 days before construction of
the alterations commences. Certain leases may require the tenant to post a
payment and performance bond for any structural alterations with a cost in
excess of a certain amount.
Right of Tenant to Purchase. Generally, if the Company wishes at any
time to sell a Property pursuant to a bona fide offer from a third party, the
tenant of that Property has the right to purchase the Property for the same
price, and on the same terms and conditions, as contained in the offer. In
certain cases, the tenant also has a right to purchase the Property seven to 20
years after commencement of the lease at a purchase price equal to the greater
of (i) the Property's appraised value at the time of the tenant's purchase, or
(ii) a specified amount, generally equal to the Company's purchase price of the
Property, plus a predetermined percentage (generally, 15% to 20%) of such
purchase price.
Substitution of Properties. Under certain leases, the tenant, at its
own expense, is entitled to operate another form of approved restaurant on the
Property as long as such approved restaurant has an operating history which
reflects an ability to generate gross sales and potential sales growth equal to
or greater than that experienced by the tenant in operating the original
restaurant.
-45-
<PAGE>
In addition, certain leases provide the tenant with the right, to the
extent consistent with the Company's objective of qualifying as a REIT, to offer
the substitution of another national or regional fast-food, family-style, or
casual dining restaurant property selected by the tenant in the event that (i)
the Property that is the subject of the lease is not producing percentage rent
pursuant to the terms of the lease, and (ii) the tenant determines that the
Property has become uneconomic (other than as a result of an insured casualty
loss or condemnation) for the tenant's continued use and occupancy in its
business operation and the tenant's board of directors has determined to close
and discontinue use of the Property. The tenant's determination that a Property
has become uneconomic is to be made in good faith based on the tenant's
reasonable business judgment after comparing the results of operations of the
Property to the results of operations at the majority of other properties then
operated by the tenant. If either of these events occurs, the tenant will have
the right to offer the Company the opportunity to exchange the Property for
another national or regional fast-food, family-style, or casual dining
restaurant property (the "Substituted Property") with a total cost for land and
improvements thereon (including overhead, construction interest, and other
related charges) equal to or greater than the cost of the Property to the
Company.
Generally, the Company will have 30 days following receipt of the
tenant's offer for exchange of the Property to accept or reject such offer. In
the event that the Company requests an appraisal of the Substituted Property, it
will have at least ten days following receipt of the appraisal to accept or
reject the offer. If the Company accepts such offer, (i) the Substituted
Property will be exchanged for the Property in a transaction designed and
intended to qualify as a "like-kind exchange" within the meaning of section 1031
of the Code with respect to the Company and (ii) the lease of the Property will
be amended to (a) provide for minimum rent in an amount equal to the sum
determined by multiplying the cost of the Substituted Property by the Property
lease rate and (b) provide for the number of five-year lease renewal options
sufficient to permit the tenant, at its option, to continue its occupancy of the
Substituted Property for up to 35 years from the date on which the exchange is
made. The Company will pay the tenant the excess, if any, of the cost of the
Substituted Property over the cost of the Property. If the substitution does not
take place within a specified period of time after the tenant makes the offer to
exchange the Property for the Substituted Property, either party thereafter will
have the right not to proceed with the substitution. If the Company rejects the
Substituted Property offered by the tenant, the tenant is generally required to
offer at least three additional alternative properties for the Company's
acceptance or rejection. If the Company rejects all Substituted Properties
offered to it pursuant to the lease, or otherwise fails or refuses to consummate
a substitution for any reason other than the tenant's failure to fulfill the
conditions precedent to the exchange, then the tenant will be entitled to
terminate the lease on the date scheduled for such exchange by purchasing the
Property from the Company for a price equal to the then-fair market value of the
Property.
Neither the tenant nor any of its subsidiaries, licensees,
concessionaires, or sublicensees or any other affiliate will be permitted to use
the original Property as a restaurant of the same type and style for at least
one year after the closing of the original Property. In addition, in the event
the tenant or any of its affiliates sells the Property within twelve months
after the Company acquires the Substituted Property, the Company will receive,
to the extent consistent with its objective of qualifying as a REIT, from the
proceeds of the sale the amount by which the selling price exceeds the cost of
the Property to the Company.
Special Conditions. Certain leases provide that the lessee is not
permitted to own or operate, directly or indirectly, another Property of the
same or similar type as the leased Property that is or will be located within a
specified distance of the leased Property.
Insurance, Taxes, Maintenance, and Repairs. All of the leases require
that the tenant pay all taxes and assessments, maintenance, repair, utility, and
insurance costs applicable to the real estate and permanent improvements.
Tenants will be required to maintain all Properties in good order and repair.
Tenants generally are required, under the terms of the leases, to
maintain, for the benefit of the Company and the tenant, casualty insurance in
an amount not less than the full replacement value of the building and other
permanent improvements (or a percent of such value in the case of certain
leases, but in no case less than 90%), as well as liability insurance, generally
in an amount not less than $2,000,000 for each location and event. All tenants,
other than those tenants with a substantial net worth, generally also will be
required to obtain "rental value" or "business interruption" insurance to cover
losses due to the occurrence of an insured event for a specified period,
generally six to twelve months. In general, no lease is entered into unless, in
the opinion of the Advisor, as approved by the Board of Directors, the insurance
required by the lease adequately insures the Property.
The tenants generally will be required to maintain the Property and
repair any damage to the Property, except damage occurring during the last 24 to
48 months of the lease term (as extended), which in the opinion of the tenant
renders the Property unsuitable for occupancy, in which case the tenant will
have the right instead to pay the insurance proceeds to the Company and
terminate the lease.
The tenants generally are required to repair the Property in the event
that less than a material portion of the Property (for example, more than 20% of
the building or more than 40% of the land) is taken for public or quasi-public
use. The Company's leases generally provide that, in the event of any
condemnation of the Property that does not give rise to an option to terminate
the lease or in the event of any condemnation which does give rise to an option
to terminate the lease and the tenant elects not to terminate, the Company will
remit to the tenant the award from such condemnation and the tenant will be
required to repair and restore the Property. To the extent that the award
exceeds the estimated costs of restoring or repairing the Property, the tenant
is required to deposit such excess amount with the Company. Until a specified
time (generally, ten days) after the tenant has restored the premises and all
improvements thereon to the same condition as existed immediately prior to such
condemnation insofar as is reasonably possible, a "just and proportionate"
amount of the minimum annual rent will be abated from the date of such
condemnation. In addition, the minimum annual rent will be reduced in proportion
to the reduction in the then rental value of the premises or the fair market
value of the premises after the condemnation in comparison with the rental value
or fair market value prior to such condemnation.
Events of Default. The leases generally provide that the following
events, among others, will constitute a default under the lease: (i) the
insolvency or bankruptcy of the tenant, provided that the tenant may have the
right, under certain circumstances, to cure such default, (ii) the failure of
the tenant to make timely payment of rent or other charges due and payable under
the lease, if such failure continues for a specified period of time (generally,
five to 30 days) after notice from the Company of such failure, (iii) the
failure of the tenant to comply with any of its other obligations under the
lease (for example, the discontinuance of operations of the leased Property) if
such failure continues for a specified period of time (generally, ten to 45
days), (iv) a default under or termination of the franchise agreement between
the tenant and its franchisor, (v) in cases where the Company enters into a
development agreement relating to the construction or renovation of a
restaurant, a default under the development agreement or the Indemnity Agreement
or the failure to establish the minimum annual rent at the end of the
development period, and (vi) in cases where the Company has entered into other
leases with the same tenant, a default under such lease.
-46-
<PAGE>
Upon default by the tenant, the Company generally will have the right
under the lease and under most state laws to evict the tenant, re-lease the
Property to others, and hold the tenant responsible for any deficiency in the
minimum lease payments. Similarly, if the Company determined not to re-lease the
Property, it could sell the Property. (Unless required to do so by the lease or
its investment objectives, however, the Company does not intend to sell any
Property prior to five to ten years after the commencement of the lease on such
Property. See "Right of Tenant to Purchase" above.) In the event that a lease
requires the tenant to make a security deposit (which it is anticipated normally
would be equal to two months' base rent), the Company will have the right under
the lease to apply the security deposit, upon default by the tenant, towards any
payments due from the defaulting tenant. In general, the tenant will remain
liable for all amounts due under the lease to the extent not paid from a
security deposit or by a new tenant.
In the event that a tenant defaults under a lease with the Company, the
Company either will attempt to locate a replacement restaurant operator
acceptable to the Restaurant Chain involved or will discontinue operation of the
restaurant. In lieu of obtaining a replacement restaurant operator, some
Restaurant Chains may have the option and may elect to operate the restaurants
themselves. The Company will have no obligation to operate the restaurants, and
no Restaurant Chain will be obligated to permit the Company or a replacement
restaurant operator to operate the restaurants.
JOINT VENTURE ARRANGEMENTS
The Company may enter into a Joint Venture to own and operate a
Property with various unaffiliated persons or entities or with another program
formed by the principals of the Company or the Advisor or their Affiliates, if a
majority of the Directors, including a majority of the Independent Directors,
not otherwise interested in the transaction determine that the investment in the
Joint Venture is fair and reasonable to the Company and on substantially the
same terms and conditions as those to be received by the co-venturer or
co-venturers. The Company may take more or less than a 50% interest in any Joint
Venture, subject to obtaining the requisite approval of the Directors. See "Risk
Factors -- Real Estate and Financing Risks -- Impasse or Conflicts of Interest
with Joint Venture Partner."
Under the terms of each Joint Venture agreement, the Company and each
joint venture partner will be jointly and severally liable for all debts,
obligations, and other liabilities of the Joint Venture, and the Company and
each joint venture partner will have the power to bind each other with any
actions they take within the scope of the Joint Venture's business. In addition,
it is expected that the Advisor or its Affiliates will be entitled to
reimbursement, at cost, for actual expenses incurred by the Advisor or its
Affiliates on behalf of the Company. Joint Ventures entered into to purchase and
hold a Property for investment generally will have an initial term of 15 to 20
years (generally the same term as the initial term of the lease for the Property
in which the Joint Venture invests), and, after the expiration of the initial
term, will continue in existence from year to year unless terminated at the
option of either joint venturer or unless terminated by an event of dissolution.
Events of dissolution will include the
-47-
<PAGE>
bankruptcy, insolvency, or termination of any co-venturer, sale of the Property
owned by the Joint Venture, mutual agreement of the Company and its joint
venture partner to dissolve the Joint Venture, and the expiration of the term of
the Joint Venture. The Joint Venture agreement typically will restrict each
venturer's ability to sell, transfer, or assign its joint venture interest
without first offering it for sale to its co-venturer. In addition, in any Joint
Venture with another program sponsored by the Advisor or its Affiliates, where
such arrangements are entered into for the purpose of purchasing and holding
Properties for investment, in the event that one party desires to sell the
Property and the other party does not desire to sell, either party will have the
right to trigger dissolution of the Joint Venture by sending a notice to the
other party. The notice will establish the price and terms for the sale or
purchase of the other party's interest in the Joint Venture to the other party.
The Joint Venture agreement will grant the receiving party the right to elect
either to purchase the other party's interest on the terms set forth in the
notice or to sell its own interest on such terms.
The following paragraphs describe the allocations and distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Company and its co-venturer each have a 50% ownership interest. In any
other case, the allocations and distributions are expected to be similar to
those described below, except that allocations and distributions which are
described below as being made 50% to each co-venturer will instead be made in
proportion to each co-venturer's respective ownership interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each co-venturer. Profits from the
sale or other disposition of Joint Venture property first will be allocated to
any co-venturers with negative capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
co-venturer. Similarly, losses from the sale or other disposition of Joint
Venture property first will be allocated to joint venture partners with positive
capital account balances in proportion to such balances until such capital
accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any
other provisions in the Joint Venture agreement, income, gain, loss, and
deductions with respect to any contributed property will be shared in a manner
which takes into account the variation between the basis of such property and
its fair market value at the time of contribution in accordance with section
704(c) of the Code.
Net cash flow from operations of the Joint Venture will be distributed
50% to each joint venture partner. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter 50% to each joint venture partner.
In order that the allocations of Joint Venture income, gain, loss, and
deduction provided in Joint Venture agreements may be respected for federal
income tax purposes, it is expected that any Joint Venture agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or deductions to the extent such allocation would cause or increase an
"Adjusted Capital Account Deficit," and (iii) will require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury Regulation ss.1.704-1(b)(2)(iv) and (b) that distributions of
proceeds from the liquidation of a partner's interest in the Joint Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance. See "Federal
Income Tax Considerations -- Investment in Joint Ventures."
Prior to entering into any Joint Venture arrangement with any
unaffiliated co-venturer (or the principals of any unaffiliated co-venturer),
the Company will confirm that such person or entity has demonstrated to the
satisfaction of the Company that requisite financial qualifications are met.
MORTGAGE LOANS
The Company provides Mortgage Loans to operators of the Restaurant
Chains, or their affiliates, to enable them to acquire the building and
improvements on real property. Generally in these cases, the Company acquires
the underlying land and enters into a long-term ground lease for the Property
with the borrower as the tenant. The Mortgage Loan is secured by the building
and improvements on the land. Management believes that the criteria for
investing in the Mortgage Loans are substantially the same as those involved in
the Company's investments in Properties consisting of buildings only; therefore,
the Company uses the same underwriting criteria as described above in "Business
- - Standards for Investment in Properties."
Generally, management believes the interest rate and terms of these
transactions are substantially the same as those of the leases. The borrower is
responsible for all of the expenses of owning the building and improvements, as
with the "triple-net" leases, including expenses for insurance and repairs and
maintenance. The Mortgage Loans are fully amortizing loans, generally over a
period of 15 to 20 years (the same term as the initial term of the Property
leases), with payments of principal and interest due monthly. In addition, the
interest rates charged under the terms of the Mortgage Loans are fixed over the
term of the loan and generally are comparable to, or slightly lower than, lease
rates charged to tenants for the Properties.
-48-
<PAGE>
Management also believes that the combined leasing and financing
structure provides the benefit of allowing the Company to receive, on a fixed
income basis, the return of its initial investment in each financed building,
which is generally a depreciating asset, plus interest. At the same time, the
Company retains ownership of the underlying land, which is generally an
appreciating asset, thus providing an opportunity for a capital gain on the sale
of the land. In such cases in which the borrower is also the tenant under a
Property lease for the underlying land, if the borrower does not elect to
exercise its purchase option to acquire the Property under the terms of the
lease, the building and improvements on the Property will revert to the Company
at the end of term of the lease, including any renewal periods. If the borrower
does elect to exercise its purchase option as the tenant of the underlying land,
the Company will generally have the option of selling the Property at the
greater of fair market value or cost plus a specified percentage.
The Company will not make or invest in Mortgage Loans unless an
appraisal is obtained concerning the property that secures the Mortgage Loan.
Mortgage indebtedness on any property shall not exceed such property's appraised
value. In cases in which the majority of the Independent Directors so determine,
and in all cases in which the Mortgage Loan involves the Advisor, Directors, or
Affiliates, such appraisal must be obtained from an independent expert
concerning the underlying property. Such appraisal shall be maintained in the
Company's records for at least five years, and shall be available for inspection
and duplication by any stockholder. In addition to the appraisal, a mortgagee's
or owner's title insurance policy or commitment as to the priority of the
mortgage or condition of the title must be obtained.
In addition, the Company will not make or invest in Mortgage Loans on
any one property if the aggregate amount of all mortgage loans outstanding on
the property, including the loans of the Company, would exceed an amount equal
to 85% of the appraised value of the property as determined by appraisal unless
substantial justification exists because of the presence of other underwriting
criteria. For purposes of this limitation, the aggregate amount of all mortgage
loans outstanding on the property, including the loans of the Company, shall
include all interest (excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current payment of which
may be deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds 5% per annum of the principal balance of the loan.
Further, the Company will not make or invest in any Mortgage Loans that
are subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Directors, or their Affiliates. The Company currently expects
Mortgage Loans to constitute from 5% to 10% of the Company's total investments
if the maximum number of Shares is sold in this offering.
MANAGEMENT SERVICES
The Advisor provides management services relating to the Company, the
Properties, the Mortgage Loans, and the Secured Equipment Lease program pursuant
to an Advisory Agreement between it and the Company. Under this agreement, the
Advisor will be responsible for assisting the Company in negotiating leases,
Mortgage Loans, and Secured Equipment Leases, collecting rental, Mortgage Loan
and Secured Equipment Lease payments, inspecting the Properties and the tenants'
books and records, and responding to tenant inquiries and notices. The Advisor
also provides information to the Company about the status of the leases, the
Properties, the Mortgage Loans, the Line of Credit and the Secured Equipment
Leases. In exchange for these services, the Advisor will be entitled to receive
certain fees from the Company. For supervision of the Properties and Mortgage
Loans, the Advisor receives the Asset Management Fee, which, generally, is
payable monthly in an amount equal to one-twelfth of .60% of Real Estate Asset
Value as of the end of the preceding month and the outstanding principal amount
of the Mortgage Loans, as of the end of the preceding month. For negotiating
Secured Equipment Leases and supervising the Secured Equipment Lease program,
the Advisor receives, upon entering into each lease, a Secured Equipment Lease
Servicing Fee, payable out of the proceeds of the Line of Credit, equal to 2% of
the purchase price of the Equipment subject to each Secured Equipment Lease. See
"Management Compensation."
BORROWING
The Company has entered into a revolving $35,000,000 unsecured Line of
Credit with a bank to enable the Company to receive advances to fund Secured
Equipment Leases and to purchase and develop Properties and fund Mortgage Loans.
The advances will bear interest at a rate of LIBOR plus 1.65%, or the bank's
prime rate, whichever the Company selects at the time of borrowing. Interest
only is repayable monthly until July 31, 1999, at which time all remaining
interest and principal shall be due. The Line of Credit provides for two
one-year renewal options.
-49-
<PAGE>
Advances used to fund Secured Equipment Leases will be repaid using
payments received from Secured Equipment Leases and will be refinanced in regard
to any Secured Equipment Lease not fully repaid at the end of the term of the
Line of Credit. Advances used to purchase and develop Properties and to fund
Mortgage Loans will be repaid using additional offering proceeds or refinanced
on a long-term basis.
The Company will not encumber Properties in connection with the Line of
Credit. Management believes that during the offering period the Line of Credit
will allow the Company to make investments that the Company otherwise would be
forced to delay until it raised a sufficient amount of proceeds from the sale of
Shares to allow the Company to make the investments. By eliminating this delay
the Company will also eliminate the risk that these investments will no longer
be available, or the terms of the investment will be less favorable, when the
Company has raised sufficient offering proceeds. Alternatively, Affiliates of
the Advisor could make such investments, pending receipt by the Company of
sufficient offering proceeds, in order to preserve the investment opportunities
for the Company. However, Properties acquired by the Company in this manner
would be subject to closing costs both on the original purchase by the Affiliate
and on the subsequent purchase by the Company, which would increase the amount
of expenses associated with the acquisition of Properties and reduce the amount
of offering proceeds available for investment in income-producing assets.
Management believes that the use of the Line of Credit by the Company will
enable the Company to reduce or eliminate the instances in which the Company
will be required to pay duplicate closing costs.
The Board of Directors does not anticipate that the Company will borrow
funds, other than the Line of Credit and any additional financing the Board of
Directors may determine to obtain to fund Secured Equipment Leases or to
purchase and develop Properties and fund Mortgage Loans. However, the Company
may also borrow funds for the purpose of preserving its status as a REIT. For
example, the Company may borrow to the extent necessary to permit the Company to
make Distributions required in order to enable the Company to qualify as a REIT
for federal income tax purposes; however, the Company will not borrow for the
purpose of returning capital to the stockholders unless necessary to eliminate
corporate-level tax to the Company. Until Listing occurs, the Company will not
encumber Properties in connection with any borrowing. If Listing occurs,
however, the Board of Directors may elect to cause the Company to borrow funds
in connection with the purchase of additional Properties or for other Company
purposes and to encumber any or all of the Company's Properties in connection
with any such borrowing. The aggregate borrowing of the Company, secured and
unsecured, shall be reasonable in relation to Net Assets of the Company and
shall be reviewed by the Board of Directors at least quarterly. The Board of
Directors anticipates that the aggregate amount of any borrowing will not exceed
50% of Real Estate Asset Value, although the maximum amount of borrowing in
relation to Net Assets, in the absence of a satisfactory showing that a higher
level of borrowing is appropriate, shall not exceed 300% of Net Assets (an
amount which the Company anticipates will correspond to approximately 75% of
Real Estate Asset Value). Any excess in borrowing over such 300% level shall
occur only with approval by a majority of the Independent Directors and will be
disclosed and explained to stockholders in the first quarterly report of the
Company prepared after such approval occurs. Any additional financing obtained
to fund Secured Equipment Leases may not exceed 10% of aggregate gross proceeds
of the Company's Prior Offerings, this offering and any subsequent offering.
SALE OF PROPERTIES, MORTGAGE LOANS, AND SECURED EQUIPMENT LEASES
For the first two to seven years after the commencement of this
offering, the Company intends, to the extent consistent with the Company's
objective of qualifying as a REIT, to reinvest in additional Properties or
Mortgage Loans any proceeds of the Sale of a Property or a Mortgage Loan that
are not required to be distributed to stockholders in order to preserve the
Company's REIT status for federal income tax purposes. Similarly, and to the
extent consistent with REIT qualification, the Company plans to use the proceeds
of the Sale of a Secured Equipment Lease to fund additional Secured Equipment
Leases, or to reduce its outstanding indebtedness on the Line of Credit. At or
prior to the end of such seven-year period, the Company intends to provide
stockholders of the Company with liquidity of their investment, either in whole
or in part, through Listing (although liquidity cannot be assured thereby) or by
commencing orderly sales of the Company's assets. If Listing occurs, the Company
intends to reinvest in additional Properties, Mortgage Loans, and Secured
Equipment Leases any Net Sales Proceeds not required to be distributed to
stockholders in order to preserve the Company's status as a REIT. If Listing
does not occur within seven years after the commencement of the offering, the
Company thereafter will undertake the orderly liquidation of the Company and the
Sale of the Company's assets and will distribute any Net Sales Proceeds to
stockholders. In addition, the Company will not sell any assets if such Sale
would not be consistent with the Company's objective of qualifying as a REIT.
-50-
<PAGE>
In deciding the precise timing and terms of Property Sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. See "Business -Description of
Leases -- Right of Tenant to Purchase." The Company will have no obligation to
sell all or any portion of a Property at any particular time, except as may be
required under property or joint venture purchase options granted to certain
tenants. In connection with Sales of Properties by the Company, purchase money
obligations may be taken by the Company as part payment of the sales price. The
terms of payment will be affected by custom in the area in which the Property is
located and by prevailing economic conditions. When a purchase money obligation
is accepted in lieu of cash upon the Sale of a Property, the Company will
continue to have a mortgage on the Property and the proceeds of the Sale will be
realized over a period of years rather than at closing of the Sale.
In May 1997, the Company sold four of its Properties to the tenant for
a total of $5,266,327. The Company reinvested the net sales proceeds from the
sale of Properties in additional Properties. In addition, during the six months
ended June 30, 1997, the Company sold the Equipment relating to four Secured
Equipment Leases to the tenants and used the proceeds therefrom to repay amounts
previously advanced under its Line of Credit.
Generally, the Company does not anticipate selling the Secured
Equipment Leases prior to expiration of the lease term, except in the event that
the Company undertakes orderly liquidation of its assets. In addition, the
Company does not anticipate selling any Mortgage Loans prior to the expiration
of the loan term, except in the event (i) the Company owns the Property (land
only) underlying the building improvements which secure the Mortgage Loan and
the Sale of the Property occurs, or (ii) the Company undertakes an orderly Sale
of its assets.
FRANCHISE REGULATION
Many states regulate the franchise or license relationship between a
tenant/franchisee and a Restaurant Chain. The Company will not be an Affiliate
of any Restaurant Chain, and is not currently aware of any states in which the
relationship between the Company as lessor and the tenant will be subjected to
those regulations, but it will comply with such regulations in the future, if so
required. Restaurant Chains which franchise their operations are subject to
regulation by the Federal Trade Commission.
COMPETITION
The fast-food, family-style, and casual dining restaurant business is
characterized by intense competition. The operators of the restaurants located
on the Properties will 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.
Many successful fast-food, family-style, and casual dining restaurants
are located in "eating islands," which are areas to which people tend to return
frequently and within which they can diversify their eating habits, because in
many cases local competition may enhance the restaurant's success instead of
detracting from it. Fast-food, family-style, and casual dining restaurants
frequently experience better operating results when there are other restaurants
in the same area.
The Company will be in competition with other persons and entities both
to locate suitable Properties to acquire and to locate purchasers for its
Properties. The Company also will compete with other financing sources such as
banks, mortgage lenders, and sale/leaseback companies for suitable Properties,
tenants, Mortgage Loan borrowers and Equipment tenants.
REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES
The Mortgage Loans and Secured Equipment Lease program may be subject
to regulation by federal, state and local authorities and subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions, including among other things, regulating credit granting
activities, establishing maximum interest rates and finance charges, requiring
disclosures to customers, governing secured transactions and setting collection,
repossession, claims handling procedures and other trade practices. In addition,
certain states may have enacted legislation requiring the licensing of mortgage
bankers or other lenders and these requirements may affect the Company's ability
to effectuate its Mortgage Loans and Secured Equipment Lease program.
Commencement of operations into these or other jurisdictions may be dependent
upon a finding of financial responsibility, character and fitness of the
Company. The Company may determine not to make Mortgage Loans or operate Secured
Equipment Lease program in any jurisdiction in which it believes the Company has
not complied in all material respects with applicable requirements.
-51-
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B to this Prospectus.
<TABLE>
<CAPTION>
May 2,
1994 (Date
of Inception)
Six Months Ended Year Ended through
June 30, 1997 June 30, 1996 December 31, December 31,
(Unaudited) (Unaudited) 1996 1995 1994
----------------------------------------- ------------ ------------ -----------------
<S> <C>
Revenues $6,715,234 $2,381,472 $6,206,684 $ 659,131 $ -
Net earnings 5,227,095 1,689,042 4,745,962 368,779 -
Cash distributions declared (1) 6,282,470 1,868,487 5,436,072 638,618 -
Funds from operations (2) 5,801,102 1,892,079 5,257,040 469,097 -
Earnings per Share 0.29 0.30 0.59 0.19 -
Cash distributions declared per Share 0.37 0.35 0.71 0.34 -
Weighted average number of Shares
outstanding (3) 17,826,025 5,649,041 8,071,670 1,898,350 -
<CAPTION>
June 30, 1997 June 30, 1996 December 31, December 31, December 31,
(Unaudited) (Unaudited) 1996 1995 1994
----------- ----------- ---- ---- ----
<S> <C>
Total assets $214,941,742 $ 70,597,609 $134,825,048 $ 33,603,084 $ 929,585
Total equity 197,122,436 66,240,326 122,867,427 31,980,648 200,000
</TABLE>
(1) Approximately eight percent, 15 percent, 13 percent and 42
percent of cash distributions ($0.03, $0.05, $0.06 and $0.14
per Share) for the six months ended June 30, 1997 and 1996,
and the years ended December 31, 1996 and 1995, respectively,
represent a return of capital in accordance with generally
accepted accounting principles ("GAAP"). Cash distributions
treated as a return of capital on a GAAP basis represent the
amount of cash distributions in excess of accumulated net
earnings on a GAAP basis. The Company has not treated such
amount as a return of capital for purposes of calculating
Invested Capital and the Stockholders' 8% Return.
(2) Funds from operations ("FFO"), based on the revised definition
adopted by the Board of Governors of NAREIT and as used
herein, means net earnings determined in accordance with
generally accepted accounting principles ("GAAP"), excluding
gains or losses from debt restructuring and sales of property,
plus depreciation and amortization of real estate assets, and
after adjustments for unconsolidated partnerships and joint
ventures. FFO was developed by NAREIT as a relative measure of
performance and liquidity of an equity REIT in order to
recognize that income-producing real estate historically has
not depreciated on the basis determined under GAAP. However,
FFO (i) does not represent cash generated from operating
activities determined in accordance with GAAP (which, unlike
FFO, generally reflects all cash effects of transactions and
other events that enter into the determination of net
earnings), (ii) is not necessarily indicative of cash flow
available to fund cash needs and (iii) should not be
considered as an alternative to net earnings determined in
accordance with GAAP as an indication of the Company's
operating performance, or to cash flow from operating
activities determined in accordance with GAAP as a measure of
either liquidity or the Company's ability to make
distributions. Accordingly, the Company believes that in order
to facilitate a clear understanding of the consolidated
historical operating results of the Company, FFO should be
considered in conjunction with the Company's net earnings and
cash flows as reported in the accompanying consolidated
financial statements and notes thereto. See Exhibit B -
Financial Information.
(3) The weighted average number of Shares outstanding is based
upon the period the Company was operational.
-52-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE COMPANY
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2,
1994, to acquire Properties, directly or indirectly through Joint Venture or
co-tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by borrowers that lease
the underlying land from the Company. To a lesser extent, the Company may offer
Secured Equipment Leases to operators of Restaurant Chains.
LIQUIDITY AND CAPITAL RESOURCES
In April 1995, the Company commenced the Initial Offering of its shares
of common stock. During the period April 1, 1995 through February 6, 1997, the
Company received subscription proceeds of $150,591,765 (15,059,177 shares)
including $591,765 (59,177 shares) pursuant to the Company's Reinvestment Plan,
from the Initial Offering, thereby completing such offering. Following the
completion of the Initial Offering on February 6, 1997, the Company commenced
the 1997 Offering. As of June 30, 1997, the Company had received subscription
proceeds of $73,251,412 (7,325,141 shares) from the 1997 Offering, including
$643,293 (64,329 shares) pursuant to the Reinvestment Plan.
As of June 30, 1997, net proceeds to the Company from the Prior
Offerings, after deduction of selling commissions, marketing support and due
diligence expense reimbursement fees and offering expenses totalled
$198,917,759. Approximately $185,000,000 of such amount had been used to invest,
or committed for investment, in 174 Properties (33 Properties which were under
construction as of June 30, 1997), in providing mortgage financing of
$17,047,000 and to pay acquisition fees to the Advisor totalling $10,072,943 and
certain acquisition expenses. The Company acquired 15 of the 174 Properties from
Affiliates for purchase prices totalling approximately $11,000,000. The
Affiliates had purchased and temporarily held title to these Properties in order
to facilitate the acquisition of the Properties by the Company. Each Property
was acquired at a cost no greater than the lesser of the cost of the Property to
the Affiliate (including carrying costs) or the Property's appraised value.
In connection with the 33 Properties under construction at June 30,
1997, the Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings the
tenants have agreed to lease. The agreements provide a maximum amount of
development costs (including the purchase price of the land and closing costs)
to be paid by the Company. The aggregate maximum development costs the Company
has agreed to pay are approximately $37,343,000, of which approximately
$29,936,300 had been incurred as of June 30, 1997. The buildings under
construction as of June 30, 1997, are expected to be operational by December
1997. In connection with the purchase of each Property, the Company, as lessor,
entered into a long-term lease agreement.
In May 1997, the Company sold four of its Properties and the Equipment
relating to two Secured Equipment Leases to a tenant. The Company received net
proceeds of approximately $6,216,400 which was equal to the carrying value of
the Properties and the Equipment at the time of the sale. As a result, no gain
or loss was recognized for financial reporting purposes.
-53-
<PAGE>
During the period July 1, 1997 through September 17, 1997, the Company
acquired 33 additional Properties (ten on which restaurants are being
constructed and six on which a restaurant is being renovated) for cash at a
total cost of approximately $31,801,500. The buildings under construction or
renovation are expected to be operational by August 1998. The Company presently
is negotiating to acquire additional Properties, but as of September 17, 1997,
had not acquired any such Properties.
As of September 17, 1997, the Company had received aggregate
subscription proceeds of $277,492,711 (27,749,271 shares) from the Prior
Offerings, including $1,235,058 (123,506 shares) through its Reinvestment Plan.
As of September 17, 1997, the Company had invested or committed for investment
approximately $225,400,000 of aggregate net proceeds from the Prior Offerings in
207 Properties, in providing mortgage financing to the tenants of 44 Properties
consisting of land only and two additional Properties through Mortgage Loans and
in paying acquisition fees and certain acquisition expenses, leaving
approximately $22,874,000 in aggregate net offering proceeds available for
investment in Properties and Mortgage Loans.
The Company expects to use the uninvested net offering proceeds, net
offering proceeds from the sale of additional shares of the 1997 Offering and
Net Offering Proceeds from this offering to purchase additional Properties and
to make Mortgage Loans. The number of Properties to be acquired and Mortgage
Loans to be entered into will depend upon the amount of net offering proceeds
available to the Company, although the Company is expected to have a total
portfolio of 670 to 730 Properties if the maximum number of shares are sold in
the 1997 Offering and this offering. The Company expects to use the proceeds of
the Line of Credit to fund the Secured Equipment Lease program. The Company
intends to limit the amount of Secured Equipment Leases it enters into to ten
percent of gross offering proceeds from the Prior Offerings, this offering and
any subsequent offerings.
The Company has entered into a revolving $35,000,000 unsecured Line of
Credit with a bank to fund Secured Equipment Leases and to purchase and develop
Properties or fund Mortgage Loans. The advances will bear interest at a rate of
LIBOR plus 1.65% or the bank's prime rate, whichever the Company selects at the
time of borrowing. Interest only will be repayable monthly until July 31, 1999,
at which time all remaining interest and principal shall be due. The Line of
Credit provides for two one-year renewal options. Management believes that
during the offering period the Line of Credit will allow the Company to make
investments that the Company otherwise would be forced to delay until it raised
sufficient offering proceeds. Advances used to fund Secured Equipment Leases
will be repaid using payments received from Secured Equipment Leases and will be
refinanced in regard to any Secured Equipment Lease not fully repaid at the end
of the term of the Line of Credit. Advances used to purchase and develop
Properties and fund Mortgage Loans will be repaid using additional offering
proceeds from the 1997 Offering or proceeds from this offering or refinanced on
a long-term basis. The Company will not encumber Properties in connection with
the Line of Credit.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties or to fund Mortgage Loans at such time as
Properties suitable for acquisition and investments in Mortgage Notes are
identified. At June 30, 1997, the Company had $31,097,346 invested in such
short-term investments, as compared to $42,450,088 at December 31, 1996. These
funds will be used primarily to purchase and develop or renovate Properties
(directly or indirectly through joint venture arrangements), to make Mortgage
Loans, to pay offering and acquisition costs, to pay Distributions to
stockholders, to meet Company expenses and, in management's discretion, to
create cash reserves. The decrease in the amount invested in short-term
investments is primarily attributable to the acquisition of additional
Properties during the six months ended June 30, 1997.
During the six months ended June 30, 1997 and 1996, Affiliates of the
Company incurred on behalf of the Company $1,361,009 and $495,800, respectively,
for certain offering expenses, $329,237 and $107,383, respectively, for certain
acquisition expenses, and $236,639 and $149,802, respectively, for certain
operating expenses. As of June 30, 1997, the Company owed the Advisor $790,223
for such amounts, unpaid fees and accounting and administrative expenses. As of
August 5, 1997, the Company had reimbursed all such amounts. The Advisor has
agreed to pay or reimburse to the Company all offering expenses in excess of
three percent of gross offering proceeds.
-54-
<PAGE>
During the six months ended June 30, 1997 and 1996, the Company
generated cash from operations (which includes cash received from tenants and
interest and other income received, less cash paid for operating expenses) of
$6,314,003 and $1,573,575, respectively. Based on current and anticipated future
cash from operations, the Company declared Distributions to the stockholders of
$6,282,470 and $1,868,487 during the six months ended June 30, 1997 and 1996,
respectively. In addition, on July 1, 1997, August 1, 1997, and September 1,
1997, the Company declared Distributions to its stockholders totalling
$1,403,182, $1,516,974 and $1,677,329, respectively, payable in September 1997.
For the six months ended June 30, 1997 and 1996, approximately 92 and 85
percent, respectively, of the Distributions received by stockholders were
considered to be ordinary income and approximately eight and 15 percent,
respectively, were considered a return of capital for federal income tax
purposes. However, no amounts distributed or to be distributed to the
stockholders as of September 17, 1997, are required to be or have been treated
by the Company as a return of capital for purposes of calculating the
stockholders' return on their invested capital.
Management believes that the Properties are adequately covered by
insurance. In addition, the Advisor obtained contingent liability and property
coverage for the Company. This insurance policy is intended to reduce the
Company's exposure in the unlikely event a tenant's insurance policy lapses or
is insufficient to cover a claim relating to the Property. The Company's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who meet specified financial standards is
expected to minimize the Company's operating expenses.
Due to the fact that the Properties are leased on a long-term,
triple-net basis, management does not believe that working capital reserves are
necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay operating expenses.
RESULTS OF OPERATIONS
As of June 30, 1997, the Company and its consolidated joint venture,
CNL/Corral South Joint Venture (hereinafter, collectively referred to as the
Company) had purchased and entered into long-term, triple-net leases for 178
Properties (including four Properties in each of Marlboro and Hazlet, New Jersey
and Hamden and Orange, Connecticut, which were sold in May 1997). The leases
provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $34,800 to $467,500. In addition,
certain leases provide for percentage rent based on sales in excess of a
specified amount. The majority of the leases also provide that, commencing in
generally the sixth lease year, the annual base rent required under the terms of
the leases will increase. In connection therewith, during the six months ended
June 30, 1997 and 1996, the Company earned $4,965,297 and $1,704,185,
respectively, in rental income from operating leases and earned income from
direct financing leases from 143 Properties and 16 Secured Equipment Leases in
1997 (including two Secured Equipment Leases in Marlboro and Hazlet, New Jersey,
which were sold in May 1997) and from 41 Properties in 1996 ($2,875,512 and
$905,104 of which was earned during the quarters ended June 30, 1997 and 1996,
respectively). Because the Company has not yet acquired all of its Properties,
revenues for the six months ended June 30, 1997 and 1996, represent only a
portion of revenues which the Company is expected to earn in future periods in
which the Company's Properties are operational.
As of June 30, 1997, the Company had also entered into Mortgage Loans
in the principal sum of $17,047,000, collateralized by mortgages on the
buildings relating to 44 Pizza Hut Properties and two additional Pizza Hut
buildings. The Mortgage Loans bear interest at rates ranging from 10.5% to
10.75% per annum and are being collected in 240 equal monthly installments in
the aggregate amount of $167,455. In connection therewith, the Company earned
$815,192 and $465,498 in interest income relating to such Mortgage Loans during
the six months ended June 30, 1997 and 1996, respectively, $439,835 and $280,549
of which was earned during the quarters ended June 30, 1997 and 1996,
respectively.
During the six months ended June 30, 1997, two affiliated groups of
lessees or borrowers, Castle Hill Holdings V, L.L.C., Castle Hill Holdings VI,
L.L.C., and Castle Hill Holdings VII, L.L.C. (hereinafter referred to as Castle
Hill), and Foodmaker, Inc., each represented more than ten percent of the
Company's total rental, earned and interest income from its Properties, Mortgage
Loans and Secured Equipment Leases. Castle Hill is the lessee under leases
relating to 44 restaurants and is the borrower on Mortgage Loans relating to the
buildings on such Properties and two additional Properties and Foodmaker, Inc.
is the lessee under leases relating to 17 restaurants.
-55-
<PAGE>
In addition, during the six months ended June 30, 1997, four Restaurant Chains,
Golden Corral Family Steakhouse, Pizza Hut, Jack in the Box, and Boston Market,
each accounted for more than ten percent of the Company's total rental, earned
and interest income relating to its Properties, Mortgage Loans and Secured
Equipment Leases. Because the Company has not completed its investment in
Properties and Mortgage Loans, it is not possible to determine which lessees,
borrowers or Restaurant Chains will contribute more than ten percent of the
Company's rental, earned and interest income during the remainder of 1997 and
subsequent years. In the event that certain lessees, borrowers or Restaurant
Chains contribute more than ten percent of the Company's rental and interest
income in the current and future years, any failure of such lessees, borrowers
or Restaurants Chains could materially affect the Company's income.
During the six months ended June 30, 1997 and 1996, the Company also
earned $934,745 and $211,789, respectively, in interest income from investments
in money market accounts or other short-term, highly liquid investments and
other income, $460,329 and $135,940 of which was earned during the quarters
ended June 30, 1997 and 1996, respectively. As net offering proceeds are
invested in Properties and used to make Mortgage Loans, interest income from
investments in money market accounts or other short-term, highly liquid
investments is expected to decrease.
Operating expenses, including depreciation and amortization expense,
were $1,472,413 and $670,107 for the six months ended June 30, 1997 and 1996,
respectively, of which $792,590 and $369,568 were incurred for the quarters
ended June 30, 1997 and 1996, respectively. Operating expenses increased
primarily as a result of the Company having invested in additional Properties
and Mortgage Loans during the quarter and six months ended June 30, 1997, as
compared to the quarter and six months ended June 30, 1996. General and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires additional Properties, invests in Mortgage
Loans and the Properties under construction become operational. However, asset
management fees and depreciation and amortization expense are expected to
increase as the Company invests in additional Properties and Mortgage Loans.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share." The
statement, which is effective for fiscal years ending after December 15, 1997,
provides for a revised computation of earnings per share. The Company will adopt
this standard in 1997 and does not expect compliance with such standard to have
a material effect, if any, on the Company's earnings per share.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in local real estate conditions, continued availability of proceeds from
the Company's 1997 Offering, the availability of proceeds from this offering,
the ability of the Company to locate suitable tenants for its Properties and
borrowers for its Mortgage Loans, and the ability of tenants and borrowers to
make payments under their respective leases or Mortgage Loans.
-56-
<PAGE>
MANAGEMENT
GENERAL
The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries. As required
by applicable regulations, a majority of the Independent Directors and a
majority of the Directors have reviewed and ratified the Articles of
Incorporation and have adopted the Bylaws.
The Company currently has five Directors; it may have no fewer than
three Directors and no more than 15. Directors will be elected annually, and
each Director will hold office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. There is no limit on
the number of times that a Director may be elected to office. Although the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for this
purpose. The notice of such meeting shall indicate that the purpose, or one of
the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and
control of the affairs of the Company; however, the Board of Directors will
retain the Advisor to manage the Company's day-to-day affairs and the
acquisition and disposition of investments, subject to the supervision of the
Board of Directors.
The Directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of the
Company as their duties require. The Board of Directors will meet quarterly in
person or by telephone, or more frequently if necessary. It is not expected that
the Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. This determination shall be reflected in the minutes of the meetings of
the Board of Directors. For purposes of this determination, Net Assets are the
Company's total assets (other than intangibles), calculated at cost before
deducting depreciation or other non-cash reserves, less total liabilities, and
computed at least quarterly on a basis consistently applied. Such determination
will be reflected in the minutes of the meetings of the Board of Directors. In
addition, a majority of the Independent Directors and a majority of Directors
not otherwise interested in the transaction must approve each transaction with
the Advisor or its Affiliates. The Board of Directors also will be responsible
for reviewing and evaluating the performance of the Advisor before entering into
or renewing an advisory agreement. The Independent Directors shall determine
from time to time and at least annually that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services to be
performed and shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the amount of the fee paid to the
Advisor in relation to the size, composition and performance of the Company's
investments, the success of the Advisor in generating appropriate investment
opportunities, rates charged to other comparable REITs and other investors by
advisors performing similar services, additional revenues realized by the
Advisor and its Affiliates through their relationship with the Company, whether
paid by the Company or by others with whom the Company does business, the
quality and extent of service and advice furnished by the Advisor, the
performance of the investment portfolio of the Company and the quality of the
portfolio of the Company relative to the investments generated by the Advisor
for its own account. Such review and evaluation will be reflected in the minutes
of the meetings of the Board of Directors. The Board of Directors shall
determine that any successor Advisor possesses sufficient qualifications to (i)
perform the advisory function for the Company and (ii) justify the compensation
provided for in its contract with the Company.
The liability of the officers and Directors while serving in such
capacity is limited in accordance with the Articles of Incorporation and
applicable law. See "Summary of the Articles of Incorporation and Bylaws
- --Limitation of Director and Officer Liability."
-57-
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
Name Age Position with the Company
---- --- -------------------------
James M. Seneff, Jr. 51 Director, Chairman of
the Board, and Chief
Executive Officer
Robert A. Bourne 50 Director and President
G. Richard Hostetter 57 Independent Director
J. Joseph Kruse 64 Independent Director
Richard C. Huseman 58 Independent Director
John T. Walker 38 Chief Operating Officer and
Executive Vice President
Jeanne A. Wall 39 Executive Vice President
Steven D. Shackelford 34 Chief Financial Officer
Lynn E. Rose 48 Secretary and Treasurer
James M. Seneff, Jr. Director, Chairman of the Board, and Chief
Executive Officer. Mr. Seneff currently holds the position of Chairman of the
Board, Chief Executive Officer and director of CNL Fund Advisors, Inc., the
Advisor to the Company. Mr. Seneff also has served as Chairman of the Board,
Chief Executive Officer and a director of CNL American Realty Fund, Inc. since
1996 and of CNL Real Estate Advisors, Inc. since January 1997. Mr. Seneff 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., which is acting as the Managing Dealer in this
offering, CNL Investment Company, CNL Fund Advisors, Inc. and CNL Real Estate
Advisors, Inc. Mr. Seneff has been Chief Executive Officer, a director and
registered principal of CNL Securities Corp. 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 Chief Executive Officer and
Chairman of the Board of CNL Realty Advisors, Inc. since its inception in 1991,
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. 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 restaurants, office buildings, apartment complexes, hotels, and other
real estate. Included in these real estate ventures are approximately 65
privately offered real estate limited partnerships with investment objectives
similar to one or more of the Company's investment objectives, in which Mr.
Seneff, directly or through an affiliated entity, serves or has served as a
general partner. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.
Robert A. Bourne. Director and President. Mr. Bourne currently holds the
position of Vice Chairman of the Board of Directors, director and Treasurer of
CNL Fund Advisors, Inc., the Advisor to the Company. Mr. Bourne served as
President of CNL Fund Advisors, Inc. from the date of its inception through June
30, 1997. Mr. Bourne also 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. Mr. Bourne is President and Treasurer of CNL Group, Inc., President, a
director, and a registered principal of CNL Securities Corp. (the Managing
Dealer of this offering), President and a director of CNL Investment Company,
and President, Chief Investment Officer and a director of CNL Institutional
Advisors, Inc., a registered investment advisor. Mr. Bourne also has served as
President and a director from July 1992 to February 1996, and has served as Vice
Chairman of the Board of Directors, Secretary and Treasurer since February 1996,
of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne served as President
of CNL Realty Advisors, Inc. from 1991 to February 1996, and has served as a
director of CNL Realty Advisors, Inc. since 1991, and as Treasurer and Vice
Chairman since February 1996. 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
-58-
<PAGE>
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 restaurants, office buildings, apartment complexes, hotels, and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships with investment objectives similar to
one or more of the Company's investment objectives, in which Mr. Bourne,
directly or through an affiliated entity, serves or has served as a general
partner.
G. Richard Hostetter, Esq. Independent Director. Mr. Hostetter also
serves as a director of CNL American Realty Fund, Inc. Mr. Hostetter was
associated with the law firm of Miller and Martin from 1966 through 1989, the
last ten years of such association as a senior partner. As a lawyer, he served
for more than 20 years as counsel for various corporate real estate groups,
fast-food companies and public companies, including The Krystal Company,
resulting in his extensive participation in transactions involving the sale,
lease, and sale/leaseback of approximately 250 restaurant units. Mr. Hostetter
graduated from the University of Georgia and received his J.D. from Emory Law
School in 1966. He is licensed to practice law in Tennessee and Georgia. From
1989 to date, Mr. Hostetter has served as President and General Counsel of
Mills, Ragland & Hostetter, Inc., the corporate general partner of MRH, L.P., a
holding company involved in corporate acquisitions, in which he also is a
general and limited partner.
J. Joseph Kruse. Independent Director. Mr. Kruse also serves as a
director of CNL American Realty Fund, Inc. From 1993 to the present, Mr. Kruse
has been President and Chief Executive Officer of Kruse & Co., Inc., a merchant
banking company engaged in real estate. Formerly, Mr. Kruse was a Senior Vice
President with Textron, Inc. for twenty years, and then served as Senior Vice
President at G. William Miller & Co., a firm founded by the former Chairman of
the Federal Reserve Board and the Treasury Secretary. Mr. Kruse was responsible
for evaluations of commercial real estate and retail shopping mall projects and
continues to serve of counsel to the firm. Mr. Kruse received a Bachelors of
Science in Education degree from the University of Florida in 1957 and a Masters
of Science in Administration in 1958 from Florida State University. He also
graduated from the Advanced Management Program of the Harvard Graduate School of
Business.
Richard C. Huseman. Independent Director. Mr. Huseman also serves as
a director of CNL American Realty Fund, Inc. Mr. Huseman is presently a
professor in the College of Business Administration, and from 1990 through 1995,
served as the Dean of the College of Business Administration of the University
of Central Florida. He has served as a consultant in the area of managerial
strategies to a number of Fortune 500 corporations, including IBM, AT&T, and 3M,
as well as to several branches of the U.S. government, including the U.S.
Department of Health and Human Services, the U.S. Department of Justice, and the
Internal Revenue Service. Mr. Huseman received a B.A. from Greenville College
in 1961 and an M.A. and a Ph.D. from the University of Illinois in 1963 and
1965, respectively.
John T. Walker. Chief Operating Officer and Executive Vice President. Mr.
Walker joined CNL Fund Advisors, Inc. in September 1994, as Senior Vice
President, responsible for Research and Development. He currently serves as the
Chief Operating Officer and Executive Vice President of CNL Fund Advisors, Inc.,
the Advisor to the Company. Mr. Walker is also Executive Vice President of CNL
American Realty Fund, Inc. and CNL Real Estate Advisors, Inc. 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.
Jeanne A. Wall. Executive Vice President. Ms. Wall serves as Executive
Vice President of CNL Fund Advisors, Inc., the Advisor to the Company. Ms. Wall
is also Executive Vice President of CNL American Realty Fund, Inc. and CNL Real
Estate Advisors, Inc. Ms. Wall has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
and, in 1987, she became a Senior 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 partnership administration and investor services for programs
offered through participating brokers. Ms. Wall also
-59-
<PAGE>
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, and as Vice President of
Commercial Net Lease Realty, Inc. since 1992. 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.
Steven D. Shackelford. Chief Financial Officer. Mr. Shackelford joined
CNL Fund Advisors, Inc., the Advisor to the Company, in September 1996 as the
Chief Financial Officer. 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 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.
Lynn E. Rose. Secretary and Treasurer. Ms. Rose is also Secretary and
Treasurer of CNL American Realty Fund, Inc. Ms. Rose serves as Secretary and a
director of CNL Fund Advisors, Inc., the Advisor to the Company, and CNL Real
Estate Advisors, Inc. Ms. Rose served as Treasurer of CNL Fund Advisors, Inc.
from the date of its inception through June 30, 1997. Ms. Rose, a certified
public accountant, has served as Secretary of CNL Group, Inc. since 1987, as
Chief Financial Officer of CNL Group, Inc. since December 1993, 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, as Secretary and a director of CNL Realty
Advisors, Inc. since its inception in 1991, and as a Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996. In addition, Ms. Rose served as
Secretary and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to
February 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 250 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.
INDEPENDENT DIRECTORS
Under the Articles of Incorporation, a majority of the Board of
Directors must consist of Independent Directors, except for a period of 90 days
after the death, removal or resignation of an Independent Director. The
Independent Directors shall nominate replacements for vacancies amongst the
Independent Director positions. An Independent Director may not, directly or
indirectly (including through a member of his immediately family), own any
interest in, be employed by, have any present business or professional
relationship with, serve as an officer or director of the Advisor or its
Affiliates, or serve as a director of more than three REITs organized by the
Advisor or its Affiliates. Except to carry out the responsibilities of a
Director, an Independent Director may not perform material services for the
Company.
-60-
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee, the members of which are
selected by the full Board of Directors each year. The Audit Committee makes
recommendations to the Board of Directors in accordance with those of the
independent accountants of the Company. The Board of Directors shall review with
such accounting firm the scope of the audit and the results of the audit upon
its completion.
At such time, if any, as the Shares are listed on a national securities
exchange or over-the-counter market, the Company will form a Compensation
Committee, the members of which will be selected by the full Board of Directors
each year.
At least a majority of the members of each committee of the Company's
Board of Directors must be Independent Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director is entitled to receive $6,000 annually for serving on the
Board of Directors, as well as fees of $750 per meeting attended ($375 for each
telephonic meeting in which the Director participates), including committee
meetings. No executive officer or Director of the Company has received a bonus
from the Company. The Company will not pay any compensation to the officers and
Directors of the Company who also serve as officers and directors of the
Advisor.
MANAGEMENT COMPENSATION
For a description of the types, recipients, methods of computation, and
estimated amounts of all compensation, fees, and distributions to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see "Management Compensation."
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
CNL Fund Advisors, Inc. is a Florida corporation organized in March
1994 to provide management, advisory and administrative services. The Company
originally entered into the Advisory Agreement with the Advisor effective April
19, 1995. CNL Fund Advisors, Inc., as Advisor, has a fiduciary responsibility to
the Company and the stockholders.
The directors and officers of the Advisor are as follows:
<TABLE>
<S> <C>
James M. Seneff, Jr. ............................. Chairman of the Board, Chief Executive Officer and Director
Robert A. Bourne ................................. Vice Chairman of the Board, Treasurer and Director
Curtis B. McWilliams.............................. President
John T. Walker ................................... Chief Operating Officer and Executive Vice President
Steven D. Shackelford............................. Chief Financial Officer
Lynn E. Rose ..................................... Secretary and Director
Jeanne A. Wall ................................... Executive Vice President
</TABLE>
The Advisor employs personnel, in addition to the directors and
executive officers listed above, who have extensive experience in selecting and
managing restaurant properties similar to the Properties.
The Advisor currently owns 20,000 Shares. The Advisor may not sell
these Shares while the Advisory Agreement is in effect, although the Advisor may
transfer such Shares to Affiliates. Neither the Advisor, a Director, or any
Affiliate may vote or consent on matters submitted to the stockholders regarding
removal of, or any transaction between the Company and the Advisor, Directors,
or an Affiliate. In determining the requisite percentage in interest of Shares
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any Shares owned by any of them will not be included.
For biographies of James M. Seneff, Jr., Robert A. Bourne, John T.
Walker, Steven D. Shackelford, Lynn E. Rose and Jeanne A. Wall, see "Management
- - Directors and Executive Officers."
Curtis B. McWilliams. Mr. McWilliams joined CNL Fund Advisors, Inc. in
April 1997 and currently serves as President of the Advisor. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Institutional Advisors, Inc. and certain other subsidiaries of
CNL Group, Inc. 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 relationships with
companies such as AT&T, AT&T Capital, AMR Corporation, J.C. Penney and the
Robert M. Bass Group. In addition, from February 1990 to February 1993, he
served as co-head of one of the Industrial Banking Groups within Merrill Lynch's
investment banking division and had administrative responsibility for 25 bankers
overseeing 150 client relationships, including the firm's transportation group.
In addition, from September 1996 to March 1997, Mr. McWilliams served as
Chairman of Private Advisory Services, Merrill Lynch's high net worth brokerage
business. 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.
-61-
<PAGE>
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor has
responsibility for the day-to-day operations of the Company, administers the
Company's bookkeeping and accounting functions, serves as the Company's
consultant in connection with policy decisions to be made by the Board of
Directors, manages the Company's Properties and Mortgage Loans, administers the
Company's Secured Equipment Lease program and renders other services as the
Board of Directors deems appropriate. The Advisor is subject to the supervision
of the Company's Board of Directors and has only such functions as are delegated
to it.
The Company will reimburse the Advisor for all of the costs it incurs
in connection with the services it provides to the Company, including, but not
limited to: (i) Offering Expenses, which are defined to include expenses
attributable to preparing the documents relating to this offering, qualification
of the Shares for sale in the states, escrow arrangements, filing fees and
expenses attributable to selling the Shares, (ii) Selling Commissions,
advertising expenses, expense reimbursements, and legal and accounting fees,
(iii) the actual cost of goods and materials used by the Company and obtained
from entities not affiliated with the Advisor, including brokerage fees paid in
connection with the purchase and sale of securities, (iv) administrative
services (including personnel costs; provided, however that no reimbursement
shall be made for costs of personnel to the extent that such personnel perform
services in transactions for which the Advisor receives a separate fee), (v)
Acquisition Expenses, which are defined to include expenses related to the
selection and acquisition of Properties, at the lesser of actual cost or 90% of
the competitive rate charged by unaffiliated persons providing similar goods and
services in the same geographic location, and (vi) expenses related to
negotiating and servicing the Mortgage Loans and Secured Equipment Leases.
The Company shall not reimburse the Advisor at the end of any fiscal
quarter Operating Expenses that, in the four consecutive fiscal quarters then
ended (the "Expense Year") exceed (the "Excess Amount") the greater of 2% of
Average Invested Assets or 25% of Net Income (the "2%/25% Guidelines") for such
year. Any Excess Amount paid to the Advisor during a fiscal quarter shall be
repaid to the Company. If there is an Excess Amount in any Expense Year and the
Independent Directors determine that such excess was justified, based on unusual
and nonrecurring factors which they deem sufficient, the Excess Amount may be
carried over and included in Operating Expenses in subsequent Expense Years, and
reimbursed to the Advisor in one or more of such years, provided that Operating
Expenses in any Expense Year, including any Excess Amount to be paid to the
Advisor, shall not exceed the 2%/25% Guidelines. Within 60 days after the end of
any fiscal quarter of the Company for which total Operating Expenses for the
Expense Year exceed the 2%/25% Guidelines, there shall be sent to the
stockholders a written disclosure of such fact, together with an explanation of
the factors the Independent Directors considered in determining that such excess
expenses were justified. Such determination shall be reflected in the minutes of
the meetings of the Board of Directors. In the event the Independent Directors
do not determine that such Excess Amount was justified, the Advisor shall
reimburse the Company at the end of the Expense Year the amount by which the
total Operating Expenses paid or incurred by the Company exceed the limitations
herein provided.
The Company will not reimburse the Advisor or its Affiliates for
services for which the Advisor or its Affiliates are entitled to compensation in
the form of a separate fee.
Pursuant to the Advisory Agreement, the Advisor is entitled to receive
certain fees and reimbursements, as listed in "Management -- Management
Compensation." The Subordinated Incentive Fee payable to the Advisor under
certain circumstances if Listing occurs may be paid, at the option of the
Company, in cash, in Shares, by delivery of a promissory note payable to the
Advisor, or by any combination thereof. In the event the Subordinated Incentive
Fee is paid to the Advisor following Listing, no Performance Fee, as described
below, will be paid to the Advisor under the Advisory Agreement nor will any
additional share of Net Sales Proceeds be paid to the Advisor. The total of all
Acquisition Fees and any Acquisition Expenses payable to the Advisor and its
Affiliates shall be reasonable and shall not exceed an amount equal to 6% of the
Real Estate Asset Value of a Property, or in the case of a Mortgage Loan, 6% of
the funds advanced, unless a majority of the Board of Directors, including a
majority of the Independent Directors not otherwise interested in the
transaction, approves fees in excess of this limit subject to a determination
that the transaction is commercially competitive, fair and reasonable to the
Company. The Acquisition Fees payable in connection with the selection or
acquisition of any Property shall be reduced to the extent that, and if
necessary to limit, the total compensation paid to all persons involved in the
acquisition of such Property to the amount customarily charged in arm's-length
transactions by other persons or entities rendering similar services as an
ongoing public activity in the same geographical location and for comparable
types of Properties, and
-62-
<PAGE>
to the extent that other acquisition fees, finder's fees, real estate
commissions, or other similar fees or commissions are paid by any person in
connection with the transaction.
If the Advisor or a CNL Affiliate performs services that are outside of
the scope of the Advisory Agreement, compensation is at such rates and in such
amounts as are agreed to by the Advisor and the Independent Directors of the
Company.
Further, if Listing occurs, the Company automatically will become a
perpetual life entity. At such time, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating a
new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the Property, Mortgage Loan, and Secured Equipment Lease
portfolio of the Company in relationship to the investments generated by the
Advisor for its own account. The Board of Directors, including a majority of the
Independent Directors, may not approve a new fee structure that, in its
judgment, is more favorable to the Advisor than the current fee structure.
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date of execution, subject to successive
one-year renewals upon mutual consent of the parties. The current Advisory
Agreement expires on April 17, 1998. In the event that a new Advisor is
retained, the previous Advisor will cooperate with the Company and the Directors
in effecting an orderly transition of the advisory functions. The Board of
Directors (including a majority of the Independent Directors) shall approve a
successor Advisor only upon a determination that the Advisor possesses
sufficient qualifications to perform the advisory functions for the Company and
that the compensation to be received by the new Advisor pursuant to the new
Advisory Agreement is justified.
The Advisory Agreement may be terminated without cause or penalty by
either party, or by the mutual consent of the parties (by a majority of the
Independent Directors of the Company or a majority of the directors of the
Advisor, as the case may be), upon 60 days' prior written notice. At that time,
the Advisor shall be entitled to receive the Performance Fee if performance
standards satisfactory to a majority of the Board of Directors, including a
majority of the Independent Directors, when compared to (a) the performance of
the Advisor in comparison with its performance for other entities, and (b) the
performance of other advisors for similar entities, have been met. If Listing
has not occurred, the Performance Fee, if any, shall equal 10% of the amount, if
any, by which (i) the appraised value of the assets of the Company on the date
of termination of the Advisory Agreement (the "Termination Date"), less the
amount of all indebtedness secured by the assets of the Company, plus the total
Distributions made to stockholders from the Company's inception through the
Termination Date, exceeds (ii) Invested Capital plus an amount equal to the
Stockholders' 8% Return from inception through the Termination Date. The Advisor
shall be entitled to receive all accrued but unpaid compensation and expense
reimbursements in cash within 30 days of the Termination Date. All other amounts
payable to the Advisor in the event of a termination shall be evidenced by a
promissory note and shall be payable from time to time. The Performance Fee
shall be paid in 12 equal quarterly installments without interest on the unpaid
balance, provided, however, that no payment will be made in any quarter in which
such payment would jeopardize the Company's REIT status, in which case any such
payment or payments will be delayed until the next quarter in which payment
would not jeopardize REIT status. Notwithstanding the preceding sentence, any
amounts which may be deemed payable at the date the obligation to pay the
Performance Fee is incurred which relate to the appreciation of the Company's
assets shall be an amount which provides compensation to the terminated Advisor
only for that portion of the holding period for the respective assets during
which such terminated Advisor provided services to the Company. If Listing
occurs, the Performance Fee, if any, payable thereafter will be as negotiated
between the Company and the Advisor. The Advisor shall not be entitled to
payment of the Performance Fee in the event the Advisory Agreement is terminated
because of failure of the Company and the Advisor to establish a fee structure
appropriate for a perpetual-life entity at such time, if any, as the Shares
become listed on a national securities exchange or over-the-counter market. The
Performance Fee, to the extent payable at the time of Listing, will not be paid
in the event that the Subordinated Incentive Fee is paid.
-63-
<PAGE>
The Advisor has the right to assign the Advisory Agreement to an
Affiliate subject to approval by the Independent Directors of the Company. The
Company has the right to assign the Advisory Agreement to any successor to all
of its assets, rights, and obligations.
The Advisor will not be liable to the Company or its stockholders or
others, except by reason of acts constituting bad faith, fraud, misconduct, or
negligence, and will not be responsible for any action of the Board of Directors
in following or declining to follow any advice or recommendation given by it.
The Company has agreed to indemnify the Advisor with respect to acts or
omissions of the Advisor undertaken in good faith, in accordance with the
foregoing standards and pursuant to the authority set forth in the Advisory
Agreement. Any indemnification made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.
CERTAIN TRANSACTIONS
The Managing Dealer is entitled to receive Selling Commissions
amounting to 7.5% of the total amount raised from the sale of Shares of common
stock for services in connection with the offering of Shares, a substantial
portion of which has been or will be paid as commissions to other
broker-dealers. For the period January 1, 1997 through September 17, 1997, and
the years ended December 31, 1996 and 1995, the Company incurred $10,368,417,
$7,559,474 and $2,884,062, respectively, of such fees in connection with the
Prior Offerings, of which approximately $9,525,000, $7,059,000 and $2,682,000,
respectively, was paid by the Managing Dealer as commissions to other
broker-dealers.
In addition, the Managing Dealer is entitled to receive a Marketing
Support and Due Diligence Expense Reimbursement Fee equal to 0.5% of the total
amount raised from the sale of Shares, a portion of which may be reallowed to
other broker-dealers. For the period January 1, 1997 through September 17, 1997,
and the years ended December 31, 1996 and 1995, the Company incurred $691,228,
$503,965 and $192,271, respectively, of such fees in connection with the Prior
Offerings, substantially all of which were reallowed to other broker-dealers and
from which all bona fide due diligence expenses were paid.
The Advisor is entitled to receive Acquisition Fees for services in
identifying the Properties and structuring the terms of the acquisition and
leases of the Properties and structuring the terms of the Mortgage Loans equal
to 4.5% of the total amount raised from the sale of Shares. For the period
January 1, 1997 through September 17, 1997, and the years ended December 31,
1996 and 1995, the Company incurred $6,221,051, $4,535,685 and $1,730,437,
respectively, of such fees in connection with the Prior Offerings.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive from the Company a
one-time Secured Equipment Lease Servicing Fee of two percent of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease. For the
period January 1, 1997 through September 17, 1997, and the year ended December
31, 1996, the Company incurred $56,392 and $70,070, respectively, in such fees.
The Company and the Advisor have entered into an Advisory Agreement
pursuant to which the Advisor will receive a monthly asset management fee of
one-twelfth of 0.60% of the Company's Real Estate Asset Value, plus one-twelfth
of 0.60% of the total principal amount of the Company's Mortgage Loans, as of
the end of the preceding month. The management fee, which will not exceed fees
which are competitive for similar services in the same geographic area, may or
may not be taken, in whole or in part as to any year, in the sole discretion of
the Advisor. All or any portion of the management fee not taken as to any fiscal
year shall be deferred without interest and may be taken in such other fiscal
year as the Advisor shall determine. For the six months ended June 30, 1997, and
the years ended December 31, 1996 and 1995, the Company incurred $300,656,
$278,902 and $27,950, respectively, of such fees, $41,400, $27,702 and $4,872,
respectively, of which has been capitalized as part of the cost of the buildings
for Properties that have been or are being constructed.
The Advisor and its Affiliates provide accounting and administrative
services to the Company (including accounting and administrative services in
connection with the offering of Shares) on a day-to-day basis. For the six
months ended June 30, 1997, and the years ended December 31, 1996 and 1995, the
Company incurred a total of $1,026,304, $1,103,828 and $782,690, respectively,
for these services, $757,096, $769,225 and $714,674, respectively, of such costs
representing stock issuance costs and $269,208, $334,603 and $68,016,
respectively, representing general operating and administrative expenses,
including costs related to preparing and distributing reports required by the
Securities and Exchange Commission.
-64-
<PAGE>
During 1996, the Company acquired four Properties from Affiliates for
an aggregate purchase price of approximately $2,609,800 and, in 1995, the
Company acquired nine Properties from Affiliates for an aggregate purchase price
of approximately $6,621,000. In addition, during the period January 1, 1997
through September 17, 1997, the Company acquired two Properties from an
Affiliate for an aggregate purchase price of approximately $1,773,300. The
Affiliates had purchased and temporarily held title to these Properties in order
to facilitate the acquisition of the Properties by the Company. Each Property
was acquired at a cost no greater than the lesser of the cost of the Property to
the Affiliate (including carrying costs) or the Property's appraised value.
In connection with the acquisition of three Properties in 1996 and six
Properties during the period January 1, 1997 through September 17, 1997, that
were constructed or renovated by Affiliates, the Company incurred
development/construction management fees totalling $159,350 and $369,570,
respectively. Such fees were included in the purchase price of Properties. No
such amounts were incurred in 1995.
The Advisor and the Managing Dealer are wholly owned subsidiaries of
CNL Group, Inc., of which James M. Seneff, Jr., Chairman of the Board and Chief
Executive Officer of the Company, and his spouse are the sole stockholders.
All of these fees were paid in accordance with the provisions of the
Company's Articles of Incorporation.
-65-
<PAGE>
PRIOR PERFORMANCE INFORMATION
The information presented in this section represents the historical
experience of certain real estate programs organized by certain officers and
directors of the Advisor. INVESTORS IN THE COMPANY SHOULD NOT ASSUME THAT THEY
WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN
SUCH PRIOR REAL ESTATE PROGRAMS. INVESTORS WHO PURCHASE SHARES IN THE COMPANY
WILL NOT THEREBY ACQUIRE ANY OWNERSHIP INTEREST IN ANY PARTNERSHIPS TO WHICH THE
FOLLOWING INFORMATION RELATES.
Two Directors of the Company, Robert A. Bourne and James M. Seneff,
Jr., individually or with others have served as general partners of 85 and 86
real estate limited partnerships, respectively, including the 18 publicly
offered CNL Income Fund partnerships, which purchased properties similar to
those to be acquired by the Company, listed in the table below. None of these
limited partnerships has been audited by the IRS. Of course, there is no
guarantee that the Company will not be audited. Based on an analysis of the
operating results of the prior partnerships, the general partners of these
partnerships believe that each of such partnerships has met or is meeting its
principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited partnerships, all
of which were organized to invest in fast-food, family-style and, in the case of
two funds, casual dining restaurant properties similar to those that the Company
intends to acquire and have investment objectives similar to those of the
Company. As of June 30, 1997, these 18 partnerships had raised a total of
$602,212,212 from a total of 48,461 investors, and had invested in 691
fast-food, family-style or casual dining restaurant properties. Certain
additional information relating to the offerings and investment history of the
18 public partnerships is set forth below.
<TABLE>
<CAPTION>
Date 90% of Net
Number of Proceeds Fully
Maximum Limited Invested or
Name of Offering Partnership Committed to
Partnership Amount (1) Date Closed Units Sold Investment (2)
- ----------- ---------- ----------- ---------- --------------
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 Units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 Units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 Units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 Units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 Units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 Units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 Units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 Units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 Units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 Units)
CNL Income $40,000,000 September 28, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 Units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 Units)
CNL Income $40,000,000 August 26, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 Units)
CNL Income $45,000,000 February 22, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 Units)
CNL Income $40,000,000 September 1, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 Units)
CNL Income $45,000,000 June 12, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 Units)
CNL Income $30,000,000 September 19, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 Units)
CNL Income $35,000,000 (3) (3) (3)
Fund XVIII, Ltd. (3,500,000 Units)
</TABLE>
-66-
<PAGE>
- ----------------
(1) The amount stated includes the exercise by the general partners of each
partnership of their option to increase by $5,000,000 the maximum size of
the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income
Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XII, Ltd.,
CNL Income Fund XIV, Ltd., CNL Income Fund XVI, Ltd, and CNL Income Fund
XVIII, Ltd.
(2) For a description of the property acquisitions by these limited
partnerships, see the table set forth on the following page.
(3) As of June 30, 1997, CNL Income Fund XVIII, Ltd., which is offering a
maximum of 3,500,000 limited partnership units ($35,000,000), had received
subscriptions totalling $22,192,212 (2,219,221 units). As of such date, CNL
Income Fund XVIII, Ltd. had purchased 17 properties.
As of June 30, 1997, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 67 nonpublic
real estate limited partnerships. The offerings of 65 of these 67 nonpublic
limited partnerships had terminated as of June 30, 1997. These 65 partnerships
raised a total of $166,969,266 from approximately 4,180 investors, and
purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 203 projects as of June 30, 1997. These 203
projects consist of 19 apartment projects (comprising 11% of the total amount
raised by all 65 partnerships), 13 office buildings (comprising 5% of the total
amount raised by all 65 partnerships), 157 fast-food, family-style or casual
dining restaurant property and business investments (comprising 68% of the total
amount raised by all 65 partnerships), one condominium development (comprising
.5% of the total amount raised by all 65 partnerships), four hotels/motels
(comprising 5% of the total amount raised by all 65 partnerships), seven
commercial/retail properties (comprising 10% of the total amount raised by all
65 partnerships), and two tracts of undeveloped land (comprising .5% of the
total amount raised by all 65 partnerships). The offering of the two remaining
nonpublic limited partnerships (offerings aggregating $16,750,000) had raised
$9,700,000 from 201 investors (approximately 57.9% of the total offering amount)
as of June 30, 1997.
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 85 real estate limited partnerships whose offerings had closed
as of June 30, 1997 (including 17 CNL Income Fund limited partnerships) in which
Mr. Seneff and/or Mr. Bourne serve or have served as general partners in the
past, 35 invested in restaurant properties leased on a "triple-net" basis,
including six which also invested in franchised restaurant businesses
(accounting for approximately 93% of the total amount raised by all 85 real
estate limited partnerships).
The following table sets forth summary information, as of June 30, 1997
regarding property acquisitions by the 17 limited partnerships that, either
individually or through a joint venture or partnership arrangement, acquired
restaurant properties and that have investment objectives similar to those of
the Company.
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Partnership Property Location Financing Program
- ----------- -------- -------- --------- -------
<S> <C>
CNL Income 20 fast-food or AL, AZ, CA, FL, All cash Public
Fund, Ltd. family-style GA, LA, MD, OK,
restaurants TX, VA
CNL Income 44 fast-food or AL, AZ, CO, FL, All cash Public
Fund II, Ltd. family-style GA, IL, IN, LA, MI,
restaurants MN, MO, NC, NM,
OH, TX, WY
CNL Income 33 fast-food or AZ, CA, FL, GA, All cash Public
Fund III, Ltd. family-style IA, IL, IN, KS, KY,
restaurants MD, MI, MN, MO,
NC, NE, OK, TX
</TABLE>
-67-
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Partnership Property Location Financing Program
- ----------- -------- -------- --------- -------
<S> <C>
CNL Income 45 fast-food or AL, DC, FL, GA, All cash Public
Fund IV, Ltd. family-style IL, IN, KS, MA,
restaurants MD, MI, MS, NC,
OH, PA, TN, TX,
VA
CNL Income 30 fast-food or FL, GA, IL, IN, MI, All cash Public
Fund V, Ltd. family-style NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 48 fast-food or AR, AZ, FL, GA, All cash Public
Fund VI, Ltd. family-style IN, MA, MI, MN,
restaurants NC, NE, NM, NY,
OH, OK, PA, TN,
TX, VA, WY
CNL Income 47 fast-food or AZ, CO, FL, GA, All cash Public
Fund VII, Ltd. family-style IN, LA, MI, MN,
restaurants OH, SC, TN, TX,
UT, WA
CNL Income 42 fast-food or AZ, FL, IN, LA, All cash Public
Fund VIII, Ltd. family-style MI, MN, NC, NY,
restaurants OH, TN, TX, VA
CNL Income 42 fast-food or AL, FL, GA, IL, IN, All cash Public
Fund IX, Ltd. family-style LA, MI, MN, MS,
restaurants NC, NH, NY, OH,
SC, TN, TX
CNL Income 49 fast-food or AL, CA, CO, FL, All cash Public
Fund X, Ltd. family-style ID, IL, LA, MI,
restaurants MO, MT, NC, NH,
NM, NY, OH, PA,
SC, TN, TX
CNL Income 40 fast-food or AL, AZ, CA, CO, All cash Public
Fund XI, Ltd. family-style CT, FL, KS, LA,
restaurants MA, MI, MS, NC,
NH, NM, OH, OK,
PA, SC, TX, VA,
WA
CNL Income 49 fast-food or AL, AZ, CA, FL, All cash Public
Fund XII, Ltd. family-style GA, LA, MO, MS,
restaurants NC, NM, OH, SC,
TN, TX, WA
CNL Income 49 fast-food or AL, AR, AZ, CA, All cash Public
Fund XIII, Ltd. family-style CO, FL, GA, IN,
restaurants KS, LA, MD, NC,
OH, PA, SC, TN,
TX, VA
CNL Income 62 fast-food or AL, AZ, CO, FL, All cash Public
Fund XIV, Ltd. family-style GA, KS, LA, MN,
restaurants MO, MS, NC, NJ,
NV, OH, SC, TN,
TX, VA
</TABLE>
-68-
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Partnership Property Location Financing Program
- ----------- -------- -------- --------- -------
<S> <C>
CNL Income 54 fast-food or AL, CA, FL, GA, All cash Public
Fund XV, Ltd. family-style KS, KY, MN, MO,
restaurants MS, NC, NJ, NM,
OH, OK, PA, SC,
TN, TX, VA
CNL Income 44 fast-food or AZ, CA, CO, DC, All cash Public
Fund XVI, Ltd. family-style FL, GA, ID, IN, KS,
restaurants MN, MO, NC, NM,
NV, OH, TN, TX,
UT, WI
CNL Income 27 fast-food, CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style or MI, NC, NV, OH,
casual dining SC, TN, TX
restaurants
CNL Income 17 fast-food, CA, GA, KY, MD, All cash Public
Fund XVIII, Ltd. family-style or MN, NC, NV, OH,
casual dining TN, TX
restaurants
</TABLE>
----------------------------------------------------------
A more detailed description of the acquisitions by real estate limited
partnerships sponsored by Messrs. Bourne and Seneff is set forth in prior
performance Table VI, included in Part II of the registration statement filed
with the Securities and Exchange Commission for this offering. A copy of Table
VI is available to stockholders from the Company upon request, free of charge.
In addition, upon request to the Company, the Company will provide, without
charge, a copy of the most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission for CNL Income Fund, Ltd., CNL Income Fund
II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund
V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund
VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund
XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund
XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund
XVII, Ltd., and CNL Income Fund XVIII, Ltd., as well as a copy, for a reasonable
fee, of the exhibits filed with such reports.
In order to provide potential purchasers of Shares in the Company with
information to enable them to evaluate the prior experience of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships,
including those set forth in the foregoing table, certain financial and other
information concerning those limited partnerships with investment objectives
similar to one or more of the Company's investment objectives in which Messrs.
Seneff and Bourne are general partners is provided in the Prior Performance
Tables included as Exhibit C. Information about the previous public
partnerships, the offerings of which became fully subscribed between July 1992
and June 1997, is included therein. Potential stockholders are encouraged to
examine the Prior Performance Tables attached as Exhibit C (in Table III), which
include information as to the operating results of these prior partnerships, for
more detailed information concerning the experience of Messrs. Seneff and
Bourne.
-69-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making quarterly Distributions; (ii)
obtaining fixed income through the receipt of base rent, and increasing the
Company's income (and Distributions) and providing protection against inflation
through automatic increases in base rent and receipt of percentage rent, and
obtaining fixed income through the receipt of payments on Mortgage Loans and
Secured Equipment Leases; (iii) qualifying and remaining qualified as a REIT for
federal income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment, either in whole or in part, within two to seven
years after commencement of this offering, through (a) the Listing of the Shares
of the Company, or, (b) if Listing does not occur by December 31, 2005, the
commencement of orderly Sales of the Company's assets, outside the ordinary
course of business and consistent with its objective of qualifying as a REIT,
and distribution of the proceeds thereof. The sheltering from tax of income from
other sources is not an objective of the Company. If the Company is successful
in achieving its investment and operating objectives, the stockholders (other
than tax-exempt entities) are likely to recognize taxable income in each year.
While there is no order of priority intended in the listing of the Company's
objectives, stockholders should realize that the ability of the Company to meet
these objectives may be severely handicapped by any lack of diversification of
the Company's investments and the terms of the leases.
The Company intends to meet its objectives through its investment
policies of (i) purchasing carefully selected, well-located Properties and
leasing them on a "triple-net" basis (which means that the tenant will be
responsible for paying the cost of all repairs, maintenance, property taxes, and
insurance) to operators of Restaurant Chains under leases requiring the tenant
to pay both base annual rental (including automatic increases in base rent) and
percentage rent based on gross restaurant sales, and (ii) offering Mortgage
Loans and Secured Equipment Leases to operators of Restaurant Chains.
In accordance with its investment policies, the Company intends to
invest in Properties whose tenants are franchisors or franchisees of one of the
Restaurant Chains to be selected by the Company, based upon recommendations by
the Advisor. Although there is no limit on the number of restaurants of a
particular Restaurant Chain which the Company may acquire, the Company currently
does not expect to invest more than 25% of the Gross Proceeds in Properties of
any one Restaurant Chain or to invest more than 30% of the Gross Proceeds in
Properties located in any one state. Potential Mortgage Loan borrowers and
Secured Equipment Lease lessees or borrowers will similarly be operators of
Restaurant Chains selected by the Company, following the Advisor's
recommendations. The Company has undertaken, consistent with its objective of
qualifying as a REIT for federal income tax purposes, to ensure that the value
of all Secured Equipment Leases, in the aggregate, will not exceed 25% of the
Company's total assets, while Secured Equipment Leases to any single lessee or
borrower, in the aggregate, will not exceed 5% of the Company's total assets. It
is intended that investments will be made in Properties, Mortgage Loans, and
Secured Equipment Leases in various locations in an attempt to achieve
diversification and thereby minimize the effect of changes in local economic
conditions and certain other risks. The extent of such diversification, however,
depends in part upon the amount raised in the offering. See "Estimated Use of
Proceeds" and "Risk Factors -- Investment Risks -- Possible Inability to Further
Diversify Investments." For a more complete description of the manner in which
the structure of the Company's business, including its investment policies, will
facilitate the Company's ability to meet its investment objectives, See
"Business."
The investment objectives of the Company may not be changed without the
approval of stockholders owning a majority of the shares of outstanding Common
Stock. The Bylaws of the Company require the Independent Directors to review the
Company's investment policies at least annually to determine that the policies
are in the best interests of the stockholders. The determination shall be set
forth in the minutes of the Board of Directors along with the basis for such
determination. The Directors (including a majority of the Independent Directors)
have the right, without a stockholder vote, to alter the Company's investment
policies but only to the extent consistent with the Company's investment
objectives and investment limitations. See "Certain Investment Limitations,"
below.
-70-
<PAGE>
CERTAIN INVESTMENT LIMITATIONS
In addition to other investment restrictions imposed by the Directors
from time to time, consistent with the Company's objective of qualifying as a
REIT, the Articles of Incorporation or the Bylaws provide for the following
limitations on the Company's investments.
1. Not more than 10% of the Company's total assets shall be invested in
unimproved real property or mortgage loans on unimproved real property. For
purposes of this paragraph, "unimproved real property" does not include any
Property under construction, under contract for development or planned for
development within one year.
2. The Company shall not invest in commodities or commodity future
contracts. This limitation is not intended to apply to interest rate futures,
when used solely for hedging purposes.
3. The Company shall not invest in or make mortgage loans unless an
appraisal is obtained concerning the underlying property. Mortgage indebtedness
on any property shall not exceed such property's appraised value. In cases in
which the majority of Independent Directors so determine, and in all cases in
which the mortgage loan involves the Advisor, Directors, or Affiliates, such
appraisal must be obtained from an independent expert concerning the underlying
property. Such appraisal shall be maintained in the Company's records for at
least five years, and shall be available for inspection and duplication by any
stockholder. In addition to the appraisal, a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or condition
of the title must be obtained. The Company may not invest in real estate
contracts of sale otherwise known as land sale contracts.
4. The Company may not make or invest in mortgage loans, including
construction loans, on any one Property if the aggregate amount of all mortgage
loans outstanding on the Property, including the loans of the Company, would
exceed an amount equal to 85% of the appraised value of the Property as
determined by appraisal unless substantial justification exists because of the
presence of other underwriting criteria. For purposes of this subsection, the
"aggregate amount of all mortgage loans outstanding on the Property, including
the loans of the Company" shall include all interest (excluding contingent
participation in income and/or appreciation in value of the mortgaged property),
the current payment of which may be deferred pursuant to the terms of such
loans, to the extent that deferred interest on each loan exceeds 5% per annum of
the principal balance of the loan.
5. The Company may not make or invest in any mortgage loans that are
subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Directors, or their Affiliates.
6. The Company will not invest in equity securities unless a majority
of the Directors (including a majority of Independent Directors) not otherwise
interested in such transaction approve the transaction as being fair,
competitive, and commercially reasonable and determine that the transaction will
not jeopardize the Company's ability to qualify and remain qualified as a REIT.
Investments in entities affiliated with the Advisor, a Director, the Company, or
Affiliates thereof are subject to the restrictions on joint venture investments.
In addition, the Company shall not invest in any security of any entity holding
investments or engage in activities prohibited by the Company's Articles of
Incorporation.
-71-
<PAGE>
7. The Company will not issue (i) equity securities redeemable solely
at the option of the holder (except that stockholders may offer their Shares to
the Company as described under "Redemption of Shares,"; (ii) debt securities
unless the historical debt service coverage (in the most recently completed
fiscal year), as adjusted for known charges, is sufficient to service that
higher level of debt properly; (iii) Shares on a deferred payment basis or under
similar arrangements; (iv) non-voting or assessable securities; or (v) options,
warrants, or similar evidences of a right to buy its securities (collectively,
"Options") unless (1) issued to all of its stockholders ratably, (2) as part of
a financing arrangement, or (3) as part of a stock option plan available to
Directors, officers, or employees of the Company or the Advisor. Options may not
be issued to the Advisor, Directors or any Affiliate thereof except on the same
terms as such Options are sold to the general public. Options may be issued to
persons other than the Advisor, Directors or any Affiliate thereof but not at
exercise prices less than the fair market value of the underlying securities on
the date of grant and not for consideration that in the judgment of the
Independent Directors has a market value less than the value of such Option on
the date of grant. Options issuable to the Advisor, Directors or any Affiliate
thereof shall not exceed 10% of the outstanding Shares on the date of grant.
8. A majority of the Directors shall authorize the consideration to be
paid for each Property, based on the fair market value of the Property. If a
majority of the Independent Directors determine, or if the Property is acquired
from the Advisor, a Director, or Affiliates thereof, such fair market value
shall be determined by a qualified independent real estate appraiser selected by
the Independent Directors.
9. The Company will not engage in underwriting or the agency
distribution of securities issued by others or in trading, as compared to
investment activities.
10. The Company will not invest in any foreign currency or bullion or
engage in short sales.
11. The Company will not issue senior securities except notes to banks
and other lenders and preferred shares.
12. The Company will not make loans to the Advisor, Directors or their
Affiliates.
13. The Company will not operate so as to be classified as an
"investment company" under the Investment Company Act of 1940, as amended.
14. The Company will not make any investment that the Company believes
will be inconsistent with its objective of qualifying as a REIT.
The foregoing limitations may not be modified or eliminated without the
approval of a majority of the shares of outstanding Common Stock.
-72-
<PAGE>
DISTRIBUTION POLICY
GENERAL
In order to qualify as a REIT for federal income tax purposes, among
other things, the Company must make distributions each taxable year (not
including any return of capital for federal income tax purposes) equal to at
least 95% of its real estate investment trust taxable income, although the Board
of Directors, in its discretion, may increase that percentage as it deems
appropriate. See "Federal Income Tax Considerations -- Taxation of the Company
- -Distribution Requirements." The declaration of Distributions is within the
discretion of the Board of Directors and depends upon the Company's
distributable funds, current and projected cash requirements, tax considerations
and other factors.
DISTRIBUTIONS
The following table reflects the total Distributions and Distributions
per Share declared by the Company for each month since the Company commenced
operations.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
Month Total Per Share Total Per Share Total Per Share
- ----- ----------- --------- ---------- --------- ----------- ---------
<S> <C>
January $ - $ - $225,354 $0.058300 $ 827,978 $0.059375
February - - 255,649 0.058300 884,806 0.059375
March - - 287,805 0.058300 980,573 0.060416
April - - 323,721 0.058300 1,091,142 0.061458
May - - 368,155 0.058300 1,202,718 0.062500
June 15,148 0.030000 407,803 0.058300 1,295,253 0.062500
July 30,682 0.030000 458,586 0.059375 1,403,182 0.062500
August 57,739 0.035000 517,960 0.059375 1,516,974 0.062500
September 84,467 0.050000 559,599 0.059375 1,677,329 0.063540
October 104,733 0.050000 615,914 0.059375
November 155,665 0.058300 683,907 0.059375
December 190,184 0.058300 731,569 0.059375
</TABLE>
The Company intends to make regular Distributions to stockholders. The
payment of Distributions commenced in July 1995. Distributions will be made to
those stockholders who are stockholders as of the record date selected by the
Directors. Distributions will be declared monthly and paid on a quarterly basis
during the offering period and declared and paid quarterly thereafter. The
Company is required to distribute annually at least 95% of its real estate
investment trust taxable income to maintain its objective of qualifying as a
REIT. Generally, income distributed will not be taxable to the Company under
federal income tax laws if the Company complies with the provisions relating to
qualification as a REIT. If the cash available to the Company is insufficient to
pay such Distributions, the Company may obtain the necessary funds by borrowing,
issuing new securities, or selling assets. These methods of obtaining funds
could affect future Distributions by increasing operating costs. To the extent
that Distributions to stockholders exceed earnings and profits, such amounts
constitute a return capital for federal income tax purposes, although such
Distributions will not reduce stockholders' aggregate Invested Capital. For the
years ended December 31, 1996 and 1995, the Company declared and made
Distributions totalling $5,436,072 and $638,618, respectively, of which 90.25%
and 59.82%, respectively, of such amounts were characterized as ordinary income
and 9.75% and 40.18%, respectively, were characterized as return of capital for
federal income tax purposes. For the six months ended June 30, 1997, the Company
declared and made Distributions totalling $6,282,470, 92% of which were
characterized as ordinary income and 8% as return of capital for federal income
tax purposes. However, no amounts distributed to stockholders as of September
17, 1997, are required to be or have been treated by the Company as a return of
capital for purposes of calculating the stockholders' return on their Invested
Capital. Due to the fact that the Company had not acquired all of its Properties
and was still in its offering period as of June 30, 1997, the characterization
of Distributions for federal income tax purposes is not necessarily considered
by management to be representative of the characterization of Distributions in
future years. Distributions in kind shall not be permitted, except for
distributions of readily marketable securities; distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles
of Incorporation; or distributions of in-kind property as long as the Directors
(i) advise each stockholder of the risks associated with direct ownership of the
property; (ii) offer each stockholder the election of receiving in-kind property
distributions; and (iii) distribute in-kind property only to those stockholders
who accept the Directors' offer.
Distributions will be made at the discretion of the Directors,
depending primarily on net cash from operations (which includes cash received
from tenants except to the extent that such cash represents a return of
principal in regard to the lease of a Property consisting of building only,
distributions from joint ventures, and interest income from lessees of Equipment
and borrowers under Mortgage Loans, less expenses paid) and the general
financial condition of the Company, subject to the obligation of the Directors
to cause the Company to qualify and remain qualified as a REIT for federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.
-73-
<PAGE>
SUMMARY OF THE
ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
The Company is organized as a corporation under the laws of the State
of Maryland. As a Maryland corporation, the Company is governed by the Maryland
General Corporation Law. Maryland corporate law deals with a variety of matters
regarding Maryland corporations, including liabilities of the Company,
stockholders, directors, and officers, the amendment of the Articles of
Incorporation, and mergers of a Maryland corporation with other entities. Since
many matters are not addressed by Maryland corporate law, it is customary for a
Maryland corporation to address these matters through provisions in its Articles
of Incorporation.
The Articles of Incorporation and the Bylaws of the Company contain
certain provisions that could make it more difficult to acquire control of the
Company by means of a tender offer, a proxy contest, or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with its Board of Directors.
The Company believes that these provisions increase the likelihood that
proposals initially will be on more attractive terms than would be the case in
their absence and facilitate negotiations which may result in improvement of the
terms of an initial offer.
The Articles of Incorporation also permit Listing by the Board of
Directors after completion or termination of the offering.
The discussion below sets forth material provisions of governing laws,
instruments and guidelines applicable to the Company. For more complete
provisions, reference is made to the Maryland General Corporation Law, the
guidelines for REITs published by the North American Securities Administrators
Association and the Company's Articles of Incorporation and Bylaws.
-74-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has authorized a total of 156,000,000 shares of capital
stock, consisting of 75,000,000 shares of Common Stock, $.01 par value per
share, 3,000,000 shares of Preferred Stock ("Preferred Stock"), and 78,000,000
additional shares of excess stock ("Excess Shares"), $.01 par value per share.
Of the 78,000,000 Excess Shares, 75,000,000 are issuable in exchange for Common
Stock and 3,000,000 are issuable in exchange for Preferred Stock as described
below at "-- Restriction of Ownership." As of September 17, 1997, the Company
had 27,769,272 shares of Common Stock outstanding (including 20,000 issued to
the Advisor prior to the commencement of the Initial Offering and 123,506 Shares
issued pursuant to the Reinvestment Plan) and no Preferred Stock or Excess
Shares outstanding. The Board of Directors may determine to engage in future
offerings of Common Stock of up to the number of unissued authorized shares of
Common Stock available.
The Company will not issue share certificates except to stockholders
who make a written request to the Company. Each stockholder's investment will be
recorded on the books of the Company, and information concerning the
restrictions and rights attributable to Shares (whether in connection with an
initial issuance or a transfer) will be sent to the stockholder receiving Shares
in connection with an issuance or transfer. A stockholder wishing to transfer
his or her Shares will be required to send only an executed form to the Company,
and the Company will provide the required form upon a stockholder's request. The
executed form and any other required documentation must be received by the
Company at least one calendar month prior to the last date of the current
quarter. Subject to restrictions in the Articles of Incorporation, transfers of
Shares shall be effective, and the transferee of the Shares will be recognized
as the holder of such Shares as of the first day of the following quarter on
which the Company receives properly executed documentation. Stockholders who are
residents of New York may not transfer fewer than 250 shares at any time.
Stockholders have no preemptive rights to purchase or subscribe for
securities that the Company may issue subsequently. Each Share is entitled to
one vote per Share, and Shares do not have cumulative voting rights. The
stockholders are entitled to Distributions in such amounts as may be declared by
the Board of Directors from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of the
Company remaining after payment in full of all creditors.
All of the Shares offered hereby will be fully paid and nonassessable
when issued.
The Articles of Incorporation authorize the Board of Directors to
designate and issue from time to time one or more classes or series of Preferred
Shares without stockholder approval. The Board of Directors may determine the
relative rights, preferences, and privileges of each class or series of
Preferred Stock so issued. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of Preferred Stock,
it may afford the holders of any series or class of Preferred Stock preferences,
powers, and rights senior to the rights of holders of Common Stock; however, the
voting rights for each share of Preferred Stock shall not exceed voting rights
which bear the same relationship to the voting rights of the Shares as the
consideration paid to the Company for each share of Preferred Stock bears to the
book value of the Shares on the date that such Preferred Stock is issued. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company. The Board of Directors has no present plans to
issue any Preferred Stock.
Similarly, the voting rights per share of equity securities of the
Company (other than the publicly held equity securities of the Company) sold in
a private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of the publicly held equity securities as the
consideration paid to the Company for each privately offered Company share bears
to the book value of each outstanding publicly held equity security. The Board
of Directors currently has no plans to offer equity securities of the Company in
a private offering.
For a description of the characteristics of the Excess Shares, which
differ from Common Stock and Preferred Stock in a number of respects, including
voting and economic rights, see "Restriction of Ownership," below.
BOARD OF DIRECTORS
The Articles of Incorporation provide that the number of Directors of
the Company cannot be less than three nor more than 15. A majority of the Board
of Directors will be Independent Directors. See "Management -Independent
Directors." Each Director, other than a Director elected to fill the unexpired
term of another Director, will be elected at each annual meeting or at any
special meeting of the stockholders called for that purpose, by a majority of
the shares of Common Stock outstanding and entitled to vote. Independent
Directors will nominate replacements for vacancies among the Independent
Directors. Under the Articles of Incorporation, the term of office for each
Director will be one year, expiring each annual meeting of stockholders;
however, nothing in the Articles of Incorporation prohibits a director from
being reelected by the stockholders. The Directors may not (a) amend the
Articles of Incorporation, except for amendments which do not adversely affect
the rights, preferences and privileges of stockholders; (b) sell all or
substantially all of the Company's assets other than in the ordinary course of
business or in connection with liquidation and dissolution; (c) cause the merger
or other reorganization of the Company; or (d) dissolve or liquidate the
Company, other than before the initial investment in property. The Directors may
establish such committees as they deem appropriate (provided that the majority
of the members of each committee are Independent Directors).
-75-
<PAGE>
STOCKHOLDER MEETINGS
An annual meeting will be held for the purpose of electing Directors
and for the transaction of such other business as may come before the meeting,
and will be held not less than 30 days after delivery of the annual report.
Under the Company's Bylaws, a special meeting of stockholders may be called by
the chief executive officer, a majority of the Directors, or a majority of the
Independent Directors. Special meetings of the stockholders also shall be called
by an officer of the Company upon the written request of stockholders holding in
the aggregate not less than 10% of the outstanding Common Stock entitled to vote
at such meeting. Upon receipt of such a written request, either in person or by
mail, stating the purpose or purposes of the meeting, the Company shall provide
all stockholders, within ten days of receipt of the written request, written
notice, either in person or by mail, of a meeting and its purpose. Such meeting
will be held not less than fifteen nor more than sixty days after distribution
of the notice, at a time and place specified in the request, or if none is
specified, at a time and place convenient to stockholders.
At any meeting of stockholders, each stockholder is entitled to one
vote per share of Common Stock owned of record on the applicable record date. In
general, the presence in person or by proxy of 50% of the shares of Common Stock
then outstanding shall constitute a quorum, and the majority vote of the shares
of Common Stock present in person or by proxy will be binding on all the
stockholders of the Company.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS FOR
DIRECTORS AND PROPOSALS OF NEW BUSINESS
The Bylaws of the Company require notice at least 60 days and not more
than 90 days before the anniversary of the prior annual meeting of stockholders
in order for a stockholder to (a) nominate a Director, or (b) propose new
business other than pursuant to the notice of the meeting or by or on behalf of
the Directors. The Bylaws contain a similar notice requirement in connection
with nominations for Directors at a special meeting of stockholders called for
the purpose of electing one or more Directors. Accordingly, failure to comply
with the notice provisions will make stockholders unable to nominate Directors
or propose new business.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
Pursuant to the Company's Articles of Incorporation, the Directors can
amend the Articles of Incorporation by a two-thirds majority from time to time
if necessary in order to qualify initially or in order to continue to qualify as
a REIT. Except as set forth above, the Articles of Incorporation may be amended
only by the affirmative vote of a majority, and, in some cases a two-thirds
majority, of the shares of Common Stock outstanding and entitled to vote. The
stockholders may vote to amend the Articles of Incorporation, terminate or
dissolve the Company or remove one or more Directors without necessity for
concurrence by the Board of Directors.
MERGERS, COMBINATIONS, AND SALE OF ASSETS
A merger, combination, sale, or other disposition of all or
substantially all of the Company's assets other than in the ordinary course of
business must be approved by the Directors and a majority of the shares of
Common Stock outstanding and entitled to vote. In addition, any such transaction
involving an Affiliate of the Company or the Advisor also must be approved by a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties.
-76-
<PAGE>
TERMINATION OF THE COMPANY AND REIT STATUS
The Articles of Incorporation provide for the voluntary termination and
dissolution of the Company by the affirmative vote of a majority of the shares
of Common Stock outstanding and entitled to vote at a meeting called for that
purpose. In addition, the Articles of Incorporation permit the stockholders to
terminate the status of the Company as a REIT under the Code only by the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding and entitled to vote.
Under the Articles of Incorporation, the Company automatically will
terminate and dissolve on December 31, 2005, unless Listing occurs, in which
event the Company automatically will become a perpetual life entity.
RESTRICTION OF OWNERSHIP
To qualify as a REIT under the Code (i) not more than 50% of the value
of the REIT's outstanding stock may be owned, directly or indirectly (applying
certain attribution rules), by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year, (ii) the
REIT's stock must be beneficially owned (without reference to any attribution
rules) by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year; and (iii)
certain other requirements must be satisfied. See "Federal Income Tax
Considerations -- Taxation of the Company."
To ensure that the Company satisfies these requirements, the Articles
of Incorporation restrict the direct or indirect ownership (applying certain
attribution rules) of shares of Common Stock and Preferred Stock by any Person
(as defined in the Articles of Incorporation) to no more than 9.8% of the
outstanding shares of such Common Stock or 9.8% of any series of Preferred
Shares (the "Ownership Limit"). However, the Articles of Incorporation provide
that this Ownership Limit may be modified, either entirely or with respect to
one or more Persons, by a vote of a majority of the Directors, if such
modification does not jeopardize the Company's status as a REIT. As a condition
of such modification, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the status of the Company as a REIT.
It is the responsibility of each Person (as defined in the Articles of
Incorporation) owning (or deemed to own) more than 5% of the outstanding shares
of Common Stock or any series of outstanding Preferred Stock to give the Company
written notice of such ownership. In addition, to the extent deemed necessary by
the Directors, the Company can demand that each stockholder disclose to the
Company in writing all information regarding the Beneficial and Constructive
Ownership (as such terms are defined in the Articles of Incorporation) of the
Common Stock and Preferred Stock.
If the ownership, transfer or acquisition of shares of Common or
Preferred Stock, or change in capital structure of the Company or other event or
transaction would result in (i) any Person owning (applying certain attribution
rules) Common Stock or Preferred Stock in excess of the Ownership Limit, (ii)
fewer than 100 Persons owning the Common Stock and Preferred Stock, (iii) the
Company being "closely held" within the meaning of section 856(h) of the Code,
or (iv) the Company failing any of the gross income requirements of section
856(c) of the Code or otherwise failing to qualify as a REIT, then the
ownership, transfer, or acquisition, or change in capital structure or other
event or transaction that would have such effect will be void as to the
purported transferee or owner, and the purported transferee or owner will not
have or acquire any rights to the Common Stock and/or Preferred Stock, as the
case may be, to the extent required to avoid such a result. Common Stock or
Preferred Stock owned, transferred or proposed to be transferred in excess of
the Ownership Limit or which would otherwise jeopardize the Company's status as
a REIT will automatically be converted to Excess Shares. A holder of Excess
Shares is not entitled to Distributions, voting rights, and other benefits with
respect to such shares except for the right to payment of the purchase price for
the shares (or, in the case of a devise or gift or similar event which results
in the issuance of Excess Shares, the fair market value at the time of such
devise or gift or event) and the right to certain distributions upon
liquidation. Any Distribution paid to a proposed transferee or holder of Excess
Shares shall be repaid to the Company upon demand. Excess Shares shall be
subject to repurchase by the Company at its election. The purchase price of any
Excess Shares shall be equal to the lesser of (a) the price paid in such
purported transaction (or, in the case of a devise or gift or similar event
resulting in the issuance of Excess Shares, the fair market value at the time of
such devise or gift or event), or (b) the fair market value of such Shares on
the date on which the Company or its designee determines to exercise its
repurchase right. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the purported transferee of any Excess Shares may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
such Excess Shares and to hold such Excess Shares on behalf of the Company.
For purposes of the Articles of Incorporation, the term "Person" shall
mean an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation within the meaning
of Section 509(a) of the Code, joint stock company or other entity, or a group
as that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended; but does not include (i) CNL Fund Advisors, Inc.,
during the period ending on December 31, 1995, or (ii) an underwriter which
participated in a public offering of Shares for a period of sixty (60) days
following the purchase by such underwriter of Shares therein, provided that the
foregoing exclusions shall apply only if the ownership of such Shares by CNL
Fund Advisors, Inc. or an underwriter would not cause the Company to fail to
qualify as a REIT by reason of being "closely held" within the meaning of
Section 856(a) of the code or otherwise cause the Company to fail to qualify as
a REIT.
-77-
<PAGE>
RESPONSIBILITY OF DIRECTORS
Directors serve in a fiduciary capacity and shall have a fiduciary duty
to the stockholders of the Company, which duty shall include a duty to supervise
the relationship of the Company with the Advisor. See "Management -- Fiduciary
Responsibilities of the Board of Directors."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities reasonably incurred by the Indemnitee
in connection with or by reason of any act or omission performed or omitted to
be performed on behalf of the Company while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) the act or omission was material to the loss or liability and
was committed in bad faith or was the result of active or deliberate dishonesty,
(iii) the Indemnitee actually received an improper personal benefit in money,
property, or services, (iv) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful, or (v) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company. In addition,
the Company will not provide indemnification for any loss or liability arising
from an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee and finds that
indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities regulatory authority in which securities of the Company
were offered or sold as to indemnification for violations of securities laws.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer, Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) the Indemnitee provides the Company with
a written agreement to repay the amount paid or reimbursed by the Company,
together with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee did not comply with the requisite standard of
conduct, and (iv) the legal proceeding was initiated by a third party who is not
a stockholder or, if by a stockholder of the Company acting in his or her
capacity as such, a court of competent jurisdiction approves such advancement.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the Company,
and no portion may be recoverable from the stockholders.
There are certain defenses under Maryland law available to the
Directors, officers and the Advisor in the event of a stockholder action against
them. One such defense is the "business judgment rule." A Director, officer or
the Advisor can argue that he or she performed the action giving rise to the
stockholder's action in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company, and with such care as an ordinarily
prudent person in a like position would have used under similar circumstances.
The Directors, officers and the Advisor are also entitled to rely on
information, opinions, reports or records prepared by experts (including
accountants, consultants, counsel, etc.) who were selected with reasonable care.
However, the Directors, officers and the Advisor may not invoke the business
judgment rule to further limit the rights of the stockholders to access records
as provided in the Articles of Incorporation.
The Company has entered into indemnification agreements with each of
the Company's officers and Directors. The indemnification agreements require,
among other things, that the Company indemnify its officers and Directors to the
fullest extent permitted by law, and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. In accordance with this agreement, the Company
must indemnify and advance all expenses reasonably incurred by officers and
Directors seeking to enforce their rights under the indemnification agreements.
The Company also must cover officers and Directors under the Company's
directors' and officers' liability insurance. Although these indemnification
agreements offer substantially the same scope of coverage afforded by the
indemnification provisions in the Articles of Incorporation and the Bylaws, it
provides greater assurance to Directors and officers that indemnification will
be available because these contracts cannot be modified unilaterally by the
Board of Directors or by the stockholders.
-78-
<PAGE>
REMOVAL OF DIRECTORS
Under the Articles of Incorporation, a Director may resign or be
removed with or without cause by the affirmative vote of a majority of the
capital stock of the Company outstanding and entitled to vote.
INSPECTION OF BOOKS AND RECORDS
The Advisor will keep, or cause to be kept, on behalf of the Company,
full and true books of account on an accrual basis of accounting, in accordance
with generally accepted accounting principles. All of such books of account,
together with all other records of the Company, including a copy of the Articles
of Incorporation and any amendments thereto, will at all times be maintained at
the principal office of the Company, and will be open to inspection,
examination, and, for a reasonable charge, duplication upon reasonable notice
and during normal business hours by a stockholder or his agent.
As a part of its books and records, the Company will maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses and telephone numbers and the number of Shares held by each
stockholder. Such list shall be updated at least quarterly and shall be
available for inspection at the Company's home office by a stockholder or his or
her designated agent upon such stockholder's request. Such list also shall be
mailed to any stockholder requesting the list within 10 days of a request. The
Company may require the stockholder requesting the stockholder list to represent
that he or she will not make any commercial distribution of such list or the
information disclosed through such inspection. The Company may impose a
reasonable charge for expenses incurred in reproducing such list. The list may
not be sold or used for commercial purposes.
-79-
<PAGE>
RESTRICTIONS ON "ROLL-UP" TRANSACTIONS
In connection with a proposed Roll-Up Transaction, which, in general
terms, is any transaction involving the acquisition, merger, conversion, or
consolidation, directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity that would be created or would survive after the
successful completion of the Roll-Up Transaction, an appraisal of all Properties
shall be obtained from an Independent Expert. In order to qualify as an
Independent Expert for this purpose(s), the person or entity shall have no
material current or prior business or personal relationship with the Advisor or
Directors and shall be engaged to a substantial extent in the business of
rendering opinions regarding the value of assets of the type held by the
Company. The Properties shall be appraised on a consistent basis, and the
appraisal shall be based on the evaluation of all relevant information and shall
indicate the value of the Properties as of a date immediately prior to the
announcement of the proposed Roll-Up Transaction. The appraisal shall assume an
orderly liquidation of Properties over a 12-month period. The terms of the
engagement of such Independent Expert shall clearly state that the engagement is
for the benefit of the Company and the stockholders. A summary of the
independent appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to stockholders in connection with a
proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction
which has not been approved by at least two-thirds of the stockholders, the
person sponsoring the Roll-Up Transaction shall offer to stockholders who vote
against the proposal the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
(ii) one of the following:
(A) remaining stockholders of the Company and preserving their
interests therein on the same terms and conditions as existed
previously; or
(B) receiving cash in an amount equal to the stockholder's pro
rata share of the appraised value of the net assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(i) which would result in the stockholders having democracy rights in
the Roll-Up Entity that are less than those provided in the Company's Articles
of Incorporation, Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 and described
elsewhere in this Prospectus, including rights with respect to the election and
removal of Directors, annual reports, annual and special meetings, amendment of
the Articles of Incorporation, and dissolution of the Company. (See "Description
of Capital Stock" and "Stockholder Meetings," above);
(ii) which includes provisions that would operate as a material
impediment to, or frustration of, the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity), or which would limit the ability
of an investor to exercise the voting rights of its securities of the Roll-Up
Entity on the basis of the number of shares held by that investor;
(iii) in which investor's rights to access of records of the Roll-Up
Entity will be less than those provided in Sections 8.4 and 8.5 of the Company's
Articles of Incorporation and described in "Inspection of Books and Records,"
above; or
(iv) in which any of the costs of the Roll-Up Transaction would be
borne by the Company if the Roll-Up Transaction is not approved by the
stockholders.
-80-
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax
consequences of the ownership of Shares of the Company, prepared by Shaw,
Pittman, Potts & Trowbridge, as Counsel. This discussion is based upon the laws,
regulations, and reported judicial and administrative rulings and decisions in
effect as of the date of this Prospectus, all of which are subject to change,
retroactively or prospectively, and to possibly differing interpretations. This
discussion does not purport to deal with the federal income or other tax
consequences applicable to all investors in light of their particular investment
or other circumstances, or to all categories of investors, some of whom may be
subject to special rules (including, for example, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States). No ruling on the federal, state or local tax considerations relevant to
the operation of the Company, or to the purchase, ownership or disposition of
the Shares, has been requested from the Internal Revenue Service (the "IRS" or
the "Service") or other tax authority. Counsel has rendered certain opinions
discussed herein and believes that if the Service were to challenge the
conclusions of Counsel, such conclusions should prevail in court. However,
opinions of counsel are not binding on the Service or on the courts, and no
assurance can be given that the conclusions reached by Counsel would be
sustained in court. Prospective investors should consult their own tax advisors
in determining the federal, state, local, foreign and other tax consequences to
them of the purchase, ownership and disposition of the Shares of the Company,
the tax treatment of a REIT and the effect of potential changes in applicable
tax laws.
-81-
<PAGE>
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT for federal
income tax purposes, as defined in Sections 856 through 860 of the Code,
commencing with its taxable year ending December 31, 1995. The Company believes
that it is organized and will operate in such a manner as to qualify as a REIT,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT. The provisions of the Code pertaining to REITs are
highly technical and complex. Accordingly, this summary is qualified in its
entirety by the applicable Code sections, rules and regulations issued
thereunder, and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on its net income that is currently
distributed to holders of Shares. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to federal income tax in the following circumstances. First, the Company will be
taxed at regular corporate rates on any undistributed real estate investment
trust taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the alternative minimum tax
on its items of tax preference. Third, if the Company has net income from
foreclosure property, it will be subject to tax on such income at the highest
corporate rate. Foreclosure property generally means real property (and any
personal property incident to such real property) which is acquired as a result
of a default either on a lease of such property or on indebtedness which such
property secured and with respect to which an appropriate election is made.
Fourth, if the Company has net income derived from prohibited transactions, such
income will be subject to a 100% tax. A prohibited transaction generally
includes a sale or other disposition of property (other than foreclosure
property) that is held primarily for sale to customers in the ordinary course of
business. Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the net income attributable to the
greater of the amount by which the Company fails the 75% or 95% test. Sixth, if,
during each calendar year, the Company fails to distribute at least the sum of
(i) 85% of its real estate investment trust ordinary income for such year; (ii)
95% of its real estate investment trust capital gain net income for such year;
and (iii) any undistributed taxable income from prior periods, the Company will
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed.
If the Company fails to qualify as a REIT for any taxable year and
certain relief provisions do not apply, the Company will be subject to federal
income tax (including alternative minimum tax) as an ordinary corporation on its
taxable income at regular corporate rates without any deduction or adjustment
for distributions to holders of Shares. To the extent that the Company would, as
a consequence, be subject to tax liability for any such taxable year, the amount
of cash available for satisfaction of its liabilities and for distribution to
holders of Shares would be reduced. Distributions made to holders of Shares
generally would be taxable as ordinary income to the extent of current and
accumulated earnings and profits and, subject to certain limitations, would be
eligible for the corporate dividends received deduction, but there can be no
assurance that any such Distributions would be made. The Company would not be
eligible to elect REIT status for the four taxable years after the taxable year
it failed to qualify as a REIT, unless its failure to qualify was due to
reasonable cause and not willful neglect and certain other requirements were
satisfied.
Opinion of Counsel. Based upon representations made by officers of the
Company with respect to relevant factual matters, upon the existing Code
provisions, rules and regulations promulgated thereunder and reported
administrative and judicial interpretations thereof, upon Counsel's independent
review of such documents as Counsel deemed relevant in the circumstances and
upon the assumption that the Company will operate in the manner described in
this Prospectus, Counsel has advised the Company that, in its opinion, the
Company qualified as a REIT under the Code for the taxable years ending through
December 31, 1996, the Company is organized in conformity with the requirements
for qualification as a REIT, and the Company's proposed method of operation will
enable it to meet the requirements for qualification as a REIT. It must be
emphasized, however, that the Company's ability to qualify and remain qualified
as a REIT is dependent upon actual operating results and future actions by and
events involving the Company and others, and no assurance can be given that the
actual results of the Company's operations and future actions and events will
enable the Company to satisfy in any given year the requirements for
qualification and taxation as a REIT.
Requirements for Qualification as a REIT. As discussed more fully
below, the Code defines a REIT as a corporation, trust or association (i) which
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable, but for Sections 856 through
860 of the Code, as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company; (v) the beneficial ownership of which is
held (without reference to any rules of attribution) by 100 or more persons;
(vi) which is not closely held as defined in section 856(h) of the Code; and
(vii) which meets certain other tests regarding the nature of its assets and
income and the amount of its distributions.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership attributed to the REIT shall
retain the same character as in the hands of the partnership for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
asset tests described below. Thus, the Company's proportionate share of the
assets, liabilities and items of income of any Joint Venture, as described in
"Business -- Joint Venture Arrangements," will be treated as assets, liabilities
and items of income of the Company for purposes of applying the asset and gross
income tests described herein.
Ownership Tests. The ownership requirements for qualification as a REIT
are that (i) during the last half of each taxable year not more than 50% in
value of the REIT's outstanding shares may be owned, directly or indirectly
(applying certain attribution rules), by five or fewer individuals (or certain
entities as defined in the Code) and (ii) there must be at least 100
stockholders (without reference to any attribution rules) on at least 335 days
of such 12-month taxable year (or a proportionate number of days of a short
taxable year). These two requirements
-82-
<PAGE>
do not apply to the first taxable year for which an election is made to be
treated as a REIT. In order to meet these requirements for subsequent taxable
years, or to otherwise obtain, maintain, or reestablish REIT status, the
Articles of Incorporation generally prohibit any person or entity from actually,
constructively or beneficially acquiring or owning (applying certain attribution
rules) more than 9.8% of the outstanding Common Stock or 9.8% of any series of
outstanding Preferred Stock. Among other provisions, the Articles of
Incorporation empower the Board of Directors to redeem, at its option, a
sufficient number of Shares to bring the ownership of Shares of the Company in
conformity with these requirements or to assure continued conformity with such
requirements.
Under the Articles of Incorporation, each holder of Shares is required,
upon demand, to disclose to the Board of Directors in writing such information
with respect to actual, constructive or beneficial ownership of Shares of the
Company as the Board of Directors deems necessary to comply with provisions of
the Code applicable to the Company or the provisions of the Articles of
Incorporation, or the requirements of any other appropriate taxing authority.
Certain Treasury regulations govern the method by which the Company is required
to demonstrate compliance with these stock ownership requirements and the
failure to satisfy such regulations could cause the Company to fail to qualify
as a REIT. The Company has represented that it expects to meet these stock
ownership requirements for each taxable year and it will be able to demonstrate
its compliance with these requirements.
Asset Tests. At the end of each quarter of a REIT's taxable year, at
least 75% of the value of its total assets must consist of "real estate assets,"
cash and cash items (including receivables) and certain government securities.
The balance of a REIT's assets generally may be invested without restriction,
except that holdings of securities not within the 75% class of assets generally
must not, with respect to any issuer, exceed 5% of the value of the REIT's
assets or 10% of the issuer's outstanding voting securities. The term "real
estate assets" includes real property, interests in real property, leaseholds of
land or improvements thereon, and mortgages on the foregoing and any property
attributable to the temporary investment of new capital (but only if such
property is stock or a debt instrument and only for the one-year period
beginning on the date the REIT receives such capital). When a mortgage is
secured by both real property and other property, it is considered to constitute
a mortgage on real property to the extent of the fair market value of the real
property when the REIT is committed to make the loan (or, in the case of a
construction loan, the reasonably estimated cost of construction). Initially,
the bulk of the Company's assets will be real property. However, the Company
will also hold the Secured Equipment Leases. Counsel is of the opinion, based on
certain assumptions, that the Secured Equipment Leases will be treated as loans
secured by personal property for federal income tax purposes. See "Federal
Income Tax Considerations -- Characterization of the Secured Equipment Leases."
Therefore, the Secured Equipment Leases will not qualify as "real estate
assets." However, the Company has represented that at the end of each quarter
the value of the Secured Equipment Leases, together with any personal property
owned by the Company, has in the aggregate represented and will represent less
than 25% of the Company's total assets and that the value of the Secured
Equipment Leases entered into with any particular tenant or borrower has
represented and will represent less than 5% of the Company's total assets. No
independent appraisals will be acquired to support this representation, and
Counsel, in rendering its opinion as to the qualification of the Company as a
REIT, is relying on the conclusions of the Company and its senior management as
to the relative values of its assets. There can be no assurance however, that
the IRS may not contend that either (i) the value of the Secured Equipment
Leases entered into with any particular tenant or borrower represents more than
5% of the Company's total assets, or (ii) the value of the Secured Equipment
Leases, together with any personal property owned by the Company, exceeds 25% of
the Company's total assets.
As indicated in "Business -- Joint Venture Arrangements," the Company
may participate in Joint Ventures. If a Joint Venture were classified, for
federal income tax purposes, as an association taxable as a corporation rather
than as a partnership, the Company's ownership of a 10% or greater interest in
the Joint Venture would cause the Company to fail to meet the requirement that
it not own 10% or more of an issuer's voting securities. However, Counsel is of
the opinion, based on certain assumptions, that any Joint Ventures will
constitute partnerships for federal income tax purposes. See "Federal Income Tax
Considerations -- Investment in Joint Ventures."
Income Tests. A REIT also must meet three separate tests with respect
to its sources of gross income for each taxable year.
(a) The 75 Percent and 95 Percent Tests. In general, at least 75% of a
REIT's gross income for each taxable year must be from "rents from real
property," interest on obligations secured by mortgages on real property, gains
from the sale or other disposition of real property and certain other sources,
including "qualified temporary
-83-
<PAGE>
investment income." For these purposes, "qualified temporary investment income"
means any income (i) attributable to a stock or debt instrument purchased with
the proceeds received by the REIT in exchange for stock (or certificates of
beneficial interest) in such REIT (other than amounts received pursuant to a
dividend reinvestment plan) or in a public offering of debt obligations with a
maturity of at least five years and (ii) received or accrued during the one-year
period beginning on the date the REIT receives such capital. In addition, a REIT
must derive at least 95% of its gross income for each taxable year from any
combination of the items of income which qualify under the 75% test, from
dividends and interest, and from gains from the sale, exchange or other
disposition of certain stock and securities.
Initially, the bulk of the Company's income will be derived from rents
with respect to the Properties. Rents from Properties received by the Company
qualify as "rents from real property" in satisfying these two tests only if
several conditions are met. First, the rent must not be based in whole or in
part, directly or indirectly, on the income or profits of any person. An amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" if the REIT, or a
direct or indirect owner of 10% or more of the REIT owns, directly or
constructively, 10% or more of such tenant (a "Related Party Tenant"). Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, for rents to qualify as "rents from real
property," a REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue, except that a REIT
may directly perform services which are "usually or customarily rendered" in
connection with the rental of space for occupancy, other than services which are
considered to be rendered to the occupant of the property.
The Company has represented that it will not (i) charge rent for any
Property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage or percentages of
receipts or sales, as described above); (ii) charge rent that will be
attributable to personal property in an amount greater than 15% of the total
rent received under the applicable lease; (iii) directly perform services
considered to be rendered to the occupant of a Property or which are not usually
or customarily furnished or rendered in connection with the rental of real
property; or (iv) enter into any lease with a Related Party Tenant.
Specifically, the Company expects that virtually all of its income will be
derived from leases of the type described in "Business -- Description of
Leases," and it does not expect such leases to generate income that would not
qualify as rents from real property for purposes of the 75% and 95% income
tests.
In addition, the Company will be paid interest on the Mortgage Loans.
All interest income qualifies under the 95% gross income test. If a Mortgage
Loan is secured by both real property and other property, all the interest on it
will qualify under the 75% gross income test if the amount of the loan did not
exceed the fair market value of the real property at the time of the loan
commitment. The Company anticipates this will always be the case.
The Company will also receive payments under the terms of the Secured
Equipment Leases. Although the Secured Equipment Leases will be structured as
leases or loans, Counsel is of the opinion that, subject to certain assumptions,
they will be treated as loans secured by personal property for federal income
tax purposes. See "Federal Income Tax Considerations -- Characterization of the
Secured Equipment Leases." If the Secured Equipment Leases are treated as loans
secured by personal property for federal income tax purposes then, the portion
of the payments under the terms of the Secured Equipment Leases that represent
interest, rather than a return of capital for federal income tax purposes, will
not satisfy the 75% gross income test (although it will satisfy the 95% gross
income test). The Company believes, however, that the aggregate amount of such
non-qualifying income will not cause the Company to exceed the limits on
non-qualifying income under the 75% gross income test.
If, contrary to the opinion of Counsel, the Secured Equipment Leases
are treated as true leases, rather than as loans secured by personal property
for federal income tax purposes, the payments under the terms of the Secured
Equipment Leases would be treated as rents from personal property. Rents from
personal property will satisfy either the 75% or 95% gross income tests if they
are received in connection with a lease of real property and the rent
attributable to the personal property does not exceed 15% of the total rent
received from the tenant in connection with the lease. However, if rents
attributable to personal property exceed 15% of the total rent received from a
-84-
<PAGE>
particular tenant, then the portion of the total rent attributable to personal
property will not satisfy either the 75% or 95% gross income tests.
If, notwithstanding the above, the Company fails to satisfy one or both
of the 75% or 95% tests for any taxable year, it may still qualify as a REIT if
(i) such failure is due to reasonable cause and not willful neglect; (ii) it
reports the nature and amount of each item of its income on a schedule attached
to its tax return for such year; and (iii) the reporting of any incorrect
information is not due to fraud with intent to evade tax. However, even if these
three requirements are met and the Company is not disqualified as a REIT, a
penalty tax would be imposed by reference to the amount by which the Company
failed the 75% or 95% test (whichever amount is greater).
(b) The 30 Percent Test. In addition to the 75% and 95% tests for each
taxable year, a REIT must derive less than 30% of its gross income from the sale
or other disposition of (i) real property held for less than four years (other
than foreclosure property or property involuntarily or compulsorily converted
through destruction, condemnation or similar events); (ii) stock or securities
held for less than one year; and (iii) property sold or otherwise disposed of in
a prohibited transaction. The Company has represented that it does not expect
that it will recognize gross income of a type, in an amount or at a time which
would cause it to fail the 30% test. As noted above, the Company plans, if
Listing does not occur within ten years after the commencement of this offering,
to commence with the orderly Sale of its Properties and distribute the proceeds
thereof. In the event of such a Sale of Properties, it is possible that income
derived from the Sale could be treated as income from prohibited transactions
and taken into account in applying the 30% gross income test. The Company
believes that at the time any of the Properties are sold none of the Properties
will be primarily held for sale to customers and that any sale of the Properties
will not be in the ordinary course of business. However, whether property is
held primarily for sale to customers in the ordinary course of business depends
on the facts and circumstances in effect from time to time, including those
related to a particular property. In addition, no assurance can be given that
the Company can (a) comply with certain safe-harbor provisions of the Code which
provide that certain sales do not constitute prohibited transactions or (b)
avoid owning property that may be characterized as property held primarily for
sale to customers in the ordinary course of business.
(c) The Impact of Default Under the Secured Equipment Leases. In
applying the gross income tests to the Company, it is necessary to consider the
impact that a default under one or more of the Secured Equipment Leases would
have on the Company's ability to satisfy such tests. A default under one or more
of the Secured Equipment Leases would result in the Company directly holding the
Equipment securing such leases for federal income tax purposes. In the event of
a default, the Company may choose to either lease or sell such Equipment.
However, any income resulting from a rental or sale of Equipment not
incidental to the rental or sale of real property would not qualify under the
75% and 95% gross income tests, and any income from a sale of such assets would
count as gain from the sale of assets for purposes of the 30% gross income test.
In addition, in certain circumstances, income derived from a sale or other
disposition of Equipment could be considered "net income from prohibited
transactions," subject to a 100% tax. The Company does not, however, anticipate
that its income from the rental or sale of Equipment would be material in any
taxable year.
Distribution Requirements. A REIT must distribute to its stockholders
for each taxable year ordinary income dividends in an amount equal to at least
(a) 95% of the sum of (i) its "real estate investment trust taxable income"
(before deduction of dividends paid and excluding any net capital gains) and
(ii) the excess of net income from foreclosure property over the tax on such
income, minus (b) certain excess non-cash income. Real estate investment trust
taxable income generally is the taxable income of a REIT computed as if it were
an ordinary corporation, with certain adjustments. Distributions must be made in
the taxable year to which they relate or, if declared before the timely filing
of the REIT's tax return for such year and paid not later than the first regular
dividend payment after such declaration, in the following taxable year.
The Company has represented that it intends to make Distributions to
stockholders that will be sufficient to meet the 95% distribution requirement.
Under some circumstances, however, it is possible that the Company may not have
sufficient funds from its operations to make cash Distributions to satisfy the
95% distribution requirement. For example, in the event of the default or
financial failure of one or more tenants or lessees, the Company might be
required to continue to accrue rent for some period of time under federal income
tax principles even though the Company would not currently be receiving the
corresponding amounts of cash. Similarly, under federal income tax
-85-
<PAGE>
principles, the Company might not be entitled to deduct certain expenses at the
time those expenses are incurred. In either case, the Company's cash available
for making Distributions might not be sufficient to satisfy the 95% distribution
requirement. If the cash available to the Company is insufficient, the Company
might raise cash in order to make the Distributions by borrowing funds, issuing
new securities or selling assets. If the Company ultimately were unable to
satisfy the 95% distribution requirement, it would fail to qualify as a REIT
and, as a result, would be subject to federal income tax as an ordinary
corporation without any deduction or adjustment for dividends paid to holders of
the Shares. If the Company fails to satisfy the 95% distribution requirement, as
a result of an adjustment to its tax returns by the Service, under certain
circumstances, it may be able to rectify its failure by paying a "deficiency
dividend" (plus a penalty and interest) within 90 days after such adjustment.
This deficiency dividend will be included in the Company's deductions for
dividends paid for the taxable year affected by such adjustment. However, the
deduction for a deficiency dividend will be denied, if any part of the
adjustment resulting in the deficiency is attributable to fraud with intent to
evade tax or to willful failure to timely file an income tax return.
TAXATION OF STOCKHOLDERS
Taxable Domestic Stockholders. For any taxable year in which the
Company qualifies as a REIT for federal income tax purposes, Distributions made
by the Company to its stockholders that are United States persons (generally,
any person other than a nonresident alien individual, a foreign trust or estate
or a foreign partnership or corporation) generally will be taxed as ordinary
income. Amounts received by such United States persons that are properly
designated as capital gain dividends by the Company generally will be taxed as
long-term capital gain, without regard to the period for which such person has
held its Shares, to the extent that they do not exceed the Company's actual net
capital gain for the taxable year. Corporate stockholders may be required to
treat up to 20% of certain capital gains dividends as ordinary income. Such
ordinary income and capital gain are not eligible for the dividends received
deduction allowed to corporations. Distributions to such United States persons
in excess of the Company's current or accumulated earnings and profits will be
considered first a tax-free return of capital for federal income tax purposes,
reducing the tax basis of each stockholder's Shares, and then, to the extent the
Distribution exceeds each stockholder's basis, a gain realized from the sale of
Shares. The Company will notify each stockholder as to the portions of each
Distribution which, in its judgment, constitute ordinary income, capital gain or
return of capital for federal income tax purposes. Any Distribution that is (i)
declared by the Company in October, November or December of any calendar year
and payable to stockholders of record on a specified date in such months and
(ii) actually paid by the Company in January of the following year, shall be
deemed to have been received by each stockholder on December 31 of such calendar
year and, as a result, will be includable in gross income of the stockholder for
the taxable year which includes such December 31. Stockholders who elect to
participate in the Reinvestment Plan will be treated as if they received a cash
Distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. Stockholders may not deduct on their income tax
returns any net operating or net capital losses of the Company.
Upon the sale or other disposition of the Company's Shares, a
stockholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the sale or other disposition and the
adjusted basis of the Shares involved in the transaction. Such gain or loss will
be long-term capital gain or loss if, at the time of sale or other disposition,
the Shares involved have been held for more than one year. In addition, if a
stockholder receives a capital gain dividend with respect to Shares which he has
held for six months or less at the time of sale or other disposition, any loss
recognized by the stockholder will be treated as long-term capital loss to the
extent of the amount of the capital gain dividend that was treated as long-term
capital gain.
Generally, the redemption of Shares by the Company will result in
recognition of ordinary income by the stockholder unless the stockholder
completely terminates or substantially reduces his or her interest in the
Company. A redemption of Shares for cash will be treated as a distribution that
is taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits at the time of the redemption under Section 302 of the Code
unless the redemption (a) results in a "complete termination" of the
stockholder's interest in the Company under Section 302(b)(3) of the Code, (b)
is "substantially disproportionate" with respect to the stockholder under
Section 302(b)(2) of the Code, or (c) is "not essentially equivalent to a
dividend" with respect to the stockholder under Section 302(b)(1) of the Code.
Under Code Section 302(b)(2) a redemption is considered "substantially
disproportionate" if the percentage of the voting stock of the corporation owned
by a stockholder immediately after the redemption is less than eighty percent of
the percentage of the voting stock of the corporation owned by such
-86-
<PAGE>
stockholder immediately before the redemption. In determining whether the
redemption is not treated as a dividend, Shares considered to be owned by a
stockholder by reason of certain constructive ownership rules set forth in
Section 318 of the Code, as well as Shares actually owned, must generally be
taken into account. A distribution to a stockholder will be "not essentially
equivalent to a dividend" if its results in a "meaningful reduction" in the
stockholder's interest in the Company. The Service has published a ruling
indicating that a redemption which results in a reduction in the proportionate
interest in a corporation (taking into account the Section 318 constructive
ownership rules) of a stockholder whose relative stock interest is minimal (an
interest of less than 1% should satisfy this requirement) and who exercises no
control over the corporation's affairs should be treated as being "not
essentially equivalent to a dividend."
If the redemption is not treated as a dividend, the redemption of the
Shares for cash will result in taxable gain or loss equal to the difference
between the amount of cash received and the stockholder's tax basis in the
Shares redeemed. Such gain or loss would be capital gain or loss if the Shares
were held as a capital asset and would be long-term capital gain or loss if the
holding period for the Shares exceeds one year.
The Company will report to its U.S. stockholders and the Service the
amount of dividends paid or treated as paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with a correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid to the Service as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain dividends to any stockholders who fail to certify their non-foreign
status to the Company. See "Foreign Stockholders" below.
The state and local income tax treatment of the Company and its
stockholders may not conform to the federal income tax treatment described
above. As a result, stockholders should consult their own tax advisors for an
explanation of how other state and local tax laws would affect their investment
in Shares.
Tax-Exempt Stockholders. Dividends paid by the Company to a stockholder
that is a tax-exempt entity generally will not constitute "unrelated business
taxable income" ("UBTI") as defined in Section 512(a) of the Code, provided that
the tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of Section 524(c) of the Code and
the Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
Notwithstanding the foregoing, qualified trusts that hold more than 10%
(by value) of the shares of certain REITs may be required to treat a certain
percentage of such REIT's distributions as UBTI. This requirement will apply
only if (i) treating qualified trusts holding REIT shares as individuals would
result in a determination that the REIT is "closely held" within the meaning of
Section 856(h)(1) of the Code and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is predominantly held if either (i) a single qualified
trust holds more than 25% by value of the REIT interests or (ii) one or more
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The restrictions on ownership of Shares in the
Articles of Incorporation will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt entities purchasing Shares
in the Company, absent a waiver of the restrictions by the Board of Directors.
See "Summary of the Articles of Incorporation and Bylaws -- Restriction of
Ownership."
Assuming that there is no waiver of the restrictions on ownership of
Shares in the Articles of Incorporation and that a tax-exempt stockholder does
not finance the acquisition of its Shares with "acquisition indebtedness" within
the meaning of Section 524(c) of the Code or otherwise use its Shares in an
unrelated trade or business, in the opinion of Counsel the distributions of the
Company with respect to such tax-exempt stockholder will not constitute UBTI.
-87-
<PAGE>
The tax discussion of distributions by qualified retirement plans,
IRAs, Keogh plans and other tax-exempt entities is beyond the scope of this
discussion, and such entities should consult their tax adviser regarding such
questions.
Foreign Stockholders. The rules governing United States federal income
taxation of nonresident alien individuals, foreign corporations, foreign
participants and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. The following discussion assumes that the income
from investment in the Shares will not be effectively connected with the
Non-U.S. Stockholders' conduct of a United States trade or business. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local laws with regard to an investment in
Shares, including any reporting requirements. Non-U.S. Stockholders will be
admitted as stockholders with the approval of the Advisor.
Dividends that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gain dividends will be treated as ordinary income to the
extent that they are made out of current and accumulated earnings and profits of
the Company. Such dividends ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the dividend, unless an applicable tax
treaty reduces or eliminates that tax. The Company expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any such dividends paid to
a Non-U.S. Stockholder unless (i) a lower treaty rate applies and the Non-U.S.
Stockholder has filed the required IRS Form 1001 with the Company or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
dividend is effectively connected income. Dividends in excess of the Company's
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that such dividends paid do not exceed the adjusted
basis of the stockholder's Shares, but rather will reduce the adjusted basis of
such Shares. To the extent that dividends in excess of current and accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Stockholders'
Shares, such dividends will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of the Shares, as described below. If it cannot be determined at the
time a dividend is paid whether or not such dividend will be in excess of
current and accumulated earnings and profits, the dividends will be subject to
withholding at the rate of 30%. However, a Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
dividend was, in fact, in excess of the Company's current and accumulated
earnings and profits.
For any year in which the Company qualifies as a REIT, dividends that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, dividends attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Stockholder as if
such gain were effectively connected with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
dividends subject to FIRPTA may be subject to a 30% branch profits tax in the
hands of a foreign corporate stockholder not entitled to treaty exemption. The
Company is required by applicable Treasury Regulations to withhold 35% of any
distribution that could be designated by the Company as a capital gain dividend.
This amount is creditable against the Non-U.S. Stockholders' FIRPTA tax
liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and in such case the sale of Shares
would not be subject to taxation under FIRPTA. However, gain not subject to
FIRPTA nonetheless will be taxable to a Non-U.S. Stockholder if (i) investment
in the Shares is treated as "effectively connected" with the Non-U.S.
Stockholders' U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. Stockholders with respect to such
gain or (ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
either the individual has a "tax home" in the United States or the gain is
attributable to an office or other fixed place of business maintained by the
individual in the United States, in which case the nonresident alien individual
will be subject to a 30% tax on capital gains from sales of Shares. If the gain
on the sale of Shares were to be subject to taxation under FIRPTA, the NonU.S.
Stockholder would be subject to the same treatment as U.S. Stockholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
and the purchaser of the Shares would be required to withhold and remit to the
Service 10% of the purchase price.
-88-
<PAGE>
STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state and local
taxes in various states and localities in which it or they transact business,
own property, or reside. The tax treatment of the Company and the shareholders
in such jurisdictions may differ from the federal income tax treatment described
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws upon an investment in
the Common Stock of the Company.
CHARACTERIZATION OF PROPERTY LEASES
The Company will purchase both new and existing Properties and lease
them to franchisees or corporate franchisors pursuant to leases of the type
described in "Business -- Description of Property Leases." The ability of the
Company to claim certain tax benefits associated with ownership of the
Properties, such as depreciation, depends on a determination that the lease
transactions engaged in by the Company are true leases, under which the Company
is the owner of the leased Property for federal income tax purposes, rather than
a conditional sale of the Property or a financing transaction. A determination
by the Service that the Company is not the owner of the Properties for federal
income tax purposes may have adverse consequences to the Company, such as the
denying of the Company's depreciation deductions. Moreover, a denial of the
Company's depreciation deductions could result in a determination that the
Company's Distributions to stockholders were insufficient to satisfy the 95%
distribution requirement for qualification as a REIT. However, as discussed
above, if the Company has sufficient cash, it may be able to remedy any past
failure to satisfy the distribution requirements by paying a "deficiency
dividend" (plus a penalty and interest). See "Distribution Requirements," above.
Furthermore, in the event that the Company were determined not to be the owner
of a particular Property, in the opinion of Counsel the income that the Company
would receive pursuant to the recharacterized lease would constitute interest
qualifying under the 95% and 75% gross income tests by reason of being interest
on an obligation secured by a mortgage on an interest in real property, because
the legal ownership structure of such Property will have the effect of making
the building serve as collateral for the debt obligation.
The characterization of transactions as leases, conditional sales, or
financings has been addressed in numerous cases. The courts have not identified
any one factor as being determinative of whether the lessor or the lessee of
property is to be treated as the owner. Judicial decisions and pronouncements of
the Service with respect to the characterization of transactions as either
leases, conditional sales, or financing transactions have made it clear that the
characterization of leases for tax purposes is a question which must be decided
on the basis of a weighing of many factors, and courts have reached different
conclusions even where characteristics of two lease transactions were
substantially similar.
While certain characteristics of the leases anticipated to be entered
into by the Company suggest the Company might not be the owner of the
Properties, such as the fact that such leases are "triple-net" leases, a
substantial number of other characteristics indicate the bona fide nature of
such leases and that the Company will be the owner of the Properties. For
example, under the types of leases described in "Business -- Description of
Leases," the Company will bear the risk of substantial loss in the value of the
Properties, since the Company will acquire its interests in the Properties with
an equity investment, rather than with nonrecourse indebtedness. Further, the
Company, rather than the tenant, will benefit from any appreciation in the
Properties, since the Company will have the right at any time to sell or
transfer its Properties, subject to the tenant's right to purchase the property
at a price not less than the Property's fair market value (determined by
appraisal or otherwise).
-89-
<PAGE>
Other factors that are consistent with the ownership of the Properties
by the Company are (i) the tenants are liable for repairs and to return the
Properties in reasonably good condition; (ii) insurance proceeds generally are
to be used to restore the Properties and, to the extent not so used, belong to
the Company; (iii) the tenants agree to subordinate their interests in the
Properties to the lien of any first mortgage upon delivery of a nondisturbance
agreement and agree to attorn to the purchaser upon any foreclosure sale; and
(iv) based on the Company's representation that the Properties can reasonably be
expected to have at the end of their lease terms (generally a maximum of 30 to
40 years) a fair market value of at least 20% of the Company's cost and a
remaining useful life of at least 20% of their useful lives at the beginning of
the leases, the Company has not relinquished the Properties to the tenants for
their entire useful lives, but has retained a significant residual interest in
them. Moreover, the Company will not be primarily dependent upon tax benefits in
order to realize a reasonable return on its investments.
Concerning the Properties for which the Company owns the buildings and
the underlying land, on the basis of the foregoing, assuming (i) the Company
leases the Properties on substantially the same terms and conditions described
in "Business -- Description of Leases," and (ii) as is represented by the
Company, the residual value of the Properties remaining after the end of their
lease terms (including all renewal periods) may reasonably be expected to be at
least 20% of the Company's cost of such Properties, and the remaining useful
lives of the Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the
Properties' useful lives at the beginning of their lease terms, it is the
opinion of Counsel that the Company will be treated as the owner of the
Properties for federal income tax purposes and will be entitled to claim
depreciation and other tax benefits associated with such ownership. In the case
of the Properties for which the Company does not own the underlying land,
Counsel cannot opine that such transactions will be characterized as leases.
CHARACTERIZATION OF SECURED EQUIPMENT LEASES
The Company will purchase Equipment and lease it to franchisees or
corporate franchisors pursuant to leases of the type described in "Business --
General." The ability of the Company to qualify as a REIT depends on a
determination that the Secured Equipment Leases are financing arrangements,
under which the lessees acquire ownership of the Equipment for federal income
tax purposes. If the Secured Equipment Leases are instead treated as true
leases, the Company may be unable to satisfy the income tests for REIT
qualification. See "Federal Income Tax Considerations -- Taxation of the Company
- -- Income Tests."
While certain characteristics of the Secured Equipment Leases to be
entered into by the Company suggest that the Company retains ownership of the
Equipment, such as the fact that the Secured Equipment Leases are structured as
leases, with the Company retaining title to the Equipment, a substantial number
of other characteristics indicate that the Secured Equipment Leases are
financing arrangements and that the lessees are the owners of the Equipment for
federal income tax purposes. For example, under the types of Secured Equipment
Leases described in "Business -- General," the lease term will equal or exceed
the useful life of the Equipment, and the lessee will have the option to
purchase the Equipment at the end of the lease term for a nominal sum. Moreover,
under the terms of the Secured Equipment Leases, the Company and the lessees
will each agree to treat the Secured Equipment Leases as loans secured by
personal property, rather than leases, for tax purposes.
On the basis of the foregoing, assuming (i) the Secured Equipment
Leases are made on substantially the same terms and conditions described in
"Business -- General," and (ii) as represented by the Company, each of the
Secured Equipment Leases will have a term that equals or exceeds the useful life
of the Equipment subject to the lease, it is the opinion of Counsel that the
Company will not be treated as the owner of the Equipment that is subject to the
Secured Equipment Leases for federal income tax purposes and that the Company
will be able to treat the Secured Equipment Leases as loans secured by personal
property. Counsel's opinion that the Company will be organized in conformity
with the requirements for qualification as a REIT is based, in part, on the
assumption that each of the Secured Equipment Leases will conform to the
conditions outlined in clauses (i) and (ii) of the preceding sentence.
-90-
<PAGE>
INVESTMENT IN JOINT VENTURES
As indicated in "Business -- Joint Venture Arrangements," the Company
may participate in Joint Ventures which own and lease Properties. Assuming that
the Joint Ventures have the characteristics described in "Business -- Joint
Venture Arrangements," and are operated in the same manner that the Company
operates with respect to Properties that it owns directly, it is the opinion of
Counsel that (i) the Joint Ventures will be treated as partnerships, as defined
in Sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Company will be subject to tax as a partner pursuant
to Sections 701-761 of the Code and (ii) all material allocations to the Company
of income, gain, loss and deduction as provided in the Joint Venture agreements
and as discussed in the Prospectus will be respected under Section 704(b) of the
Code. The Company has represented that it will not become a participant in any
Joint Venture unless the Company has first obtained advice of Counsel that the
Joint Venture will constitute a partnership for federal income tax purposes and
that the allocations to the Company contained in the Joint Venture agreement
will be respected.
If, contrary to the opinion of Counsel, a Joint Venture were to be
treated as an association taxable as a corporation, the Company would be treated
as a stockholder for tax purposes and would not be treated as owning a pro rata
share of the Joint Venture's assets. In addition, the items of income and
deduction of the Joint Venture would not pass through to the Company. Instead,
the Joint Venture would be required to pay income tax at regular corporate tax
rates on its net income, and distributions to partners would constitute
dividends that would not be deductible in computing the Joint Venture's taxable
income. Moreover, a determination that a Joint Venture is taxable as a
corporation could cause the Company to fail to satisfy the asset tests for
qualification as a REIT. See "Asset Tests" and "Income Tests," above.
REPORTS TO STOCKHOLDERS
The Company will furnish each stockholder with its audited annual
report within 120 days following the close of each fiscal year. These annual
reports will contain the following: (i) financial statements, including a
balance sheet, statement of operations, statement of stockholders' equity, and
statement of cash flows, prepared in accordance with generally accepted
accounting principals which are audited and reported on by independent certified
public accountants; (ii) the ratio of the costs of raising capital during the
period to the capital raised; (iii) the aggregate amount of advisory fees and
the aggregate amount of other fees paid to the Advisor and any Affiliate of the
Advisor by the Company and including fees or charges paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company; (iv)
the Operating Expenses of the Company, stated as a percentage of the Average
Invested Assets (the average of the aggregate book value of the assets of the
Company, for a specified period, invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, computed by taking the average
of such values at the end of each month during such period) and as a percentage
of its Net Income; (v) a report from the Independent Directors that the policies
being followed by the Company are in the best interest of its stockholders and
the basis for such determination; (vi) separately stated, full disclosure of all
material terms, factors and circumstances surrounding any and all transactions
involving the Company, Directors, Advisor and any Affiliate thereof occurring in
the year for which the annual report is made, and the Independent Directors
shall be specifically charged with a duty to examine and comment in the report
on the fairness of such transactions; and (vii) Distributions to the
stockholders for the period, identifying the source of such Distributions and if
such information is not available at the time of the distribution, a written
explanation of the relevant circumstances will accompany the Distributions (with
the statement as to the source of Distributions to be sent to stockholders not
later than 60 days after the end of the fiscal year in which the distribution
was made).
Within 75 days following the close of each Company fiscal year, each
stockholder that is a Qualified Plan will be furnished with an annual statement
of Share valuation to enable it to file annual reports required by ERISA as they
relate to its investment in the Company. The statement will report an estimated
value of each Share, prior to the termination of the offering, of $10 per Share
and, after the termination of the offering, based on (i) appraisal updates
performed by the Company based on a review of the existing appraisal and lease
of each Property, focusing on a re-examination of the capitalization rate
applied to the rental stream to be derived from that Property; and (ii) a review
of the outstanding Mortgage Loans and Secured Equipment Leases focusing on a
determination of present value by a re-examination of the capitalization rate
applied to the stream of payments due under the terms of each Mortgage Loan and
Secured Equipment Lease. The Company may elect to deliver such reports to all
stockholders. Stockholders will not be forwarded copies of appraisals or
updates. In providing such reports to stockholders, neither the Company nor its
Affiliates thereby make any warranty, guarantee, or representation that (i) the
stockholders or the Company, upon liquidation, will actually realize the
estimated value per Share, or (ii) the stockholders will realize the estimated
net asset value if they attempt to sell their Shares.
-91-
<PAGE>
If the Company is required by the Securities Exchange Act of 1934, as
amended, to file quarterly reports with the Securities and Exchange Commission
on Form 10-Q, stockholders will be furnished with a summary of the information
contained in each such report within 60 days after the end of each fiscal
quarter. Such summary information generally will include a balance sheet, a
quarterly statement of income, and a statement of cash flows, and any other
pertinent information regarding the Company and its activities during the
quarter. Stockholders also may receive a copy of any Form 10-Q upon request to
the Company. If the Company is not subject to this filing requirement,
stockholders will be furnished with a semi-annual report within 60 days after
each six-month period containing information similar to that contained in the
quarterly report but applicable to such six-month period.
Stockholders and their duly authorized representatives are entitled to
inspect and copy, at their expense, the books and records of the Company at all
times during regular business hours, upon reasonable prior notice to the
Company, at the location where such reports are kept by the Company.
Stockholders, upon request and at their expense, may obtain full information
regarding the financial condition of the Company, a copy of the Company's
federal, state, and local income tax returns for each fiscal year of the
Company, and, subject to certain confidentiality requirements, a list containing
the name, address, and Shares held by each stockholder.
The fiscal year of the Company will be the calendar year.
The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the stockholders within 30 days
following the end of each fiscal year of the Company. A specific reconciliation
between GAAP and income tax information will not be provided to the
stockholders; however, such reconciling information will be available in the
office of the Company for inspection and review by any interested stockholder.
-92-
<PAGE>
THE OFFERING
GENERAL
A maximum of 34,500,000 Shares ($345,000,000) are being offered at a
purchase price of $10.00 per Share. Of the 34,500,000 Shares offered hereby,
2,000,000 Shares ($20,000,000) will be available only to stockholders who elect
to participate in the Reinvestment Plan and who purchase Shares in this offering
and receive a copy of this Prospectus, or who purchased Shares in one of the
Prior Offerings of the Company and received a copy of this Prospectus. Any
participation in such plan by a person who becomes a stockholder otherwise than
by participating in this offering will require solicitation under a separate
prospectus. See "Summary of Reinvestment Plan."
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000), except for Iowa tax-exempt investors who must make a minimum
investment of 250 Shares ($2,500). For Minnesota investors only, IRAs and
qualified plans must make a minimum investment of 200 Shares ($2,000). In
addition, Nebraska, New York, and North Carolina investors must make a minimum
investment of 500 Shares ($5,000). Any investor who makes the required minimum
investment may purchase additional Shares in increments of one Share. Maine
investors, however, may not purchase additional Shares in amounts less than the
applicable minimum investment except at the time of the initial subscription or
with respect to Shares purchased pursuant to the Reinvestment Plan. See "The
Offering -- General," "The Offering -- Subscription Procedures," and "Summary of
Reinvestment Plan."
PLAN OF DISTRIBUTION
The Shares are being offered to the public on a "best efforts" basis
(which means that no one is guaranteeing that any minimum amount will be sold)
through the Soliciting Dealers, who are members of the National Association of
Securities Dealers, Inc. (the "NASD") or investment advisers exempt from
broker-dealer registration, and the Managing Dealer. The Soliciting Dealers will
use their best efforts during the offering period to find eligible persons who
desire to subscribe for the purchase of Shares from the Company. Both James M.
Seneff, Jr. and Robert A. Bourne are Affiliates and licensed principals of the
Managing Dealer, and the Advisor is an Affiliate of the Managing Dealer.
Prior to a subscriber's admission to the Company as a stockholder,
funds paid by such subscriber will be deposited in an interest-bearing escrow
account with SouthTrust Asset Management Company of Florida, N.A. The Company,
within 30 days after the date a subscriber is admitted to the Company, will pay
to such subscriber the interest (generally calculated on a daily basis) actually
earned on the funds of those subscribers whose funds have been held in escrow by
such bank for at least 20 days. Stockholders otherwise are not entitled to
interest earned on Company funds or to receive interest on their Invested
Capital. See "Escrow Arrangements" below.
Subject to the provisions for reduced Selling Commissions described
below, the Company will pay the Managing Dealer an aggregate of 7.5% of the
Gross Proceeds as Selling Commissions. The Managing Dealer shall reallow fees of
up to 7% to the Soliciting Dealers with respect to Shares sold by them. In
addition, the Company will pay the Managing Dealer, as an expense allowance, a
marketing support and due diligence expense reimbursement fee equal to 0.5% of
Gross Proceeds. The Managing Dealer, in its sole discretion, may reallow to any
Soliciting Dealer all or any portion of this fee based on such factors as the
number of Shares sold by such Soliciting Dealer, the assistance, if any, of such
Soliciting Dealer in marketing the offering, and bona fide due diligence
expenses incurred. Stockholders who elect to participate in the Reinvestment
Plan will be charged Selling Commissions and the marketing support and due
diligence fee on Shares purchased for their accounts on the same basis as
investors who purchase Shares in the offering. See "Summary of Reinvestment
Plan."
-93-
<PAGE>
A registered principal or representative of the Managing Dealer or a
Soliciting Dealer, employees, officers, and Directors of the Company, or
employees, officers, and directors of the Advisor, any of their Affiliates and
any Plan established exclusively for the benefit of such persons or entities may
purchase Shares net of 7% commissions, at a per Share purchase price of $9.30.
Clients of an investment adviser registered under the Investment Advisers Act of
1940, as amended, who have been advised by such adviser on an ongoing basis
regarding investments other than in the Company, and who are not being charged
by such adviser or its Affiliates, through the payment of commissions or
otherwise, for the advice rendered by such adviser in connection with the
purchase of the Shares, may purchase the Shares net of 7% commissions. In
addition, Soliciting Dealers that have a contractual arrangement with their
clients for the payment of fees which is consistent with accepting Selling
Commissions, in their sole discretion, may elect not to accept any Selling
Commissions offered by the Company for Shares that they sell. In that event,
such Shares shall be sold to the investor net of all Selling Commissions, at a
per Share purchase price of $9.30. In connection with the purchases of certain
minimum numbers of Shares, the amount of Selling Commissions otherwise payable
to the Managing Dealer or a Soliciting Dealer shall be reduced in accordance
with the following schedule:
<TABLE>
<CAPTION>
Dollar Amount
of Shares Purchase Price Reallowed Commissions on Sales Per Share
Purchased Per Share Percent Dollar Amount
--------- --------- ------- -------------
<S> <C>
$10 -- $249,990 $10.00 7.0% $0.70
$250,000 -- $499,990 $9.90 6.0% $0.60
$500,000 -- $999,990 $9.70 4.0% $0.40
$1,000,000 -- $1,499,990 $9.60 3.0% $0.30
$1,500,000 or more $9.50 2.0% $0.20
</TABLE>
For example, if an investor purchases 100,000 Shares, the investor
could pay as little as $960,000 rather than $1,000,000 for the Shares, in which
event the Selling Commissions on the sale of such Shares would be $35,000 ($0.35
per Share). The net proceeds to the Company will not be affected by such
discounts.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," provided all
such Shares are purchased through the same Soliciting Dealer or through the
Managing Dealer. The volume discount will be prorated among the separate
subscribers considered to be a single "purchaser." Shares purchased pursuant to
the Reinvestment Plan on behalf of a Participant in the Reinvestment Plan will
not be combined with other subscriptions for Shares by the investor in
determining the volume discount to which such investor may be entitled. See
"Summary of Reinvestment Plan." Further subscriptions for Shares will not be
combined for purposes of the volume discount in the case of subscriptions by any
"purchaser" who subscribes for additional Shares subsequent to the purchaser's
initial purchase of Shares.
Any request to combine more than one subscription must be made in
writing in a form satisfactory to the Company and must set forth the basis for
such request. Any such request will be subject to verification by the Managing
Dealer that all of such subscriptions were made by a single "purchaser." If a
"purchaser" does not reduce the per Share purchase price, the excess purchase
price over the discounted purchase price will be returned to the actual separate
subscribers for Shares.
For purposes of such volume discounts, "purchaser" includes (i) an
individual, his or her spouse, and their children under the age of 21, who
purchase the Shares for his or her or their own accounts, and all pension or
trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Shares and must have formed such group for a
purpose other than to purchase the Shares at a discount); (iii) an employee's
trust, pension, profit-sharing, or other employee benefit plan qualified under
Section 401 of the Code; and (iv) all pension, trust, or other funds maintained
by a given bank. In addition, the Company, in its sole discretion, may aggregate
and combine separate subscriptions for Shares received during the offering
period from (i) the Managing Dealer or the same Soliciting Dealer, (ii)
investors whose accounts are managed by a single investment adviser registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other entity exercises
discretionary investment responsibility, or (iv) a single corporation,
partnership, trust association, or other organized group of persons, whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group. Except as provided
in this paragraph, subscriptions will not be cumulated, combined, or aggregated.
Any reduction in commissions will reduce the effective purchase price
per Share to the investor involved but will not alter the net proceeds payable
to the Company as a result of such sale. All investors will be deemed to have
contributed the same amount per Share to the Company whether or not the investor
receives a discount. Accordingly, for purposes of Distributions, investors who
pay reduced commissions will receive higher returns on their investments in the
Company as compared to investors who do not pay reduced commissions.
In connection with the sale of Shares, certain registered principals or
representatives of the Managing Dealer may perform wholesaling functions for
which they will receive compensation payable by the Managing Dealer in an
aggregate amount not in excess of one percent of Gross Proceeds. The first 0.5%
of Gross Proceeds of any such fee will be paid from the 7.5% of Gross Proceeds
payable to the Managing Dealer as Selling Commissions. In addition, the Advisor
and its Affiliates, including the Managing Dealer and its registered principals
or representatives, may incur due diligence fees and other expenses, including
expenses related to sales seminars and wholesaling activities, a portion of
which may be paid by the Company.
-94-
<PAGE>
The Company or its Affiliates also may provide incentive items for
registered representatives of the Managing Dealer and the Soliciting Dealers,
which in no event shall exceed an aggregate of $100 per annum per participating
salesperson. In the event other incentives are provided to registered
representatives of the Managing Dealer or the Soliciting Dealers, they will be
paid only in cash, and such payments will be made only to the Managing Dealer or
the Soliciting Dealers rather than to their registered representatives. Any such
sales incentive program must first have been submitted for review by the NASD,
and must comply with Rule 2710(c)(6)(B)(xii). Costs incurred in connection with
such sales incentive programs, if any, will be considered underwriting
compensation. See "Estimated Use of Proceeds."
The Company will also reimburse the Managing Dealer and the Soliciting
Dealers for bona fide due diligence expenses and certain expenses incurred in
connection with the offering.
The total amount of underwriting compensation, including commissions
and reimbursement of expenses, paid in connection with the offering will not
exceed 10.5% of Gross Proceeds.
The Managing Dealer and the Soliciting Dealers severally will indemnify
the Company and its officers and Directors, the Advisor and its officers and
directors and their Affiliates, against certain liabilities, including
liabilities under the Securities Act of 1933.
SUBSCRIPTION PROCEDURES
Procedures Applicable to All Subscriptions. In order to purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription for Shares must be accompanied by cash or check payable to
"SouthTrust Asset Management Company of Florida, N.A., Escrow Agent" or to the
Company, in the amount of $10.00 per Share. See "Escrow Arrangements" below.
Certain Soliciting Dealers who have "net capital," as defined in the applicable
federal securities regulations, of $250,000 or more may instruct their customers
to make their checks for Shares for which they have subscribed payable directly
to the Soliciting Dealer. In such case, the Soliciting Dealer will issue a check
made payable to the order of the Escrow Agent for the aggregate amount of the
subscription proceeds.
Each subscription will be accepted or rejected by the Company within 30
days after its receipt, and no sale of Shares shall be completed until at least
five business days after the date on which the subscriber receives a copy of
this Prospectus. If a subscription is rejected, the funds will be returned to
the subscriber within ten business days after the date of such rejection,
without interest and without deduction. A form of the Subscription Agreement is
set forth as Exhibit D to this Prospectus. The subscription price of each Share
is payable in full upon execution of the Subscription Agreement. A subscriber
whose subscription is accepted shall be sent a confirmation of his or her
purchase.
The Advisor and each Soliciting Dealer who sells Shares on behalf of
the Company have the responsibility to make every reasonable effort to determine
that the purchase of Shares is appropriate for an investor and that the
requisite suitability standards are met. See "Suitability Standards and How to
Subscribe -- Suitability Standards," In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
The Advisor and each Soliciting Dealer shall maintain records of the
information used to determine that an investment in the Shares is suitable and
appropriate for an investor. The Advisor and each Soliciting Dealer shall
maintain these records for at least six years.
Subscribers will be admitted as stockholders not later than the last
day of the calendar month following acceptance of their subscriptions.
Procedures Applicable to Non-Telephonic Orders. Each Soliciting Dealer
receiving a subscriber's check made payable solely to the bank escrow agent
(where, pursuant to such Soliciting Dealer's internal supervisory procedures,
internal supervisory review must be conducted at the same location at which
subscription documents and checks are received from subscribers), will deliver
such checks to the Managing Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Soliciting
Dealer except that, in any case in which the Soliciting Dealer maintains a
branch office, and, pursuant to a Soliciting Dealer's internal supervisory
procedures, final internal supervisory review is conducted at a different
location, the branch office shall transmit the subscription documents and check
to the Soliciting Dealer conducting such internal supervisory review by the
close of business on the first business day following their receipt by the
branch office and the Soliciting Dealer shall review the subscription documents
and subscriber's check to ensure their proper execution and form and, if they
are acceptable, transmit the check to the Managing Dealer by the close of
business on the first business day after the check is received by the Soliciting
Dealer. The Managing Dealer will transmit the check to the Escrow Agent by no
later than the close of business on the first business day after the check is
received from the Soliciting Dealer.
Procedures Applicable to Telephonic Orders. Certain Soliciting Dealers
may permit investors to subscribe for Shares by telephonic order to the
Soliciting Dealer. There are no additional fees associated with telephonic
orders. Subscribers who wish to subscribe for Shares by telephonic order to the
Soliciting Dealer may complete the telephonic order either by delivering a check
in the amount necessary to purchase the Shares to be covered by the subscription
agreement to the Soliciting Dealer or by authorizing the Soliciting Dealer to
pay the purchase price for the Shares to be covered by the subscription
agreement from funds available in an account maintained by the Soliciting Dealer
on behalf of the subscriber. A subscriber must specifically authorize the
registered representative and branch manager to execute the subscription
agreement on behalf of the subscriber and must already have made or agreed to
make payment for the Shares covered by the subscription agreement.
-95-
<PAGE>
To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms, then
such firms shall, subject to Rule 15c2-4 promulgated under the Securities
Exchange Act of 1934, either (i) upon receipt of an executed subscription
agreement or direction to execute a subscription agreement on behalf of a
customer, to forward the offering price for the Shares covered by the
subscription agreement on or before the close of business of the first business
day following receipt or execution of a subscription agreement by such firms to
the Managing Dealer (except that, in any case in which the Soliciting Dealer
maintains a branch office, and, pursuant to a Soliciting Dealer's internal
supervisory procedures, final internal supervisory review is conducted at a
different location, the branch office shall transmit the subscription documents
and subscriber's check to the Soliciting Dealer conducting such internal
supervisory review by the close of business on the first business day following
their receipt by the branch office and the Soliciting Dealer shall review the
subscription documents and subscriber's check to ensure their proper execution
and form and, if they are acceptable, transmit the check to the Managing Dealer
by the close of business on the first business day after the check is received
by the Soliciting Dealer), or (ii) to solicit indications of interest in which
event (a) such Soliciting Dealers must subsequently contact the customer
indicating interest to confirm the interest and give instructions to execute and
return a subscription agreement or to receive authorization to execute the
subscription agreement on the customer's behalf, (b) such Soliciting Dealers
must mail acknowledgments of receipt of orders to each customer confirming
interest on the business day following such confirmation, (c) such Soliciting
Dealers must debit accounts of such customers on the fifth business day (the
"debit date") following receipt of the confirmation referred to in (a), and (d)
such Soliciting Dealers must forward funds to the Managing Dealer in accordance
with the procedures and on the schedule set forth in clause (i) of this
sentence. If the procedure in (ii) is adopted, subscribers' funds are not
required to be in their accounts until the debit date. The Managing Dealer will
transmit the check to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Soliciting Dealer.
Investors, however, who are residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico,
North Carolina, Ohio, Oregon, South Dakota, Tennessee, or Washington must
complete and sign the Subscription Agreement in order to subscribe for Shares
and, therefore, may not subscribe for Shares by telephone. Representatives of
Soliciting Dealers who accept telephonic orders will execute the Subscription
Agreement on behalf of investors who place such orders. All investors who
telephonically subscribe for Shares will receive, with confirmation of their
subscription, a second copy of the Prospectus.
Residents of California, Oklahoma, and Texas who telephonically
subscribe for Shares will have the right to rescind such subscriptions within
ten days from receipt of the confirmation. Such investors who do not rescind
their subscriptions within such ten-day period shall be deemed to have assented
to all of the terms and conditions of the Subscription Agreement.
Additional Subscription Procedures. Investors who have questions or who
wish to place orders for Shares by telephone or to participate in the
Reinvestment Plan should contact their Soliciting Dealer. Certain Soliciting
Dealers do not permit telephonic subscriptions or participation in the
Reinvestment Plan. See "Summary of Reinvestment Plan." The form of Subscription
Agreement for certain Soliciting Dealers who do not permit telephonic
subscriptions or participation in the Reinvestment Plan differs slightly from
the form attached hereto as Exhibit D, primarily in that it will eliminate one
or both of these options.
Investors who wish to establish an IRA for the purpose of investing
solely in Shares may do so by completing, in addition to the Subscription
Agreement, the special IRA account form attached hereto as a part of Exhibit D
appointing Franklin Bank, N.A., an unaffiliated bank, to act as their IRA
custodian. The custodian will not have the authority to vote any of the Shares
held in an IRA except in accordance with written instructions from the
beneficiary of the IRA, although it will hold the Shares on behalf of the
beneficiary and make distributions and, at the direction and in the discretion
of the beneficiary, investments in Shares or in other securities issued by
Affiliates of the Advisor. The custodian will not have authority at any time to
make investments through any such IRA on behalf of the beneficiary if the
investments do not constitute Shares or other securities issued by Affiliates of
the Advisor. The investors will not be required to pay any initial or annual
fees in connection with any such IRA. The fees for establishing and maintaining
all such IRAs will be paid by the Advisor initially and annually up to an
aggregate amount of $5,000, and by the Company above such amount.
-96-
<PAGE>
ESCROW ARRANGEMENTS
Subscription proceeds will be received in trust and deposited in a
separate account with SouthTrust Asset Management Company of Florida, N.A. (the
"Bank").
The Escrow Agreement between the Company and the Bank provides that
escrowed funds will be invested by the Bank in an interest-bearing account with
the power of investment in short-term, highly liquid securities issued or
guaranteed by the U.S. Government, other investments permitted under Rule 15c2-4
of the Securities Exchange Act of 1934, as amended, or, in other short-term,
highly liquid investments with appropriate safety of principal. Such
subscription funds will be released periodically (at least once per month) upon
admission of stockholders to the Company.
The interest, if any, earned on subscription proceeds will be payable
only to those subscribers whose funds have been held in escrow by the Bank for
at least 20 days. Stockholders will not otherwise be entitled to interest earned
on Company funds or to receive interest on their Invested Capital.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances.
A PROSPECTIVE INVESTOR THAT IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A
TAXQUALIFIED RETIREMENT PLAN, AN IRA, OR A GOVERNMENTAL, CHURCH, OR OTHER PLAN
THAT IS EXEMPT FROM ERISA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING
THE SPECIFIC CONSIDERATIONS ARISING UNDER APPLICABLE PROVISIONS OF ERISA, THE
CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE
SHARES BY SUCH PLAN OR IRA.
Fiduciary Duties and Prohibited Transactions. A fiduciary of a pension,
profit-sharing, retirement or other employee benefit plan subject to ERISA (an
"ERISA Plan") should consider the fiduciary standards under ERISA in the context
of the ERISA Plan's particular circumstances before authorizing an investment of
any portion of the ERISA Plan's assets in the Common Stock. Accordingly, such
fiduciary should consider (i) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the
investment is in accordance with the documents and instruments governing the
ERISA Plan as required by Section 404(a)(1)(D) of ERISA; (iii) whether the
investment is prudent under Section 404(a)(1)(B) of ERISA; and (iv) whether the
investment is solely in the interests of the ERISA Plan participants and
beneficiaries and for the exclusive purpose of providing benefits to the ERISA
Plan participants and beneficiaries and defraying reasonable administrative
expenses of the ERISA Plan as required by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA, or certain other plans (collectively, a "Plan") and persons who have
certain specified relationships to the Plan ("parties in interest" within the
meaning of ERISA and "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary or person making an investment decision for a Plan also
should consider whether the acquisition or the continued holding of the Shares
might constitute or give rise to a direct or indirect prohibited transaction.
-97-
<PAGE>
Plan Assets. The prohibited transaction rules of ERISA and the Code
apply to transactions with a Plan and also to transactions with the "plan
assets" of the Plan. The "plan assets" of a Plan include the Plan's interest in
an entity in which the Plan invests and, in certain circumstances, the assets of
the entity in which the Plan holds such interest. The term "plan assets" is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the "DOL
Regulation") setting out the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute "plan assets." The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a "publicly-offered security," the Plan's
assets generally would include both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The DOL Regulation defines a publicly-offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the offering occurred). The Shares
are being sold in an offering registered under the Securities Act of 1933, as
amended, and will be registered within the relevant time period under Section
12(b) of the Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it
is part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. However, a class of securities
will not fail to be "widely held" solely because the number of independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control. The Company expects the Shares to be
"widely held" upon completion of the offering.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not affect, alone or in combination, the finding that such securities are freely
transferable. The Company believes that the restrictions imposed under the
Articles of Incorporation on the transfer of the Common Stock are limited to
restrictions on transfer generally permitted under the DOL Regulation and are
not likely to result in the failure of the Common Stock to be "freely
transferable." See "Summary of the Articles of Incorporation and Bylaws --
Restriction on Ownership." The DOL Regulation only establishes a presumption in
favor of a finding of free transferability and, therefore, no assurance can be
given that the Department of Labor and the U.S. Treasury Department would not
reach a contrary conclusion with respect to the Common Stock.
Assuming that the Shares will be "widely held" and "freely
transferable," the Company believes that the Shares will be publicly-offered
securities for purposes of the DOL Regulation and that the assets of the Company
will not be deemed to be "plan assets" of any Plan that invests in the Shares.
-98-
<PAGE>
DETERMINATION OF OFFERING PRICE
The offering price per Share was determined by the Company based upon
the estimated costs of investing in the Properties and the Mortgage Loans, the
fees to be paid to the Advisor and its Affiliates, as well as fees to third
parties, and the expenses of this offering.
SUPPLEMENTAL SALES MATERIAL
Shares are being offered only through this Prospectus. In addition to
this Prospectus, the Company may use certain sales materials in connection with
this offering, although only when accompanied or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been approved
in writing by the Company. As of the date of this Prospectus, it is anticipated
that the following sales material will be authorized for use by the Company in
connection with this offering: (i) a brochure entitled CNL American Properties
Fund, Inc.; (ii) a fact sheet describing the general features of the Company;
(iii) a cover letter transmitting the Prospectus; (iv) a summary description of
the offering; (v) a slide presentation; (vi) broker updates; (vii) an audio
cassette presentation; (viii) a video presentation; (ix) an electronic media
presentation (x) a cd-rom presentation; (xi) a script for telephonic marketing;
(xii) seminar advertisements and invitations; and (xiii) certain third-party
articles. All such materials will be used only by registered broker-dealers
which are members of the NASD. The Company also may respond to specific
questions from Soliciting Dealers and prospective investors. Additional
materials relating to the offering may be made available to Soliciting Dealers
for their internal use.
LEGAL OPINIONS
The legality of the Shares being offered hereby has been passed upon
for the Company by Shaw, Pittman, Potts & Trowbridge. Statements made under
"Risk Factors -- Tax Risks" and "Federal Income Tax Considerations" have been
reviewed by Shaw, Pittman, Potts & Trowbridge, who have given their opinion that
such statements as to matters of law are correct in all material respects. Shaw,
Pittman, Potts & Trowbridge serves as securities and tax counsel to the Company
and to the Advisor and certain of their Affiliates. Shaw, Pittman, Potts &
Trowbridge will not review any sticker supplement to the Prospectus or amendment
to the registration statement. Certain members of the firm have invested in
prior programs sponsored by the Affiliates of the Company in aggregate amounts
which do not exceed one percent of the amounts sold by any such program, and
members of the firm also may invest in the Company.
EXPERTS
The audited consolidated financial statements (including the financial
statement schedules) of the Company, as of December 31, 1996 and 1995, and for
the years ended December 31, 1996 and 1995, and for the period May 2, 1994 (date
of inception) through December 31, 1994, included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
-99-
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Seven
World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material also can be obtained form the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site located at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) on Form S-11
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares. This Prospectus does not contain all of the information
set forth in the Registration Statement, including the exhibits and schedules
thereto, certain parts of which are omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any document are necessarily summaries of such documents, and in
each instance reference is made to the copy of such documents filed with the
Commission, each such statement being qualified in all respects by such
reference. For further information regarding the Company and the Shares,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed or incorporated as a part thereof which may be obtained form the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
DEFINITIONS
"1997 Offering" means the public offering of the Company of 27,500,000
shares of Common Stock, including 2,500,000 shares available pursuant to the
Reinvestment Plan, which commended in February 1997 and is expected to terminate
in December 1997, at which time this offering will commence.
"Acquisition Expenses" shall mean any and all expenses incurred by the
Company, the Advisor, or any Affiliate of either in connection with the
selection or acquisition of any Property or the making of any Mortgage Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, and title
insurance.
"Acquisition Fees" shall 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 Affiliate
of the Company or the Advisor) in connection with making or investing in
mortgage loans or the purchase, development or construction of a Property,
including, without limitation, real estate commissions, acquisition fees,
finder's fees, selection fees, development fees, construction fees, nonrecurring
management fees, consulting fees, loan fees, points, or any other fees or
commissions of a similar nature. Excluded shall be development fees and
construction fees paid to any person or entity not affiliated with the Advisor
in connection with the actual development and construction of any Property.
"Advisor" shall mean CNL Fund Advisors, Inc., a Florida corporation,
any successor advisor to the Company, or any person or entity to which CNL Fund
Advisors, Inc. or any successor advisors subcontracts substantially all of its
functions.
"Advisory Agreement" shall mean the Advisory Agreement between the
Company and the Advisor, pursuant to which the Advisor will act as the advisor
to the Company and provide specified services to the Company.
"Affiliate" shall mean (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (ii) any person or entity directly or
indirectly owning, controlling, or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of another person or entity; (iii)
any officer, director, partner, or trustee of such person or entity; (iv) any
person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other person; and (v) if such other person or entity is an officer, director,
partner, or trustee of a person or entity, the person or entity for which such
person or entity acts in any such capacity.
"Articles of Incorporation" shall mean the Articles of Incorporation,
as the same may be amended from time to time, of the Company.
"Asset Management Fee" shall mean the fee payable to the Advisor for
day-to-day professional management services in connection with the Company and
its Properties pursuant to the Advisory Agreement.
"Average Invested Assets" shall mean, for a specified period, the
average of the aggregate book value of the assets of the Company invested,
directly or indirectly, in Properties and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"Bank" shall mean SouthTrust Asset Management Company of Florida, N.A.,
escrow agent for the offering.
"Board of Directors" shall mean the Directors of the Company.
"Bylaws" shall mean the bylaws of the Company.
"CNL" shall mean CNL Group, Inc., the parent company of the Advisor and
the Managing Dealer.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
-100-
<PAGE>
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
"Competitive Real Estate Commission" shall mean a real estate or
brokerage commission for the purchase or sale of property which is reasonable,
customary, and competitive in light of the size, type, and location of the
property. The total of all real estate commissions paid by the Company to all
persons and entities (including the subordinated real estate disposition fee
payable to the Advisor) in connection with any Sale of one or more of the
Company's Properties shall not exceed the lesser of (i) a Competitive Real
Estate Commission or (ii) six percent of the gross sales price of the Property
or Properties.
"Counsel" shall mean tax counsel to the Company.
"Director" shall mean a member of the Board of Directors of the
Company.
"Distributions" shall mean any distributions of money or other property
by the Company to owners of Shares, including distributions that may constitute
a return of capital for federal income tax purposes.
"Equipment" shall mean the furniture, fixtures and equipment used at
Restaurant Chains.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Plan" shall mean a pension, profit-sharing, retirement, or other
employee benefit plan subject to ERISA.
"Excess Shares" shall mean the excess shares exchanged for shares of
Common Stock or Preferred Stock, as the case may be, transferred or proposed to
be transferred in excess of the Ownership Limit or which would otherwise
jeopardize the Company's status as a REIT under the Code.
"Front-End Fees" shall mean fees and expenses paid by any person or
entity to any person or entity for any services rendered in connection with the
organization of the Company and the acquisition of Properties, including Selling
Commissions, marketing support and due diligence expense reimbursement fees,
Offering Expenses, Acquisition Expenses, Acquisition Fees, and any other similar
fees, however designated. During the term of the Company, Front-End Fees shall
not exceed 20% of Gross Proceeds.
"Gross Proceeds" shall mean the aggregate purchase price of all Shares
sold for the account of the Company through the offering, without deduction for
Selling Commissions, volume discounts, the marketing support and due diligence
expense reimbursement fee or Organization and Offering Expenses. For the purpose
of computing Gross Proceeds, the purchase price of any Share for which reduced
Selling Commissions are paid to the Managing Dealer or a Soliciting Dealer
(where net proceeds to the Company are not reduced) shall be deemed to be
$10.00.
"Initial Offering" means the initial public offering of the Company of
16,500,000 shares of Common Stock, including 1,500,000 shares available pursuant
to the Reinvestment Plan, which commenced in April 1995 and terminated on
February 6, 1997.
"Independent Director" shall mean a Director who is not and within the
last two years has not been directly or indirectly associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) the performance of services,
other than as a Director, for the Company, (v) service as a director or trustee
of more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the Advisor
or any of its Affiliates. An indirect relationship shall include circumstances
in which a Director's spouse, parents, children, siblings, mothers- or
fathers-in-law or sons- or daughters-in-law, or brothers- or sisters-in-law is
or has been associated with the Advisor, any of its affiliates, or the Company.
A business or professional relationship is considered material if the gross
revenue derived by the Director from the Advisor and Affiliates exceeds 5% of
either the Company's annual gross revenue during either of the last two years or
the Director's net worth on a fair market value basis.
-101-
<PAGE>
"Independent Expert" shall mean a person or entity with no material
current or prior business or personal relationship with the Advisor or the
Directors and who is engaged to a substantial extent in the business of
rendering opinions regarding the value of assets of the type held by the
Company.
"Invested Capital" shall mean the amount calculated by multiplying the
total number of Shares purchased by stockholders by the issue price, reduced by
the portion of any Dividend that is attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase Shares pursuant to the plan for
redemption of Shares.
"Investment in Properties" shall mean the amount of the Net Offering
Proceeds actually paid or allocated by the Company, 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 Net Offering Proceeds) of Properties, and other cash payments
such as interest and taxes, but excluding Front-End Fees.
"IRA" shall mean an Individual Retirement Account.
"IRS" shall mean the Internal Revenue Service.
"Joint Ventures" shall mean the joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"Leverage" shall mean the aggregate amount of indebtedness of the
Company for money borrowed (including purchase money mortgage loans) outstanding
at any time, both secured and unsecured.
"Line of Credit" shall mean the revolving $35,000,000 unsecured line of
credit, the proceeds of which will be used to fund Secured Equipment Leases and
to purchase and develop Properties and to fund Mortgage Loans.
"Listing" shall mean the listing of the Shares of the Company on a
national securities exchange or over-the-counter market.
"Managing Dealer" shall mean CNL Securities Corp., an Affiliate of the
Advisor, or such other person or entity selected by the Board of Directors to
act as the managing dealer for the offering. CNL Securities Corp.
is a member of the National Association of Securities Dealers, Inc.
"Mortgage Loans" shall mean notes or other evidences of indebtedness or
obligations which are secured or collateralized by building or other
improvements in real property.
"Net Assets" shall mean the total assets of the Company (other than
intangibles) at cost before deducting depreciation or other non-cash reserves
less total liabilities, calculated quarterly by the Company, on a basis
consistently applied.
"Net Income" shall mean for any period, the total revenues applicable
to such period, less the total expenses applicable to such period excluding
additions to reserves for depreciation, bad debts or other similar non-cash
reserves; provided, however, Net Income for purposes of calculating total
allowable Operating Expenses (as defined herein) shall exclude the gain from the
sale of the Company's assets.
"Net Offering Proceeds" shall mean Gross Proceeds less (i) Selling
Commissions, (ii) Offering Expenses, and (iii) the marketing support and due
diligence expense reimbursement fee.
"Net Sales Proceeds" shall mean, in the case of a transaction described
in clause (i)(A) of the definition of Sale, the proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Company. In the case of a transaction described in clause (i)(B) of such
definition, Net Sales Proceeds means the proceeds of any such transaction less
the amount of any legal and other selling expenses incurred in connection with
such transaction. In the case of a transaction described in clause (i)(C) of
such definition, Net Sales Proceeds means the proceeds of any such transaction
actually distributed to the Company from the Joint Venture. In the case of a
transaction or series of transactions described in clause (i)(D) of the
definition of Sale, Net Sales Proceeds means the proceeds of any such
transaction less the amount of all commissions and closing costs paid by the
Company. In the case of a transaction described in clause (ii) of the definition
of Sale, Net Sales Proceeds means the proceeds of such transaction or series of
transactions less all amounts generated thereby and reinvested in one or more
Properties within 180 days thereafter and less the amount of any real estate
commissions, closing costs, and legal and other selling expenses incurred by or
allocated to the Company in connection with such transaction or series of
transactions. Net Sales Proceeds shall also include, in the case of any lease of
a Property consisting of a building only or any Secured Equipment Lease, any
amounts from tenants or lessees that the Company determines, in its discretion,
to be economically equivalent to proceeds of a Sale. Net Sales Proceeds shall
not include any reserves established by the Company in its sole discretion.
-102-
<PAGE>
"Operating Expenses" shall include all costs and expenses incurred by
the Company, as determined under generally accepted accounting principles, which
in any way are related to the operation of the Company or to Company business,
including (a) advisory fees, (b) the Soliciting Dealer Servicing Fee, (c) the
Asset Management Fee, (d) the Performance Fee, and (e) the Subordinated
Incentive Fee, but excluding (i) the expenses of raising capital such as
Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration, and other fees, printing and other such expenses, and tax incurred
in connection with the issuance, distribution, transfer, registration, and
Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization, and bad debt reserves, (v) the
Advisor's subordinated 10% share of Net Sales Proceeds, (vi) the Secured
Equipment Lease Servicing Fee, and (vii) Acquisition Fees and Acquisition
Expenses, real estate commissions on the sale of property and other expenses
connected with the acquisition and ownership of real estate interests, mortgage
loans, or other property (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair, and improvement of property).
"Offering Expenses" shall mean any and all costs and expenses, other
than Selling Commissions, the 0.5% marketing support and due diligence expense
reimbursement fee, and the Soliciting Dealer Servicing Fee incurred by the
Company, the Advisor or any Affiliate of either in connection with the
qualification and registration of the Company and the marketing and distribution
of Shares, including, without limitation, the following: legal, accounting, and
escrow fees; printing, amending, supplementing, mailing, and distributing costs;
filing, registration, and qualification fees and taxes; telegraph and telephone
costs; and all advertising and marketing expenses, including the costs related
to investor and broker-dealer sales meetings. The Offering Expenses paid by the
Company in connection with the offering, together with all Selling Commissions,
the 0.5% marketing support and due diligence reimbursement fee, and the
Soliciting Dealer Servicing Fee incurred by the Company will not exceed fifteen
percent (15%) of the proceeds raised in connection with this offering.
"Ownership Limit" shall mean, with respect to shares of Common Stock
and Preferred Stock, the percent limitation placed on the ownership of Common
Stock and Preferred Stock by any one Person (as defined in the Articles of
Incorporation). As of the initial date of this Prospectus, the Ownership Limit
is 9.8% of the outstanding Common Stock and 9.8% of the outstanding Preferred
Stock.
"Participants" shall mean those stockholders who elect to participate
in the Reinvestment Plan.
"Performance Fee" shall mean the fee payable to the Advisor under
certain circumstances if certain performance standards have been met and the
Subordinated Incentive Fee has not been paid.
"Plan" shall mean ERISA Plans, IRAs, Keogh plans, stock bonus plans,
and certain other plans.
"Preferred Stock" shall mean any class or series of preferred stock of
the Company that may be issued in accordance with the terms of the Articles of
Incorporation and applicable law.
"Prior Offerings" means the prior public offerings of the Company, the
Initial Offering and the 1997 Offering.
"Properties" shall mean (i) the real properties, including the
buildings located thereon (ii) the real properties only, or (iii) the buildings
only, which are acquired by the Company, either directly or through joint
venture arrangements or other partnerships.
-103-
<PAGE>
"Prospectus" shall mean the final prospectus included in the Company's
Registration Statement filed with the Securities and Exchange Commission,
pursuant to which the Company will offer Shares to the public, as the same may
be amended or supplemented from time to time after the effective date of such
Registration Statement.
"Qualified Plans" shall mean qualified pension, profit-sharing, and
stock bonus plans, including Keogh plans and IRAs.
"Real Estate Asset Value" shall mean the amount actually paid or
allocated to the purchase, development, construction or improvement of a
Property, exclusive of Acquisition Fees and Acquisition Expenses.
"Reinvestment Agent" or "Agent" shall mean the independent agent, which
currently is MMS Escrow and Transfer Agency, Inc., for Participants in the
Reinvestment Plan.
"Reinvestment Plan" shall mean the Amended Reinvestment Plan, in the
form attached hereto as Exhibit A.
"Reinvestment Proceeds" shall mean net proceeds available from the sale
of Shares under the Reinvestment Plan to redeem Shares or, under certain
circumstances, to purchase additional Properties.
"REIT" shall mean real estate investment trust, as defined pursuant
to Sections 856 through 860 of the Code.
"Related Party Tenant" shall mean a related party tenant, as defined
pursuant to Section 856(d)(2)(B) of the Code.
"Restaurant Chains" shall mean the national and regional restaurant
chains, primarily fast-food, familystyle, and casual dining chains, to be
selected by the Advisor who themselves or their franchisees will either (i)
lease the Properties purchased by the Company, (ii) become borrowers under
Mortgage Loans, or (iii) become lessees of Secured Equipment Leases.
"Roll-Up Entity" shall mean a partnership, real estate investment
trust, corporation, trust, or similar entity that would be created or would
survive after the successful completion of a proposed Roll-Up Transaction.
"Roll-Up Transaction" shall mean a transaction involving the
acquisition, merger, conversion, or consolidation, directly or indirectly, of
the Company and the issuance of securities of a Roll-Up Entity. Such term does
not include: (i) a transaction involving securities of the Company that have
been listed on a national securities exchange or the National Association of
Securities Dealers Automated Quotation National Market System for at least 12
months; or (ii) a transaction involving the conversion to corporate, trust, or
association form of only the Company if, as a consequence of the transaction,
there will be no significant adverse change in stockholder voting rights, the
term of existence of the Company, compensation to the Advisor, or the investment
objectives of the Company.
"Sale" (i) shall mean any transaction or series of transactions
whereby: (A) the Company sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys, or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys, or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards or, (D) the Company sells, grants,
conveys or relinquishes its interest in any Mortgage Loan or Secured Equipment
Lease or portion thereof, including any event with respect to any Mortgage Loan
or Secured Equipment Lease which gives rise to a significant amount of insurance
proceeds or similar awards, but (ii) shall not include any transaction or series
of transactions specified in clause (i)(A), (i)(B), (i)(C) or (i)(D) above in
which the proceeds of such transaction or series of transactions are reinvested
in one or more Properties, Mortgage Loans, or Secured Equipment Leases within
180 days thereafter.
-104-
<PAGE>
"Secured Equipment Leases" shall mean the Equipment financing made
available by the Company to operators of Restaurant Chains pursuant to which the
Company will finance, through direct financing leases or loans, the Equipment.
"Secured Equipment Lease Servicing Fee" shall mean the fee payable to
the Advisor by the Company out of the proceeds of the Line of Credit for
negotiating Secured Equipment Leases and supervising the Secured Equipment Lease
program equal to 2% of the purchase price of the Equipment subject to each
Secured Equipment Lease and paid upon entering into such lease.
"Selling Commissions" shall mean any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Shares as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
"Shares" shall mean the shares of Common Stock of the Company,
including the up to 34,500,000 shares to be sold in the offering.
"Soliciting Dealer Servicing Fee" shall mean an annual fee of .20% of
Invested Capital on December 31 of each year following the year in which the
related offering terminates, payable to the Managing Dealer, which in turn may
reallow all or a portion of such fee to the Soliciting Dealers whose clients
hold Shares on such date.
"Soliciting Dealers" shall mean those broker-dealers that are members
of the National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in
connection with the founding or organizing of the business of
the Company, in consideration of services or property, or both
services and property;
c. having a substantial number of relationships and contacts with
the Company;
d. possessing significant rights to control Company properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which
was not negotiated at arms length with the Company.
"Stockholders' 8% Return," as of each date, shall mean an aggregate
amount equal to an 8% cumulative, noncompounded, annual return on Invested
Capital.
"Subscription Agreement" shall mean the Subscription Agreement, in one
of the forms attached hereto as Exhibit D.
"Subordinated Incentive Fee" shall mean the fee payable to the Advisor
under certain circumstances if the Shares are listed on a national securities
exchange or over-the-counter market.
"Termination Date" shall mean the date of termination of the Advisory
Agreement.
"Unimproved Real Property" shall mean Property in which the Company has
an equity interest that is not acquired for the purpose of producing rental or
other operating income, that has no development or construction in process and
for which no development or construction is planned, in good faith, to commence
within one year.
-105-
<PAGE>
EXHIBIT A
FORM OF AMENDED
REINVESTMENT PLAN
<PAGE>
FORM OF AMENDED
REINVESTMENT PLAN
CNL AMERICAN PROPERTIES FUND, INC., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, adopted a Reinvestment
Plan (the "Reinvestment Plan") on the terms and conditions set forth below.
1. Reinvestment of Distributions. MMS Escrow and Transfer Agency, Inc.,
the agent (the "Reinvestment Agent") for participants (the "Participants") in
the Reinvestment Plan, will receive all cash distributions made by the Company
with respect to shares of common stock of the Company (the "Shares") owned by
each Participant (collectively, the "Distributions"). The Reinvestment Agent
will apply such Distributions as follows:
(a) For any period during which the Company is making a public
offering of Shares, the Reinvestment Agent will invest Distributions in
Shares acquired from the managing dealer or participating brokers for
the offering at the public offering price per Share. During such
period, commissions and the marketing support and due diligence fee
equal to 0.5% of the total amount raised from sale of the Shares will
be reallowed to the broker who made the initial sale of Shares to the
Participant at the same rate as for initial purchases.
(b) If no public offering of Shares is ongoing, the Reinvestment
Agent will purchase Shares from any additional shares which the Company
elects to register with the Securities and Exchange Commission (the
"SEC") for the Reinvestment Plan, at a per Share price equal to the
fair market value of the Shares determined by (i) quarterly appraisal
updates performed by the Company based on a review of the existing
appraisal and lease of each Property, focusing on a re-examination of
the capitalization rate applied to the rental stream to be derived from
that Property; and (ii) a review of the outstanding Mortgage Loans and
Secured Equipment Leases focusing on a determination of present value
by a re-examination of the capitalization rate applied to the stream of
payments due under the terms of each Mortgage Loan and Secured
Equipment Lease. The capitalization rate used by the Company and, as a
result, the price per Share paid by Participants in the Reinvestment
Plan prior to Listing will be determined by the Advisor in its sole
discretion. The factors that the Advisor will use to determine the
capitalization rate include (i) its experience in selecting, acquiring
and managing properties similar to the Properties; (ii) an examination
of the conditions in the market; and (iii) capitalization rates in use
by private appraisers, to the extent that the Advisor deems such
factors appropriate, as well as any other factors that the Advisor
deems relevant or appropriate in making its determination. The
Company's internal accountants will then convert the most recent
quarterly balance sheet of the Company from a "GAAP" balance sheet to a
"fair market value" balance sheet. Based on the "fair market value"
balance sheet, the internal accountants will then assume a sale of the
Company's assets and the liquidation of the Company in accordance with
its constitutive documents and applicable law and compute the
appropriate method of distributing the cash available after payment of
reasonable liquidation expenses, including closing costs typically
associated with the sale of assets and shared by the buyer and seller,
and the creation of reasonable reserves to provide for the payment of
any contingent liabilities. Upon listing of the Shares on a national
securities exchange or over-the-counter market, the Reinvestment Agent
may purchase Shares either through such market or directly from the
Company pursuant to a registration statement relating to the
Reinvestment Plan, in either case at a per Share price equal to the
then-prevailing market price on the national securities exchange or
over-the-counter market on which the Shares are listed at the date of
purchase by the Reinvestment Agent.
(c) For each Participant, the Reinvestment Agent will maintain a
record which shall reflect for each fiscal quarter the Distributions
received by the Reinvestment Agent on behalf of such Participant. The
Reinvestment Agent will use the aggregate amount of Distributions to
all Participants for each fiscal quarter to purchase Shares for the
Participants. If the aggregate amount of Distributions to Participants
exceeds the amount required to purchase all Shares then available for
purchase, the Reinvestment Agent will purchase all available Shares and
will return all remaining Distributions to the Participants within 30
days after the date such Distributions are made. The purchased Shares
will be allocated among the Participants based on the portion of the
aggregate Distributions received by the Reinvestment Agent on behalf of
each Participant, as reflected in the records maintained by the
Reinvestment Agent. The ownership of the Shares purchased pursuant to
the Reinvestment Plan shall be reflected on the books of the Company.
A-1
<PAGE>
(d) Distributions shall be invested by the Reinvestment Agent in
Shares promptly following the payment date with respect to such
Distributions to the extent Shares are available. If sufficient Shares
are not available, Distributions shall be invested on behalf of the
Participants in one or more interest-bearing accounts in Franklin Bank,
N.A., Southfield, Michigan, or in another commercial bank approved by
the Company which is located in the continental United States and has
assets of at least $100,000,000, until Shares are available for
purchase, provided that any Distributions that have not been invested
in Shares within 30 days after such Distributions are made by the
Company shall be returned to Participants.
(e) The allocation of Shares among Participants may result in the
ownership of fractional Shares, computed to four decimal places.
(f) Distributions attributable to Shares purchased on behalf of
the Participants pursuant to the Reinvestment Plan will be reinvested
in additional Shares in accordance with the terms hereof.
(g) No certificates will be issued to a Participant for Shares
purchased on behalf of the Participant pursuant to the Reinvestment
Plan. Participants in the Reinvestment Plan will receive statements of
account in accordance with Paragraph 7 below.
2. Election to Participate. Any stockholder who participates in a
public offering of Shares and who has received a copy of the related final
prospectus included in the Company's registration statement filed with the SEC
may elect to participate in and purchase Shares through the Reinvestment Plan at
any time by written notice to the Company and would not need to receive a
separate prospectus relating solely to the Reinvestment Plan. A person who
becomes a stockholder otherwise than by participating in a public offering of
Shares may purchase Shares through the Reinvestment Plan only after receipt of a
separate prospectus relating solely to the Reinvestment Plan. Participation in
the Reinvestment Plan will commence with the next Distribution made after
receipt of the Participant's notice, provided it is received more than ten days
prior to the last day of the fiscal month or quarter, as the case may be, to
which such Distribution relates. Subject to the preceding sentence, regardless
of the date of such election, a shareholder will become a Participant in the
Reinvestment Plan effective on the first day of the fiscal month (prior to
termination of the offering of Shares) or fiscal quarter (after termination of
the offering of Shares) following such election, and the election will apply to
all Distributions attributable to the fiscal quarter or month (as the case may
be) in which the shareholder makes such written election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter.
3. Distribution of Funds. In making purchases for Participants'
accounts, the Reinvestment Agent may commingle Distributions attributable to
Shares owned by Participants in the Reinvestment Plan.
4. Proxy Solicitation. The Reinvestment Agent will distribute to
Participants proxy solicitation material received by it from the Company which
is attributable to Shares held in the Reinvestment Plan. The Reinvestment Agent
will vote any Shares that it holds for the account of a Participant in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s) representing the Company covering Shares registered in the
Participant's name, such proxy will be deemed to be an instruction to the
Reinvestment Agent to vote the full Shares in the Participant's account in like
manner. If a Participant does not direct the Reinvestment Agent as to how the
Shares should be voted and does not give a proxy to person(s) representing the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.
5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any responsibility or liability as to the value of the Company's
Shares, any change in the value of the Shares acquired for the Participant's
account, or the rate of return earned on, or the value of, the interest-bearing
accounts, in which Distributions are invested. Neither the Company nor the
Reinvestment Agent shall be liable for any act done in good faith, or for any
good faith omission to act, including, without limitation, any claims of
liability (a) arising out of the failure to terminate a Participant's
participation in the Reinvestment Plan upon such Participant's death prior to
receipt of notice in writing of such death and the expiration of 15 days from
the date of receipt of such notice and (b) with respect to the time and the
prices at which Shares are purchased for a Participant. Notwithstanding the
foregoing, liability under the federal securities laws cannot be waived.
Similarly, the Company and the Reinvestment Agent have been advised that in the
opinion of certain state securities commissioners, indemnification is also
considered contrary to public policy and therefore unenforceable.
A-2
<PAGE>
6. Suitability.
(a) Within 60 days prior to the end of each fiscal year, CNL
Securities Corp. ("CSC"), will mail to each Participant a participation
agreement (the "Participation Agreement"), in which the Participant
will be required to represent that there has been no material change in
the Participant's financial condition and confirm that the
representations made by the Participant in the Subscription Agreement
(a form of which shall be attached to the Participation Agreement) are
true and correct as of the date of the Participation Agreement, except
as noted in the Participation Agreement or the attached form of
Subscription Agreement.
(b) Each Participant will be required to return the executed
Participation Agreement to CSC within 30 days after receipt. In the
event that a Participant fails to respond to CSC or return the
completed Participation Agreement on or before the fifteenth (15th) day
after the beginning of the fiscal year following receipt of the
Participation Agreement, the Participant's Distribution for the first
fiscal quarter of that year will be sent directly to the Participant
and no Shares will be purchased on behalf of the Participant for that
fiscal quarter and, subject to (c) below, any fiscal quarters
thereafter, until CSC receives an executed Participation Agreement from
the Participant.
(c) If a Participant fails to return the executed Participation
Agreement to CSC prior to the end of the second fiscal quarter for any
year of the Participant's participation in the Reinvestment Plan, the
Participant's participation in the Reinvestment Plan shall be
terminated in accordance with Paragraph 11 below.
(d) Each Participant shall notify CSC in the event that, at any
time during his participation in the Reinvestment Plan, there is any
material change in the Participant's financial condition or inaccuracy
of any representation under the Subscription Agreement.
(e) For purposes of this Paragraph 6, a material change shall
include any anticipated or actual decrease in net worth or annual gross
income or any other change in circumstances that would cause the
Participant to fail to meet the suitability standards set forth in the
Company's Prospectus.
7. Reports to Participants. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Shares purchased during the quarter, the per Share
purchase price for such Shares, the total administrative charge to such
Participant, and the total Shares purchased on behalf of the Participant
pursuant to the Reinvestment Plan. Each statement shall also advise the
Participant that, in accordance with Paragraph 6(d) hereof, he is required to
notify CSC in the event that there is any material change in his financial
condition or if any representation under the Subscription Agreement becomes
inaccurate.
8. Administrative Charges, Commissions, and Plan Expenses. The Company
shall be responsible for all administrative changes and expenses charged by the
Reinvestment Agent. The administrative charge for each Participant for each
fiscal quarter shall be the lesser of 5% of the amount reinvested for the
Participant or $2.50, with a minimum charge of $.50. Any interest earned on
Distributions will be paid to the Company to defray costs relating to the
Reinvestment Plan. Additionally, in connection with any Shares purchased from
the Company both prior to and after the termination of a public offering of the
Shares, the Company will pay to CSC selling commissions of 7.5%, a marketing
support and due diligence expense reimbursement fee of .5%, and, in the event
that proceeds of the sale of Shares pursuant to the Reinvestment Plan are used
to acquire Properties or to invest in Mortgage Loans, will pay to CNL Fund
Advisors, Inc. acquisition fees of 4.5% of the purchase price of the Shares sold
pursuant to the Reinvestment Plan.
9. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Company or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants may incur a tax liability for
Distributions made with respect to such Participant's Shares, even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.
A-3
<PAGE>
11. Termination.
(a) A Participant may terminate his participation in the
Reinvestment Plan at any time by written notice to the Company. To be
effective for any Distribution, such notice must be received by the
Company at least ten business days prior to the last day of the fiscal
month or quarter to which such Distribution relates.
(b) The Company or the Reinvestment Agent may terminate a
Participant's individual participation in the Reinvestment Plan, and
the Company may terminate the Reinvestment Plan itself at any time by
ten days' prior written notice mailed to a Participant, or to all
Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish
to the Company in writing.
(c) After termination of the Reinvestment Plan or termination of a
Participant's participation in the Reinvestment Plan, the Reinvestment
Agent will send to each Participant (i) a statement of account in
accordance with Paragraph 7 hereof, and (ii) a check for (a) the amount
of any Distributions in the Participant's account that have not been
reinvested in Shares, and (b) the value of any fractional Shares
standing to the credit of a Participant's account based on the market
price of the Shares. The record books of the Company will be revised to
reflect the ownership of record of the Participant's full Shares and
any future Distributions made after the effective date of the
termination will be sent directly to the former Participant.
12. Notice. Any notice or other communication required or permitted to
be given by any provision of this Reinvestment Plan shall be in writing and
addressed to Investor Services Department, CNL Securities Corp., 400 East South
Street, Suite 500, Orlando, Florida 32801, if to the Company, or to 1845
Maxwell, Suite 101, Troy, Michigan 48084-4510, if to the Reinvestment Agent, or
such other addresses as may be specified by written notice to all Participants.
Notices to a Participant may be given by letter addressed to the Participant at
the Participant's last address of record with the Company. Each Participant
shall notify the Company promptly in writing of any change of address.
13. Amendment. The terms and conditions of this Reinvestment Plan may
be amended or supplemented by an agreement between the Reinvestment Agent and
the Company at any time, including but not limited to an amendment to the
Reinvestment Plan to add a voluntary cash contribution feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative charge payable to the Reinvestment Agent, by mailing an
appropriate notice at least 30 days prior to the effective date thereof to each
Participant at his last address of record; provided, that any such amendment
must be approved by a majority of the Independent Directors of the Company. Such
amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the Company receives written
notice of termination prior to the effective date thereof.
14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S
ELECTION TO PARTICIPATE IN THE REINVESTMENT PLAN SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF FLORIDA.
A-4
<PAGE>
EXHIBIT B
FINANCIAL INFORMATION
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of June 30, 1997 B-2
Pro Forma Consolidated Statement of Earnings for the six months ended June 30, 1997 B-3
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1996 B-4
Notes to Pro Forma Consolidated Financial Statements for the six months ended
June 30, 1997 and the year ended December 31, 1996 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 B-8
Condensed Consolidated Statements of Earnings for the six months ended June 30, 1997
and 1996 B-9
Condensed Consolidated Statements of Stockholders' Equity for the six months
ended June 30, 1997 and the year ended December 31, 1996 B-10
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1997
and 1996 B-11
Notes to Condensed Consolidated Financial Statements for the six months ended June 30,
1997 and 1996 B-13
Audited Consolidated Financial Statements:
Report of Independent Accountants B-24
Consolidated Balance Sheets as of December 31, 1996 and 1995 B-25
Consolidated Statements of Earnings for the years ended December 31, 1996
and 1995 and the period May 2, 1994 (date of inception) through
December 31, 1994 B-26
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995 and the period May 2, 1994 (date of inception)
through December 31, 1994 B-27
Consolidated Statements of Cash Flows for the years ended December 31, 1996
and 1995 and the period May 2, 1994 (date of inception)
through December 31, 1994 B-28
Notes to Consolidated Financial Statements for the years ended December 31, 1996
and 1995 and the period May 2, 1994 (date of inception)
through December 31, 1994 B-30
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996 B-48
Notes to Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1996 B-56
Schedule IV - Mortgage Loans on Real Estate as of December 31, 1996 B-58
Notes to Schedule IV - Mortgage Loans on Real Estate as of December 31, 1996 B-59
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through June 30,
1997, including the receipt of $223,843,177 in gross offering proceeds from the
sale of 22,384,318 shares of common stock and the application of such proceeds
to purchase 174 properties (including 121 properties which consist of land and
building, one property through a joint venture arrangement which consists of
land and building, eight properties which consist of building only and 44
properties which consist of land only), 33 of which were under construction at
June 30, 1997, to provide mortgage financing to the lessees of the 44 properties
consisting of land only, and to pay organizational and offering expenses,
acquisition fees and miscellaneous acquisition expenses, (ii) the receipt of
$53,649,534 in gross offering proceeds from the sale of 5,364,954 additional
shares of common stock during the period July 1, 1997 through September 17,
1997, and (iii) the application of such funds and $9,770,234 of cash and cash
equivalents at June 30, 1997, to purchase 34 additional properties acquired
during the period July 1, 1997 through September 17, 1997 (15 of which are under
construction and consist of land and building, one property which is under
construction and consists of building only and 18 properties which consist of
land and building), to pay additional costs for the 33 properties under
construction at June 30, 1997, and to pay offering expenses, acquisition fees
and miscellaneous acquisition expenses, all as reflected in the pro forma
adjustments described in the related notes. The Pro Forma Consolidated Balance
Sheet as of June 30, 1997, includes the transactions described in (i) above from
the historical consolidated balance sheet, adjusted to give effect to the
transactions in (ii) and (iii) above, as if they had occurred on June 30, 1997.
The Pro Forma Consolidated Statements of Earnings for the six months
ended June 30, 1997 and the year ended December 31, 1996, include the historical
operating results of the properties described in (i) above from the dates of
their acquisitions plus operating results for six of the properties that were
acquired by the Company during the period January 1, 1996 through September 17,
1997, and had a previous rental history prior to the Company's acquisition of
such properties, from (A) the later of (1) the date the property became
operational as a rental property by the previous owner or (2) January 1, 1996,
to (B) the earlier of (1) the date the property was acquired by the Company or
(2) the end of the pro forma period presented. No pro forma adjustments have
been made to the Pro Forma Consolidated Statement of Earnings for the remaining
properties acquired by the Company during the period January 1, 1996 through
September 17, 1997, due to the fact that these properties did not have a
previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should not
be viewed as predictive of the Company's financial results or conditions in the
future.
B-1
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $140,983,397 $ 31,373,915 (a) $172,357,312
Net investment in direct
financing leases (b) 22,703,193 15,919,470 (a) 38,622,663
Cash and cash equivalents 31,097,346 (9,770,234)(a) 21,327,112
Receivables 497,307 497,307
Mortgage notes receivable 17,737,107 17,737,107
Organization costs, less
accumulated amortization 11,682 11,682
Loan costs, less accumulated
amortization 23,954 23,954
Accrued rental income 861,703 861,703
Other assets 1,026,053 9,480 (a) 1,035,533
------------ ------------ ------------
$214,941,742 $ 37,532,631 $252,474,373
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable $ 4,756,658 $ 4,756,658
Accrued interest payable 26,751 26,751
Accrued construction costs
payable 10,524,476 $(10,524,476)(a) -
Accounts payable and other
accrued expenses 113,317 113,317
Due to related parties 790,223 790,223
Rents paid in advance 305,524 305,524
Deferred rental income 1,005,050 26,353 (a) 1,031,403
Other payables 10,315 10,315
------------ ------------ ------------
Total liabilities 17,532,314 (10,498,123) 7,034,191
------------ ------------ ------------
Minority interest 286,992 286,992
------------ ------------ ------------
Stockholders' equity:
Preferred stock, without par
value. Authorized and unissued
3,000,000 shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
78,000,000 shares - -
Common stock, $.01 par value per
share. Authorized 75,000,000
shares; issued and outstanding
22,404,318 shares; issued and
outstanding, as adjusted,
27,769,272 shares 224,043 53,650 (a) 277,693
Capital in excess of par value 198,913,717 47,977,104 (a) 246,890,821
Accumulated distributions in
excess of net earnings (2,015,324) (2,015,324)
------------ ------------ ------------
197,122,436 48,030,754 245,153,190
------------ ------------ ------------
$214,941,742 $ 37,532,631 $252,474,373
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-2
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
Revenues:
Rental income from
operating leases $4,006,805 $ 8,188 (1) $4,014,993
Earned income from
direct financing leases (2) 958,492 958,492
Interest income from
mortgage notes receivable 815,192 815,192
Other interest and income 934,745 (3,359)(3) 931,386
---------- ---------- ----------
6,715,234 4,829 6,720,063
---------- ---------- ----------
Expenses:
General operating and
administrative 481,211 481,211
Professional services 44,679 44,679
Asset and mortgage management
fees to related party 259,256 873 (4) 260,129
State and other taxes 107,863 107,863
Depreciation and amortization 579,404 2,142 (6) 581,546
---------- ---------- ----------
1,472,413 3,015 1,475,428
---------- ---------- ----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 5,242,821 1,814 5,244,635
Minority Interest in Income of
Consolidated Joint Venture (15,726) (15,726)
--------- ---------- ---------
Net Earnings $5,227,095 $ 1,814 $5,228,909
========== ========== ==========
Earnings Per Share of
Common Stock (7) $ 0.29 $ 0.29
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding (7) 17,826,025 17,826,025
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-3
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
Revenues:
Rental income from
operating leases $3,717,886 $ 62,167 (1) $3,780,053
Earned income from
direct financing leases (2) 625,492 34,282 (1) 659,774
Contingent rental income 13,920 13,920
Interest income from
mortgage notes receivable 1,069,349 1,069,349
Other interest and income 780,037 (24,826)(3) 755,211
---------- ---------- ---------
6,206,684 71,623 6,278,307
---------- ---------- ---------
Expenses:
General operating and
administrative 542,564 542,564
Professional services 58,976 58,976
Asset and mortgage management
fees to related party 251,200 5,435 (4) 256,635
State and other taxes 56,184 1,218 (5) 57,402
Depreciation and amortization 521,871 6,852 (6) 528,723
---------- ---------- ----------
1,430,795 13,505 1,444,300
---------- ---------- ----------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 4,775,889 58,118 4,834,007
Minority Interest in Income of
Consolidated Joint Venture (29,927) (29,927)
---------- ---------- ---------
Net Earnings $4,745,962 $ 58,118 $4,804,080
========== ========== ==========
Earnings Per Share of
Common Stock (7) $ 0.59 $ 0.60
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding (7) 8,071,670 8,071,670
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
B-4
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $53,649,534 from the issuance of 5,364,954
shares of common stock during the period July 1, 1997 through September
17, 1997, the receipt of $26,353 of rental income during construction
(capitalized as deferred rental income), and $9,770,234 of cash and
cash equivalents used (i) to acquire 34 properties for $38,156,494 of
which one property consists of building only and 33 properties consist
of land and building, (ii) to fund estimated construction costs of
$17,256,618 ($10,524,476 of which was accrued as construction costs
payable at June 30, 1997) relating to 33 wholly-owned properties under
construction at June 30, 1997, (iii) to pay acquisition fees of
$2,414,229 ($2,404,749 of which was allocated to properties and $9,480
of which was classified as other assets and will be allocated to future
properties) and (iv) to pay selling commissions and offering expenses
(stock issuance costs) of $5,618,780, which have been netted against
capital in excess of par value.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions were as follows:
<TABLE>
<CAPTION>
Estimated purchase
price (including
construction and
closing costs) Acquisition fees
and additional allocated to
construction costs property Total
------------------ ---------------- ----------
<S> <C>
Boston Market in Southlake, TX 1,025,712 54,949 1,080,661
Boston Market in Stafford, TX 1,068,222 57,226 1,125,448
Jack in the Box in Channelview, TX 1,007,970 53,998 1,061,968
Jack in the Box in Garland, TX 935,120 50,096 985,216
KFC in Putnam, CT 794,700 42,573 837,273
Arby's in Lexington, NC 741,536 39,725 781,261
Boston Market in Newport News, VA 1,002,216 53,690 1,055,906
IHOP in Houston, TX 1,419,809 76,061 1,495,870
IHOP in Stockbridge, GA 1,392,627 74,605 1,467,232
Jack in the Box in Woodland, CA 962,592 51,568 1,014,160
Jack in the Box in West Sacramento, CA 1,072,031 57,430 1,129,461
Tumbleweed Southwest Mesquite
Grill & Bar in Cookeville, TN 1,456,843 78,045 1,534,888
Tumbleweed Southwest Mesquite
Grill & Bar in Hendersonville, TN 739,655 39,624 779,279
Tumbleweed Southwest Mesquite
Grill & Bar in Lawrence, KS 1,433,474 76,794 1,510,268
Tumbleweed Southwest Mesquite
Grill & Bar in Nashville, TN 1,294,917 69,371 1,364,288
Arby's in Greensboro, NC 726,273 38,908 765,181
Arby's in Greenville, NC 726,273 38,907 765,180
Arby's in Jonesville, NC 726,273 38,907 765,180
Arby's in Kernersville, NC 649,000 34,768 683,768
Arby's in Kinston, NC 712,636 38,177 750,813
Tumbleweed Southwest Mesquite
Grill & Bar in Murfreesboro, TN 1,410,322 75,553 1,485,875
Boston Market in Edgewater, CO 896,187 48,010 944,197
Golden Corral in Fort Walton Beach, FL 1,490,657 79,857 1,570,514
Golden Corral in Duncan, OK 1,036,607 55,532 1,092,139
Ruby Tuesday's in London, KY 1,119,970 59,999 1,179,969
IHOP in Elk Grove, CA 1,535,840 82,278 1,618,118
IHOP in Lake Jackson, TX 1,192,497 63,884 1,256,381
IHOP in Loveland, CO 1,372,745 73,540 1,446,285
IHOP in Victoria, TX 1,070,000 57,321 1,127,321
Shoney's in Las Vegas, NV 1,519,984 81,428 1,601,412
Boston Market in Hoover, AL 1,052,658 56,392 1,109,050
TGI Friday's in Superstition Springs, AZ 2,038,893 109,227 2,148,120
Golden Corral in Mobile, AL 1,343,204 71,957 1,415,161
Golden Corral in Palatka, FL 1,189,051 63,699 1,252,750
33 wholly owned properties under
construction at June 30, 1997 6,732,142 360,650 7,092,792
----------- ----------- -----------
$44,888,636 $ 2,404,749 $47,293,385
=========== =========== ===========
</TABLE>
B-5
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Balance Sheet - Continued:
Adjustment classified as follows:
Land and buildings on operating leases $31,373,915
Net investment in direct financing leases 15,919,470
-----------
$47,293,385
===========
(b) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated
as direct financing leases rather than as land and buildings. The
categorization of the leases has no effect on rental revenues received.
Pro Forma Consolidated Statement of Earnings:
(1) Represents rental income from operating leases and earned income from
direct financing leases for six of the properties acquired during the
period January 1, 1996 through September 17, 1997, which had a previous
rental history prior to the acquisition of the property by the Company
(the "Pro Forma Properties"), for the period commencing (A) the later
of (i) the date the Pro Forma Property became operational as a rental
property by the previous owner or (ii) January 1, 1996, to (B) the
earlier of (i) the date the Pro Forma Property was acquired by the
Company or (ii) the end of the pro forma period presented. Each of the
six Pro Forma Properties was acquired from an affiliate who had
purchased and temporarily held title to the property. The
noncancellable leases for the Pro Forma Properties in place during the
period the affiliate owned the properties were assigned to the Company
at the time the Company acquired the properties. The following presents
the actual date the Pro Forma Properties were acquired or placed in
service by the Company as compared to the date the Pro Forma Properties
were treated as becoming operational as a rental property for purposes
of the Pro Forma Consolidated Statement of Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
-------------- ---------------
Mr. Fable's in Grand
Rapids, MI March 1996 January 1996
Denny's in McKinney, TX June 1996 January 1996
Boston Market in Merced, CA October 1996 July 1996
Boston Market in
St. Joseph, MO December 1996 June 1996
Burger King in Kent, OH February 1997 December 1996
Golden Corral in
Hopkinsville, KY February 19, 1997 February 18, 1997
In accordance with generally accepted accounting principles, lease
revenue from leases accounted for under the operating method is
recognized over the terms of the leases. For operating leases providing
escalating guaranteed minimum rents, income is reported on a
straight-line basis over the terms of the leases. For leases accounted
for as direct financing leases, future minimum lease payments are
recorded as a receivable. The difference between the receivable and the
estimated residual values less the cost of the properties is recorded
as unearned income. The unearned income is amortized over the lease
terms to provide a constant rate of return. Accordingly, pro forma
rental income from operating leases and earned income from direct
financing leases does not necessarily represent rental payments that
would have been received if the properties had been operational for the
full pro forma period.
B-6
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
Pro Forma Consolidated Statement of Earnings - Continued:
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1996 and 1997 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental
income for the six months ended June 30, 1997 and the year ended
December 31, 1996.
(2) See Note (b) under "Pro Forma Consolidated Balance Sheet" above for a
description of direct financing leases.
(3) Represents adjustment to interest income due to the decrease in the
amount of cash available for investment in interest bearing accounts
during the periods commencing (A) on the later of (i) the dates the Pro
Forma Properties became operational as rental properties by the
previous owners or (ii) January 1, 1996, through (B) the earlier of (i)
the actual dates of acquisition by the Company or the end of the pro
forma period presented, as described in Note (1) above. The estimated
pro forma adjustment is based upon the fact that interest income on
interest bearing accounts was earned at a rate of approximately four
percent per annum by the Company during the six months ended June 30,
1997 and the year ended December 31, 1996.
(4) Represents incremental increase in asset management fees relating to
the Pro Forma Properties for the period commencing (A) on the later of
(i) the date the Pro Forma Properties became operational as rental
properties by the previous owners or (ii) January 1, 1996 through (B)
the earlier of (i) the date the Pro Forma Properties were acquired by
the Company or (ii) the end of the pro forma period presented, as
described in Note (1) above. Asset management fees are equal to 0.60%
of the Company's Real Estate Asset Value (estimated to be approximately
$873,000 and $3,509,000 for the Pro Forma Properties for the six months
ended June 30, 1997 and the year ended December 31, 1996,
respectively), as defined in the Company's prospectus.
(5) Represents adjustment to state tax expense due to the incremental
increase in rental revenues of Pro Forma Properties. Estimated pro
forma state tax expense was calculated based on an analysis of state
laws of the various states in which the Company has acquired the Pro
Forma Properties. The estimated pro forma state taxes consist primarily
of income and franchise taxes ranging from zero to approximately two
percent of the Company's pro forma rental income of each Pro Forma
Property. Due to the fact that the Company's leases are triple net, the
Company has not included any amounts for real estate taxes in the pro
forma statement of earnings.
(6) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30
years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the six
months ended June 30, 1997 and the year ended December 31, 1996.
B-7
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1997 1996
------------ ------------
Land and buildings on operating leases,
less accumulated depreciation $140,983,397 $ 60,243,146
Net investment in direct financing leases 22,703,193 15,186,686
Cash and cash equivalents 31,097,346 42,450,088
Receivables 497,307 160,675
Mortgage notes receivable 17,737,107 13,389,607
Organization costs, less accumulated
amortization of $8,318 and $6,318 11,682 13,682
Loan costs, less accumulated amortization
of $36,680 and $22,034 23,954 32,499
Accrued rental income 861,703 422,076
Other assets 1,026,053 2,926,589
------------ ------------
$214,941,742 $134,825,048
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 4,756,658 $ 3,521,816
Accrued interest payable 26,751 13,164
Accrued construction costs payable 10,524,476 6,587,573
Accounts payable and accrued expenses 113,317 79,817
Due to related parties 790,223 997,084
Rents paid in advance 305,524 118,900
Deferred rental income 1,005,050 335,849
Other payables 10,315 15,117
------------ ------------
Total liabilities 17,532,314 11,669,320
------------ ------------
Minority interest 286,992 288,301
------------ ------------
Commitments (Note 12)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per share.
Authorized and unissued 78,000,000
shares - -
Common stock, $.01 par value per share.
Authorized 75,000,000 shares, issued
and outstanding 22,404,318 and
13,944,715, respectively 224,043 139,447
Capital in excess of par value 198,913,717 123,687,929
Accumulated distributions in excess of
net earnings (2,015,324) (959,949)
------------ ------------
Total stockholders' equity 197,122,436 122,867,427
------------ ------------
$214,941,742 $134,825,048
============ ============
See accompanying notes to condensed consolidated
financial statements.
B-8
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ---------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $2,363,731 $ 854,846 $4,006,805 $1,618,001
Earned income from
direct financing
leases 511,781 50,258 958,492 86,184
Interest income from
mortgage notes
receivable 439,835 280,549 815,192 465,498
Other interest and
income 460,329 135,940 934,745 211,789
---------- ---------- ---------- ----------
3,775,676 1,321,593 6,715,234 2,381,472
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 225,755 143,790 481,211 272,897
Professional services 6,216 18,699 44,679 48,391
Asset and mortgage
management fees to
related party 148,740 57,303 259,256 97,673
State and other taxes 72,513 9,486 107,863 12,384
Depreciation and
amortization 339,366 140,290 579,404 238,762
---------- ---------- ---------- ----------
792,590 369,568 1,472,413 670,107
---------- ---------- ---------- ----------
Earnings Before Minority
Interest in Income of
Consolidated Joint
Venture 2,983,086 952,025 5,242,821 1,711,365
Minority Interest in
Income of Consolidated
Joint Venture (7,833) (7,571) (15,726) (22,323)
---------- ---------- ---------- ----------
Net Earnings $2,975,253 $ 944,454 $5,227,095 $1,689,042
========== ========== ========== ==========
Earnings Per Share of
Common Stock $ 0.15 $ 0.14 $ 0.29 $ 0.30
========== ========== ========== ==========
Weighted Average Number
of Shares of Common
Stock Outstanding 19,997,391 6,649,040 17,826,025 5,649,041
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
B-9
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1997 and
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Accumulated
Common stock distributions
------------------------- Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
--------- ----- --------- ------------- ------------
<S> <C>
Balance at
December 31, 1995 3,865,416 $ 38,654 $ 32,211,833 $ (269,839) $ 31,980,648
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 10,079,299 100,793 100,692,198 - 100,792,991
Stock issuance
costs - - (9,216,102) - (9,216,102)
Net earnings - - - 4,745,962 4,745,962
Distributions
declared and
paid ($.71
per share) - - - (5,436,072) (5,436,072)
---------- -------- ------------ ------------ ------------
Balance at
December 31, 1996 13,944,715 139,447 123,687,929 (959,949) 122,867,427
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment
plan 8,459,603 84,596 84,511,434 84,596,030
Stock issuance
costs (9,285,646) (9,285,646)
Net earnings 5,227,095 5,227,095
Distributions
declared and
paid ($.35
per share) (6,282,470) (6,282,470)
---------- -------- ------------ ------------ ------------
Balance at
June 30, 1997 22,404,318 $224,043 $198,913,717 $ (2,015,324) $197,122,436
========== ======== ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
B-10
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1997 1996
------------ -------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 6,314,003 $ 1,573,575
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (75,111,847) (18,316,555)
Investment in direct financing
leases (14,391,675) (1,555,641)
Proceeds from sale of buildings and
equipment under direct financing
leases 6,216,357 -
Investment in mortgage notes
receivable (4,443,982) (12,363,000)
Collection of deferred financing
income 42,000 43,270
Collection on mortgage notes
receivable 117,192 41,022
Increase in other assets - (644,752)
------------ ------------
Net cash used in investing
activities (87,571,955) (32,795,656)
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of
the Company (1,524,434) (556,511)
Proceeds of borrowing on line
of credit 2,888,163 603,745
Payment on line of credit (1,653,321) -
Payment of loan costs (6,101) (53,500)
Contribution from minority
interest of consolidated
joint venture - 97,419
Subscriptions received from
stockholders 84,646,030 38,362,490
Distributions to minority interest (17,035) (22,010)
Distributions to stockholders (6,282,470) (1,871,820)
Payment of stock issuance costs (8,145,622) (3,502,100)
Other - 25,500
------------ ------------
Net cash provided by
financing activities 69,905,210 33,083,213
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents (11,352,742) 1,861,132
Cash and Cash Equivalents at Beginning
of Period 42,450,088 11,508,445
------------ ------------
Cash and Cash Equivalents at End
of Period $ 31,097,346 $ 13,369,577
============ ============
See accompanying notes to condensed consolidated
financial statements.
B-11
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Six Months Ended
June 30,
1997 1996
------------ ------------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition and stock issuance
costs on behalf of the Company
as follows:
Acquisition costs $ 329,237 $ 107,383
Stock issuance costs 1,361,009 495,800
------------ ------------
$ 1,690,246 $ 603,183
============ ============
See accompanying notes to condensed consolidated
financial statements.
B-12
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1997 and 1996
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. (the "Company") was organized in
Maryland on May 2, 1994, primarily for the purpose of acquiring,
directly or indirectly through joint venture or co-tenancy
arrangements, restaurant properties (the "Properties") to be leased on
a long-term, triple-net basis to operators of certain national and
regional fast-food, family- style and casual dining restaurant chains.
The Company may provide financing ("Mortgage Loans") for the purchase
of buildings, generally by tenants that lease the underlying land from
the Company. To a lesser extent, the Company may offer furniture,
fixtures and equipment financing ("Secured Equipment Leases") to
operators of restaurant chains.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1997, may not be indicative
of the results that may be expected for the year ending December 31,
1997. Amounts as of December 31, 1996, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1996.
The Company accounts for its 85.47% interest in CNL/Corral South Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partner's proportionate share of the equity
in the Company's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
Certain items in the prior year's financial statements have been
reclassified to conform to 1997 presentation. These reclassifications
had no effect on stockholders' equity or net earnings.
B-13
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
2. Basis of Presentation - Continued:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share." The Statement, which is effective for fiscal years ending after
December 15, 1997, provides for a revised computation of earnings per
share. The Company will adopt this Standard in 1997 and does not expect
compliance with such Standard to have a material effect, if any, on the
Company's earnings per share.
3. Leases:
The Company leases its land, buildings and equipment subject to Secured
Equipment Leases to operators or franchisees of national and regional
fast-food, family-style and casual dining restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." The leases relating to 152
of the Company's Properties have been classified as operating leases
(including the leases relating to 33 properties under construction as
of June 30, 1997) and the leases relating to 22 Properties and 14
Secured Equipment Leases have been classified as direct financing
leases. For the leases classified as direct financing leases, the
building portions of the leases are accounted for as direct financing
leases while the land portions of 14 of these leases are accounted for
as operating leases.
4. Land and Buildings on Operating Leases:
In May 1997, the Company sold four of its Properties and the equipment
relating to two secured Equipment Leases to the tenant. The Company
received net proceeds of approximately $6,216,400 which was equal to
the carrying value of the Properties and the equipment at the time of
the sale. As a result, no gain or loss was recognized for financial
reporting purposes.
B-14
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
4. Land and Buildings on Operating Leases - Continued:
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1997 1996
------------ ------------
Land $ 79,480,653 $ 33,850,436
Buildings 49,214,317 24,152,610
------------ ------------
128,694,970 58,003,046
Less accumulated
depreciation (1,185,404) (611,396)
------------ ------------
127,509,566 57,391,650
Construction in
progress 13,473,831 2,851,496
------------ ------------
$140,983,397 $ 60,243,146
============ ============
Some leases provide for scheduled rent increases throughout the lease
term and/or rental payments during the construction of a Property prior
to the date it is placed in service. Such amounts are recognized on a
straight-line basis over the terms of the leases commencing on the date
the Property is placed in service. For the six months ended June 30,
1997 and 1996, the Company recognized $616,027 and $176,080,
respectively, of such rental income, $346,287 and $63,175 of which was
earned during the quarters ended June 30, 1997 and 1996, respectively.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at June 30, 1997:
1997 $ 5,899,037
1998 10,723,569
1999 10,737,880
2000 10,761,481
2001 10,953,725
Thereafter 165,685,054
------------
$214,760,746
============
Since leases are renewable 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 rents which may be received on the leases based on
the percentage of the tenant's gross sales. These amounts do not
include minimum lease payments that will become due when Properties
under development are completed (See Note 12).
B-15
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
5. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at:
June 30, December 31,
1997 1996
----------- ------------
Minimum lease payments
receivable $ 46,870,056 $ 30,162,465
Estimated residual
values 3,527,032 1,346,332
Less unearned income (27,693,895) (16,322,111)
------------ ------------
Net investment in
direct financing
leases $ 22,703,193 $ 15,186,686
============ ============
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at June 30, 1997:
1997 $ 1,635,590
1998 3,273,686
1999 3,273,686
2000 3,273,686
2001 3,045,726
Thereafter 32,367,682
-----------
$46,870,056
===========
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 4).
6. Mortgage Notes Receivable:
In March 1997, in connection with the acquisition of land for eight
Pizza Hut restaurants, the Company accepted a promissory note in the
principal sum of $4,200,000, collateralized by a mortgage on the
buildings on the eight Pizza Hut Properties and three additional Pizza
Hut buildings. The promissory note bears interest at a rate of 10.5%
per annum and is being collected in 240 equal monthly installments of
$41,943.
B-16
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
6. Mortgage Notes Receivable - Continued:
Mortgage notes receivable consisted of the following at:
June 30, December 31,
1997 1996
------------ ------------
Outstanding principal $16,795,958 $12,713,151
Accrued interest income 79,162 35,285
Deferred financing income (87,562) (46,268)
Unamortized loan costs 949,549 687,439
----------- -----------
$17,737,107 $13,389,607
=========== ===========
Management believes that the estimated fair value of mortgage notes
receivable at June 30, 1997, approximates the outstanding principal
amount based on estimated current rates at which similar loans would be
made to borrowers with similar credit and for similar maturities.
7. Note Payable:
On March 5, 1996, the Company entered into a line of credit and
security agreement (the "Loan") with a bank to be used by the Company
to offer Secured Equipment Leases. The Loan provides that the Company
will be able to receive advances of up to $15,000,000 until March 4,
1998. As of June 30, 1997, $4,756,658 of principal was outstanding
relating to the Loan, plus $26,751 of accrued interest. In general,
advances under the Loan are fully amortizing term loans repayable over
six years and bear interest at a rate per annum equal to 215 basis
points above the Reserve Adjusted LIBOR Rate (ranging from 7.84% to
7.86% as of June 30, 1997). The Company believes, based on current
terms, that the carrying value of its note payable at June 30, 1997,
approximates fair value.
Interest costs (including amortization of loan costs) incurred for the
quarter and six months ended June 30, 1997, were $112,985 and $210,542,
respectively, all of which were capitalized as part of the cost of
buildings under construction.
B-17
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
8. Stock Issuance Costs:
The Company has incurred certain expenses of its offerings of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all offering expenses (excluding commissions
and marketing support and due diligence expense reimbursement fees)
which exceed three percent of the gross offering proceeds received from
the sale of shares of the Company.
During the six months ended June 30, 1997 and the year ended December
31, 1996, the Company incurred $9,285,646 and $9,216,102, respectively,
in stock issuance costs, including $6,767,682 and $8,063,439,
respectively, in commissions and marketing support and due diligence
expense reimbursement fees (see Note 10). The stock issuance costs have
been charged to stockholders' equity subject to the three percent cap
described above.
9. Distributions:
For the six months ended June 30, 1997 and 1996, approximately 92 and
85 percent, respectively, of the distributions paid to stockholders
were considered ordinary income and approximately eight and 15 percent,
respectively, were considered a return of capital to stockholders for
federal income tax purposes. No amounts distributed to the stockholders
for the six months ended June 30, 1997 and 1996, are required to be or
have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital. The
characterization for tax purposes of distributions declared for the six
months ended June 30, 1997, may not be indicative of the results that
may be expected for the year ending December 31, 1997.
10. Related Party Transactions:
During the six months ended June 30, 1997, the Company incurred
$6,344,702 in selling commissions due to CNL Securities Corp. for
services in connection with the offering of shares. A substantial
portion of this amount ($5,848,410) was or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
B-18
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
10. Related Party Transactions - Continued
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be re-allowed to other broker-dealers. During the six months ended June
30, 1997, the Company incurred $422,980 of such fees, the majority of
which were reallowed to other broker-dealers and from which all bona
fide due diligence expenses were paid.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage
Loans equal to 4.5% of the total amount raised from the sale of shares.
During the six months ended June 30, 1997, the Company incurred
$3,806,821 of such fees. Such fees are included in land and buildings
on operating leases, net investment in direct financing leases,
mortgage notes receivable and other assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur
development/construction management fees payable to affiliates of the
Company. Such fees are included in the purchase price of the Properties
and are therefore included in the basis on which the Company charges
rent on the Properties. During the six months ended June 30, 1997, the
Company incurred $178,879 of such amounts relating to three Properties.
No such amounts were incurred for the six months ended June 30, 1996.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive a one-time
secured equipment lease servicing fee of two percent of the purchase
price of the Equipment that is the subject of a Secured Equipment
Lease. During the six months ended June 30, 1997 and 1996, the Company
incurred $54,598 and $10,776, respectively, in secured equipment lease
servicing fees.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset and mortgage
management fee of one-twelfth of 0.60% of the Company's real estate
asset value (generally, the total amount invested in the Properties as
of the end of the preceding month, exclusive of acquisition fees and
acquisition expenses), plus one-twelfth of 0.60% of the Company's total
B-19
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
10. Related Party Transactions - Continued
principal amount of the Mortgage Loans as of the end of the preceding
month. The management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or
may not be taken, in whole or in part as to any year, in the sole
discretion of the Advisor. All or any portion of the management fee not
taken as to any fiscal year shall be deferred without interest and may
be taken in such other fiscal year as the Advisor shall determine.
During the six months ended June 30, 1997 and 1996, the Company
incurred $300,656 and $100,526, respectively, of such fees, $41,400 and
$2,853, respectively, of which was capitalized as part of the cost of
building for Properties under construction.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative
services in connection with the offerings of shares) on a day-to-day
basis. For the six months ended June 30, 1997 and 1996, the expenses
incurred for these services were classified as follows:
1997 1996
---------- ---------
Stock issuance costs $ 757,096 $ 379,090
General operating and
administrative expenses 269,208 154,018
---------- ---------
$1,026,304 $ 533,108
========== =========
During each of the six months ended June 30, 1997 and 1996, the Company
acquired two Properties for approximately $1,773,300 and $1,798,000,
respectively, from affiliates of the Company. The affiliates had
purchased and temporarily held title to the Properties in order to
facilitate the acquisition of the Properties by the Company. The
Properties were acquired at a cost no greater than the lesser of the
cost of each Property to the affiliate (including carrying costs) or
the Property's appraised value.
B-20
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
10. Related Party Transactions - Continued
The due to related parties consisted of the following at:
June 30, December 31,
1997 1996
-------- ------------
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $333,177 $199,068
Acquisition fees 178,715 383,210
-------- --------
511,892 582,278
-------- --------
Due to CNL Securities Corp:
Commissions 258,474 372,227
Marketing support and due
diligence expense reim-
bursement fees 19,857 42,579
-------- --------
278,331 414,806
-------- --------
$790,223 $997,084
======== ========
11. Concentration of Credit Risk:
The following schedule presents total rental, earned, and interest
income from individual lessees, or affiliated groups of lessees, each
representing more than ten percent of the Company's total rental,
earned, and interest income from its Properties, Mortgage Loans and
Secured Equipment Leases for at least one of the quarters ended June
30:
1997 1996
--------- ----------
Castle Hill Holdings V,
L.L.C. and Castle Hill
Holdings VI, L.L.C.
("Castle Hill") $ 690,375 $ 441,085
Foodmaker, Inc. 419,259 52,833
Golden Corral Corporation 203,070 142,178
B-21
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
11. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental, earned, and
interest income from individual restaurant chains, each representing
more than ten percent of the Company's rental, earned, and interest
income for at least one of the quarters ended June 30:
1997 1996
------- -------
Pizza Hut 690,375 441,085
Golden Corral Family
Steakhouse Restaurants 664,687 313,694
Jack in the Box 419,259 52,833
Boston Market 378,590 85,918
Although the Company's Properties are geographically diverse and the
Company's lessees and borrowers operate a variety of restaurant
concepts, failure of any one of these restaurant chains or any lessee
or borrower that contributes more than ten percent of the Company's
rental, earned and interest income could significantly impact the
results of operations of the Company. However, management believes 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
and borrowers.
12. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction of
buildings the tenants have agreed to lease. The agreements provide a
maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate
maximum development costs the Company has agreed to pay is
approximately $37,343,000 of which approximately $29,936,300 in land
and other costs had been incurred as of June 30, 1997. The buildings
currently under construction are expected to be operational by December
1997. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term lease agreement.
B-22
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1997 and 1996
13. Subsequent Events:
During the period July 1, 1997 through August 5, 1997, the Company
received subscription proceeds for an additional 2,009,403 shares
($20,094,034) of common stock.
On July 1, 1997, the Company declared distributions of $1,403,244 or
$.0625 per share of common stock, payable in September 1997 to
stockholders of record on July 1, 1997.
During the period July 1, 1997 through August 5, 1997, the Company
acquired 20 Properties (four on which restaurants are being constructed
and five on which a restaurant is being renovated) for cash at a total
cost of approximately $20,377,100. In connection with the purchase of
each Property, the Company, as lessor, entered into a long-term lease
agreement. The buildings under construction are expected to be
operational by August 1998.
On August 5, 1997, the Company obtained a commitment (the "Commitment")
from a bank to amend and restate its Loan described in Note 7. The
Commitment provides that the Company will be able to receive advances
on a revolving $35,000,000 unsecured line of credit (the "Line of
Credit") to purchase and develop Properties and to fund Mortgage Loans
and Secured Equipment Leases. The advances will bear interest at a rate
of LIBOR plus 1.65% or the bank's prime rate, whichever the Company
selects at the time of borrowing. Interest only will be repayable
monthly until June 30, 1999, at which time all remaining interest and
principal shall be due. The Line of Credit will provide for two
one-year renewal options. The Commitment will expire unless it is
closed on or before August 29, 1997.
B-23
<PAGE>
Report of Independent Accountants
To the Board of Directors
CNL American Properties Fund, Inc.
We have audited the consolidated financial statements and the financial
statement schedules of CNL American Properties Fund, Inc. (a Maryland
corporation) and its subsidiary listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedules are the responsibility of
the Company'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 consolidated financial position of CNL American
Properties Fund, Inc. and its subsidiary as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996 and for the period May 2,
1994 (date of inception) through December 31, 1994, 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 herein.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida
January 22, 1997
B-24
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1996 1995
------------ ------------
Land and buildings on operating leases,
less accumulated depreciation $ 60,243,146 $ 19,723,726
Net investment in direct financing leases 15,186,686 1,373,882
Cash and cash equivalents 42,450,088 11,508,445
Receivables 160,675 113,613
Mortgage notes receivable 13,389,607 -
Organization costs, less accumulated
amortization of $6,318 and $2,318 13,682 17,682
Loan costs, less accumulated amortization
of $22,034 at December 31, 1996 32,499 -
Accrued rental income 422,076 39,142
Other assets 2,926,589 826,594
------------ ------------
$134,825,048 $ 33,603,084
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 3,521,816 $ -
Accrued interest payable 13,164 -
Accrued construction costs payable 6,587,573 1,058,825
Accounts payable and other accrued expenses 79,817 79,904
Due to related parties 997,084 248,584
Rents paid in advance 118,900 25,351
Deferred rental income 335,849 -
Other payables 15,117 9,696
------------ ------------
Total liabilities 11,669,320 1,422,360
------------ ------------
Minority interest 288,301 200,076
------------ ------------
Commitments (Note 12)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per share.
Authorized and unissued 23,000,000
shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares, issued
and outstanding 13,944,715 and 3,865,416,
respectively 139,447 38,654
Capital in excess of par value 123,687,929 32,211,833
Accumulated distributions in excess of
net earnings (959,949) (269,839)
------------ ------------
Total stockholders' equity 122,867,427 31,980,648
------------ ------------
$134,825,048 $ 33,603,084
============ ============
See accompanying notes to consolidated financial statements.
B-25
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
---------- ---------- ------------
Revenues:
Rental income from operating
leases $3,717,886 $ 498,817 $ -
Earned income from direct
financing leases 625,492 28,935 -
Contingent rental income 13,920 12,024 -
Interest income from
mortgage notes receivable 1,069,349 - -
Other interest and income 780,037 119,355 -
---------- ---------- ---------
6,206,684 659,131 -
---------- ---------- ---------
Expenses:
General operating and
administrative 542,564 134,759 -
Professional services 58,976 8,119 -
Asset and mortgage manage-
ment fees to related party 251,200 23,078 -
State taxes 56,184 20,189 -
Depreciation and amorti-
zation 521,871 104,131 -
---------- ---------- ---------
1,430,795 290,276 -
---------- ---------- ---------
Earnings Before Minority
Interest in Income of
Consolidated Joint Venture 4,775,889 368,855 -
Minority Interest in Income of
Consolidated Joint Venture (29,927) (76) -
---------- ---------- ---------
Net Earnings $4,745,962 $ 368,779 $ -
========== ========== =========
Earnings Per Share of Common
Stock $ .59 $ .19 $ -
========== ========== =========
Weighted Average Number of
Shares of Common Stock
Outstanding 8,071,670 1,898,350 -
========== ========== =========
See accompanying notes to consolidated financial statements.
B-26
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995 and the
Period May 2, 1994 (Date of Inception) through
December 31, 1994
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------------- Capital in distributions
Number Par excess of in excess of
of shares value par value net earnings Total
--------- -------- ------------ ------------- -----------
<S> <C>
Balance at May 2, 1994 - $ - $ - $ - $ -
Sale of common stock to
CNL Fund Advisors, Inc. 20,000 200 199,800 - 200,000
---------- -------- ------------ ----------- ------------
Balance at December 31,
1994 20,000 200 199,800 - 200,000
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671)
Net earnings - - - 368,779 368,779
Distributions declared
($.31 per share) - - - (638,618) (638,618)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1995 3,865,416 38,654 32,211,833 (269,839) 31,980,648
Subscriptions received
for common stock
through public offering
and distribution
reinvestment plan 10,079,299 100,793 100,692,198 - 100,792,991
Stock issuance costs - - (9,216,102) - (9,216,102)
Net earnings - - - 4,745,962 4,745,962
Distributions declared
($.71 per share) - - - (5,436,072) (5,436,072)
---------- -------- ------------ ----------- ------------
Balance at December 31,
1996 13,944,715 $139,447 $123,687,929 $ (959,949) $122,867,427
========== ======== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-27
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
------------ ------------ -------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Cash received from tenants $ 4,543,506 $ 492,488 $ -
Cash paid for expenses (928,001) (113,384) -
Interest received 1,867,035 119,355 -
------------ ------------ -----------
Net cash provided by operating
activities 5,482,540 498,459 -
------------ ------------ -----------
Cash Flows From Investing Activities:
Additions to land and buildings on
operating leases (36,104,148) (18,835,969) -
Increase in net investment in direct
financing leases (13,372,621) (1,364,960) -
Investment in mortgage notes
receivable (13,547,264) - -
Collections on mortgage notes
receivable 133,850 - -
Increase in other assets (1,103,896) (628,142) -
------------ ------------ -----------
Net cash used in investing
activities (63,994,079) (20,829,071) -
------------ ------------ -----------
Cash Flows From Financing Activities:
Reimbursement of acquisition,
organization, deferred offering and
stock issuance costs paid by related
parties on behalf of the Company (939,798) (2,500,056) (199,036)
Proceeds of borrowing on line of
credit 3,666,896 - -
Payment on line of credit (145,080) - -
Payment of loan costs (54,533) - -
Contribution from minority interest
of consolidated joint venture 97,419 200,000 -
Sale of common stock to CNL Fund
Advisors, Inc. - - 200,000
Subscriptions received from
stockholders 100,792,991 38,454,158 -
Distributions to minority interest (39,121) - -
Distributions to stockholders (5,439,404) (635,286) -
Payment of stock issuance costs (8,486,188) (3,680,704) (19)
------------ ------------ ------------
Net cash provided by financing
activities 89,453,182 31,838,112 945
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 30,941,643 11,507,500 945
Cash and Cash Equivalents at Beginning of
Period 11,508,445 945 -
------------ ------------ -----------
Cash and Cash Equivalents at End of Period $ 42,450,088 $ 11,508,445 $ 945
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-28
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
May 2, 1994
(Date of
Inception)
Year Ended through
December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 4,745,962 $ 368,779 $ -
------------ ------------ ------------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 511,078 100,318 -
Amortization 69,886 3,813 -
Increase in receivables (160,984) (44,749) -
Decrease in net investment in direct
financing leases 259,740 1,078 -
Increase in accrued rental income (382,934) (39,142) -
Increase in other assets (4,293) (8,090) -
Increase in accrued interest payable 13,164 - -
Increase (decrease) in accounts
payable and other accrued expenses (2,896) 38,461 -
Increase (decrease) in due to related
parties, excluding reimbursement of
acquisition, organization, deferred
offering and stock issuance costs
paid on behalf of the Company (30,929) 42,868 -
Increase in rents paid in advance 93,549 25,351 -
Increase in deferred rental income 335,849 - -
Increase in other payables 5,421 9,696 -
Increase in minority interest 29,927 76 -
------------ ------------ ------------
Total adjustments 736,578 129,680 -
------------ ------------ ------------
Net Cash Provided by Operating Activities $ 5,482,540 $ 498,459 $ -
============ ============ ============
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Related parties paid certain acquisition,
organization, deferred offering and
stock issuance costs on behalf of the
Company as follows:
Acquisition costs $ 206,103 $ 131,629 $ -
Organization costs - 20,000 -
Deferred offering costs 466,405 - 461,866
Stock issuance costs 338,212 2,084,145 -
------------ ------------ ------------
$ 1,010,720 $ 2,235,774 $ 461,866
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
B-29
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund, Inc. (the
"Company") was organized in Maryland on May 2, 1994. Effective December
6, 1994, the Company changed its name to CNL Investment Fund, Inc. and
effective February 1, 1995, the Company changed its name to CNL
American Properties Fund, Inc. The Company was organized primarily for
the purpose of acquiring, directly or indirectly through joint venture
or co-tenancy arrangements, restaurant properties ("Properties") to be
leased on a long-term, triple-net basis to operators of certain
national and regional fast-food, family-style and casual dining
restaurant chains. The Company may provide financing ("Mortgage Loans")
for the purchase of buildings, generally by tenants that lease the
underlying land from the Company. To a lesser extent, the Company may
offer furniture, fixtures and equipment financing ("Secured Equipment
Leases") to operators of restaurant chains.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June
1, 1995, were devoted to organization of the Company.
Principles of Consolidation - The Company accounts for its 85.47%
interest in CNL/Corral South Joint Venture using the consolidation
method. Minority interest represents the minority joint venture
partner's proportionate share of the equity in the Company's
consolidated joint venture. All significant intercompany accounts and
transactions have been eliminated.
Real Estate and Lease Accounting - The Company records the acquisition
of land, buildings and equipment at cost, including acquisition and
closing costs. In addition, interest costs incurred during construction
are capitalized in accordance with accounting standards. Land and
buildings are 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. In addition, the Company leases equipment
subject to Secured Equipment Leases. The
B-30
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
leases are accounted for using either the direct financing or the
operating method. Such methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 5). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Company's investment
in the leases.
Operating method - Land and building leases accounted for
using the operating method 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 (including rental payments, if
any, required during the construction of a Property) 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. In contrast, deferred
rental income represents the aggregate amount of scheduled
rental payments to date (including rental payments due during
construction and prior to the Property being placed in
service) in excess of income recognized on a straight-line
basis over the lease term commencing on the date the Property
is placed in service.
When the Properties or equipment are sold, the related cost and
accumulated depreciation for operating leases and the net investment
for direct financing leases, plus any accrued rental income or deferred
rental income, will be removed from the accounts and gains or losses
from sales will be reflected in income. Management reviews its
Properties for impairment
B-31
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations.
Management determines 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, a loss will be
recorded for the amount by which the carrying value of the asset
exceeds its fair market value.
Mortgage Loans - The Company accounts for loan origination fees and
costs incurred in connection with Mortgage Loans in accordance with
Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases." This statement requires the
deferral of loan origination fees and the capitalization of direct loan
costs. The costs capitalized, net of the fees deferred, are amortized
to interest income as an adjustment of yield over the life of the
loans. The unpaid principal and accrued interest on the Mortgage Loans,
plus the unamortized balance of such fees and costs are included in
mortgage notes receivable (see Note 6).
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks, money market funds (some of which are
backed by government securities) and certificates of deposit. Cash
equivalents are stated at cost plus accrued interest, which
approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks, money market funds and certificates of deposit may
exceed federally insured levels; however, the Company has not
experienced any losses in such accounts. The Company limits investment
of temporary cash investments to financial institutions with high
credit standing; therefore, management believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
B-32
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
Loan Costs - Loan costs incurred in connection with the Company's
$15,000,000 line of credit for equipment financing have been
capitalized and are being amortized over the term of the loan
commitment using the straight-line method.
Income or expense associated with interest rate swap agreements related
to equipment financing is recognized on the accrual basis as earned or
incurred through an adjustment to interest expense.
Income Taxes - The Company has made an election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, and related regulations. The
Company generally will not be subject to federal corporate income taxes
on amounts distributed to stockholders, providing it distributes at
least 95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the accompanying consolidated
financial statements. Notwithstanding the Company's qualification for
taxation as a REIT, the Company is subject to certain state taxes on
its income and property.
Earnings Per Share - Earnings per share are calculated based upon the
weighted average number of shares of common stock outstanding during
the period the Company was operational.
Use of Estimates - Management of the Company has 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. Actual results could differ from those
estimates.
New Accounting Standard - Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The statement requires that an entity review
long-lived assets and certain identifiable intangibles, to be held and
used, for impairment whenever events or changes in circumstances
indicate that the
B-33
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
1. Significant Accounting Policies - Continued:
carrying amount of the asset may not be recoverable. Adoption of this
standard had no material effect on the Company's financial position or
results of operations.
2. Public Offering:
The Company has a currently effective registration statement on Form
S-11 with the Securities and Exchange Commission for the sale of
15,000,000 shares ($150,000,000) of common stock. In addition, the
Company has registered an additional 1,500,000 shares ($15,000,000)
which is available only to stockholders who elect to participate in the
Company's reinvestment plan. The Company has adopted a reinvestment
plan pursuant to which stockholders may elect to have the full amount
of their cash distributions from the Company reinvested in additional
shares of common stock of the Company. As of December 31, 1996, the
Company had received subscription proceeds of $139,247,149 (13,924,715
shares), including $591,765 (59,177 shares) through the reinvestment
plan.
In addition, on November 1, 1996, the Company filed a registration
statement with the Securities and Exchange Commission in connection
with the proposed sale by the Company of up to 27,500,000 additional
shares ($275,000,000) of common stock in a public offering (the
"Subsequent Offering") expected to commence immediately following the
termination of the Company's current $150,000,000 offering. Until such
time, if any, as the stockholders approve an increase in the number of
authorized shares of common stock of the Company, the Subsequent
Offering will be limited to 4,800,000 shares ($48,000,000). The Board
of Directors expects to submit, for a vote of the stockholders at a
meeting expected to be held in April 1997, a resolution to increase the
number of authorized shares of common stock of the Company from
20,000,000 to 75,000,000.
3. Leases:
The Company leases its land, buildings and equipment subject to Secured
Equipment Leases to operators of national and regional fast-food,
family-style and casual dining restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases relating to 82 of the
Company's
B-34
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
3. Leases - Continued:
Properties have been classified as operating leases (including the
leases relating to nine Properties under construction as of December
31, 1996) and the leases relating to 12 Properties and six Secured
Equipment Leases have been classified as direct financing leases. For
the leases classified as direct financing leases, the building portions
of the leases are accounted for as direct financing leases while the
land portions of four of these leases are accounted for as operating
leases. Substantially all Property leases have initial terms of 15 to
20 years (expiring between 2007 and 2016) and provide for minimum
rentals. In addition, all of the Property leases provide for contingent
rentals and/or scheduled rent increases over the terms of the leases.
Each tenant also 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 for the Property leases generally
allow tenants to renew the leases for two to four 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 the
greater of the Company's purchase price plus a specified percentage of
such purchase price or fair market value after a specified portion of
the lease has elapsed.
The Secured Equipment Leases placed in service as of December 31, 1996,
provide for minimum rentals payable monthly and have lease terms
ranging from five to seven years. The Secured Equipment Leases
generally include an option for the lessee to acquire the equipment at
the end of the lease term for a nominal fee.
B-35
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1996 1995
----------- -----------
Land $33,850,436 $ 8,890,471
Buildings 24,152,610 10,049,032
----------- -----------
58,003,046 18,939,503
Less accumulated depreci-
ation (611,396) (100,318)
----------- -----------
57,391,650 18,839,185
Construction in progress 2,851,496 884,541
----------- -----------
$60,243,146 $19,723,726
=========== ===========
Some leases provide for scheduled rent increases throughout the lease
term and/or rental payments during the construction of a Property prior
to the date it is placed in service. Such amounts are recognized on a
straight-line basis over the terms of the leases commencing on the date
the Property is placed in service. For the years ended December 31,
1996 and 1995, the Company recognized $517,067 and $39,142,
respectively, of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at December 31, 1996:
1997 $ 5,359,617
1998 5,368,667
1999 5,383,078
2000 5,406,750
2001 5,591,865
Thereafter 73,053,334
------------
$100,163,311
============
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. These
amounts also do not include minimum lease payments that will become due
when Properties under development are completed (see Note 12).
B-36
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
5. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at December 31:
1996 1995
------------ ------------
Minimum lease payments
receivable $ 30,162,465 $ 2,498,881
Estimated residual values 1,346,332 343,740
Less unearned income (16,322,111) (1,468,739)
------------ ------------
Net investment in direct
financing leases $ 15,186,686 $ 1,373,882
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1996:
1997 $ 2,329,762
1998 2,329,762
1999 2,329,762
2000 2,333,080
2001 2,276,690
Thereafter 18,563,409
-----------
$30,162,465
===========
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 4).
6. Mortgage Notes Receivable:
During 1996, in connection with the acquisition of land for 35 Pizza
Hut restaurants, the Company accepted three promissory notes in the
aggregate principal sum of $12,847,000, collateralized by mortgages on
the buildings on the 35 Pizza Hut Properties. The promissory notes bear
interest at a rate of 10.75% per annum and are being collected in 240
equal
B-37
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
6. Mortgage Notes Receivable - Continued:
monthly installments totalling $130,426. Mortgage notes receivable
consisted of the following at December 31, 1996:
Outstanding principal $12,713,151
Accrued interest income 35,285
Deferred financing income (46,268)
Unamortized loan costs 687,439
-----------
$13,389,607
===========
Management believes that the estimated fair value of mortgage notes
receivable at December 31, 1996, approximates the outstanding principal
amount based on estimated current rates at which similar loans would be
made to borrowers with similar credit and for similar maturities.
7. Note Payable:
On March 5, 1996, the Company entered into a line of credit (the
"Loan") and security agreement with a bank. The Loan is to be used by
the Company to offer Secured Equipment Leases. The Loan provides that
the Company will be able to receive advances of up to $15,000,000 until
March 4, 1998. Generally, advances under the Loan will be fully
amortizing term loans repayable in terms equal to the duration of the
Secured Equipment Leases, but in no event greater than 72 months.
Generally, all advances under the Loan will bear interest at either (i)
a rate per annum equal to 215 basis points above the Reserve Adjusted
LIBOR Rate (as defined in the Loan) or (ii) a rate per annum equal to
the bank's prime rate, whichever the Company selects at the time
advances are made. As a condition of obtaining the Loan, the Company
agreed to grant to the bank a first security interest in the Secured
Equipment Leases. In addition, in connection with the Loan, the Company
incurred a commitment fee, legal fees and closing costs of $54,533.
As of December 31, 1996, the Company had obtained advances totalling
$3,666,896 relating to the Loan. In general, the advances are fully
amortizing term loans repayable over six years and bear interest at a
rate per annum equal to 215 basis points above the Reserve Adjusted
LIBOR Rate (ranging from 7.71% to 7.82% as of December 31, 1996). As of
December 31,
B-38
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
7. Note Payable - Continued:
1996, $3,521,816 of principal was outstanding relating to the Loan,
plus $13,164 of accrued interest. The Company believes, based on
current terms, that the carrying value of its note payable at December
31, 1996 approximates fair value.
During 1996, the Company entered into interest rate swap agreements
with a commercial bank to reduce the impact of changes in interest
rates on its floating rate long-term debt. The agreements effectively
change the Company's interest rate exposure on notional amounts
totalling approximately $2,110,000 of the outstanding floating rate
notes to fixed rates ranging from 8.75% to nine percent per annum. The
notional amounts of the interest rate swap agreements amortize over the
period of the agreements which approximate the term of the related
notes. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the
counterparty.
Interest costs (including amortization of loan costs) incurred for the
year ended December 31, 1996, were $127,012, all of which were
capitalized as part of the cost of buildings under construction.
8. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
B-39
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
8. Stock Issuance Costs - Continued:
During the years ended December 31, 1996 and 1995, the Company had
incurred $9,216,102 and $6,423,671, respectively, in organizational and
offering costs, including $8,063,439 and $3,076,333, respectively, in
commissions and marketing support and due diligence expense
reimbursement fees (see Note 10). Of these amounts, as of December 31,
1996 and 1995, $15,619,773 and $6,403,671, respectively, have been
treated as stock issuance costs and $20,000 has been treated as
organization costs. The stock issuance costs have been charged to
stockholders' equity subject to the three percent cap described above.
9. Distributions:
For the years ended December 31, 1996 and 1995, 90.25% and 59.82%,
respectively, of the distributions received by stockholders were
considered to be ordinary income and 9.75% and 40.18%, respectively,
were considered a return of capital for federal income tax purposes. No
amounts distributed to stockholders for the years ended December 31,
1996 and 1995, are required to be or have been treated by the Company
as a return of capital for purposes of calculating the stock- holders'
return on their invested capital.
10. Related Party Transactions:
Certain directors and officers of the Company hold similar positions
with the Advisor and the managing dealer of the Company's common stock
offerings, CNL Securities Corp. In addition, as of December 31, 1994,
the Advisor was the sole stockholder of the Company.
CNL Securities Corp. is entitled to receive selling commissions
amounting to 7.5% of the total amount raised from the sale of shares
for services in connection with the formation of the Company and the
offering of shares, a substantial portion of which has been or will be
paid as commissions to other broker-dealers. During the years ended
December 31, 1996 and 1995, the Company incurred $7,559,474 and
$2,884,062, respectively, of such fees, of which approximately
$7,059,000 and $2,682,000, respectively, were or will be paid by CNL
Securities Corp. as commissions to other broker-dealers.
B-40
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the years ended December
31, 1996 and 1995, the Company incurred $503,965 and $192,271,
respectively, of such fees, the majority of which were reallowed to
other broker-dealers and from which all bona fide due diligence
expenses were paid.
CNL Securities Corp. will also receive a soliciting dealer servicing
fee payable annually by the Company beginning on December 31 of the
year following the year in which the offering terminates in the amount
of 0.20% of the stockholders' investment in the Company. CNL Securities
Corp. in turn may reallow all or a portion of such fee to soliciting
dealers whose clients held shares on such date. As of December 31,
1996, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties and structuring the terms of the Mortgage
Loans equal to 4.5% of the total amount raised from the sale of shares.
During the years ended December 31, 1996 and 1995, the Company incurred
$4,535,685 and $1,730,437, respectively, of such fees. Such fees are
included in land and buildings on operating leases, net investment in
direct financing leases, mortgage notes receivable and other assets.
In connection with the acquisition of Properties that are being or have
been constructed or renovated by affiliates, subject to approval by the
Company's Board of Directors, the Company may incur
development/construction management fees of generally five to ten
percent of the cost of constructing or renovating a Property, payable
to affiliates of the Company. Such fees are included in the purchase
price of the Properties and are therefore included in the basis on
which the Company charges rent on the Properties. During the year ended
December 31, 1996, the Company incurred $159,350 of such amounts
relating to three Properties. No such amounts were incurred for the
year ended December 31, 1995.
B-41
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor is entitled to receive a one-time
secured equipment lease servicing fee of two percent of the purchase
price of the Equipment that is the subject of a Secured Equipment
Lease. During the year ended December 31, 1996, the Company incurred
$70,070 in secured equipment lease servicing fees. No secured equipment
lease servicing fees were incurred for the year ended December 31,
1995.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset and mortgage
management fee of one-twelfth of 0.60% of the Company's real estate
asset value (generally, the total amount invested in the Properties as
of the end of the preceding month, exclusive of acquisition fees and
acquisition expenses), plus one-twelfth of 0.60% of the Company's total
principal amount of the Mortgage Loans as of the end of the preceding
month. The management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or
may not be taken, in whole or in part as to any year, in the sole
discretion of the Advisor. All or any portion of the management fee not
taken as to any fiscal year shall be deferred without interest and may
be taken in such other fiscal year as the Advisor shall determine.
During the years ended December 31, 1996 and 1995, the Company incurred
$278,902 and $27,950, respectively, of such fees, $27,702 and $4,872,
respectively, of which has been capitalized as part of the cost of
buildings for Properties that have been or are being constructed.
Prior to such time, if any, as shares of the Company's common stock are
listed on a national securities exchange or over-the-counter market,
the Advisor is 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 Advisor provides a substantial
amount of services in connection with the sale. The real estate
disposition fee is payable only after the stockholders receive
distributions equal to the sum of an annual, aggregate, cumulative,
noncompounded eight percent return on their invested capital
("Stockholders' 8% Return")
B-42
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
plus their aggregate invested capital. No deferred, subordinated real
estate disposition fees have been incurred to date.
A subordinated share of net sales proceeds will be paid to the Advisor
upon the sale of Company assets in an amount equal to ten percent of
net sales proceeds. This amount will be paid only after the
stockholders receive distributions equal to the sum of the
stockholders' aggregate invested capital and the Stockholders' 8%
Return. As of December 31, 1996, no such payments have been made to the
Advisor.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative
services in connection with the offering of shares) on a day-to-day
basis. For the years ended December 31, 1996 and 1995, expenses
incurred for these services were classified as follows:
1996 1995
---------- ----------
Stock issuance costs $ 769,225 $ 714,674
General operating and
administrative expenses 334,603 68,016
---------- ----------
$1,103,828 $ 782,690
========== ==========
During 1996, the Company acquired four Properties for an aggregate
purchase price of approximately $2,609,800 from affiliates of the
Company and during 1995, the Company acquired nine Properties for an
aggregate purchase price of approximately $6,621,000 from affiliates of
the Company. The affiliates had purchased and temporarily held title to
these Properties in order to facilitate the acquisition of the
Properties by the Company. Each Property was acquired at a cost no
greater than the lesser of the cost of the Property to the affiliate
(including carrying costs) or the Property's appraised value.
B-43
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
10. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
1996 1995
-------- ------
Due to the Advisor:
Expenditures incurred on
behalf of the Company
and accounting and
administrative services $199,068 $108,316
Acquisition fees 383,210 45,118
Asset and mortgage
management fees - 9,108
Distributions - 3,332
-------- --------
582,278 165,874
-------- --------
Due to CNL Securities Corp:
Commissions 372,227 75,197
Marketing support and
due diligence expense
reimbursement fees 42,579 5,013
-------- --------
414,806 80,210
-------- --------
Other - 2,500
-------- --------
$997,084 $248,584
======== ========
B-44
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
11. Concentration of Credit Risk:
The following schedule presents rental, earned and interest income from
individual lessees or borrowers, or affiliated groups of lessees or
borrowers, each representing more than ten percent of the Company's
total rental, earned and interest income from its Properties, Mortgage
Loans and Secured Equipment Leases for at least one of the years ended
December 31:
1996 1995
---------- ----------
Castle Hill Holdings V,
L.L.C., Castle Hill
Holdings VI, L.L.C. and
Castle Hill Holdings VII,
L.L.C. ("Castle Hill") $1,699,986 $ -
Golden Corral Corporation 577,003 212,406
DenAmerica Corp. 420,810 66,595
Foodmaker, Inc. 346,179 66,813
Northstar Restaurants, Inc. 329,117 73,219
Roasters Corp. 187,609 82,136
In addition, the following schedule presents total rental, earned and
interest income from individual restaurant chains, each representing
more than ten percent of the Company's total rental, earned and
interest income from its Properties, Mortgage Loans and Secured
Equipment Leases for at least one of the years ended December 31:
1996 1995
---------- ----------
Pizza Hut $1,699,986 $ -
Golden Corral Family
Steakhouse Restaurants 1,459,349 212,406
Boston Market 547,590 73,219
Denny's 420,810 66,595
Jack in the Box 346,179 66,813
Kenny Rogers' Roasters 187,609 82,136
B-45
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
11. Concentration of Credit Risk - Continued:
Although the Company's Properties are geographically diverse throughout
the United States and the lessees and borrowers operate a variety of
restaurant concepts, default by any lessee or borrower that contributes
more than ten percent of the Company's rental, earned and interest
income could significantly impact the results of the Company. However,
management believes 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 and borrowers.
12. Commitments:
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction of
buildings the tenants have agreed to lease. The agreements provide a
maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate
maximum development costs the Company has agreed to pay is
approximately $11,749,700, of which approximately $7,495,200 in land
and other costs had been incurred as of December 31, 1996. The
buildings currently under construction are expected to be operational
by August 1997. In connection with the purchase of each Property, the
Company, as lessor, entered into a long-term lease agreement. The
general terms of the lease agreements are substantially the same as
those described in Note 3.
During 1996, the Company entered into three temporary Secured Equipment
Leases, as lessor, with operators of family-style restaurants. In
connection therewith, the Company provided initial funding in the
aggregate amount of $455,637 for the equipment which is included in
other assets at December 31, 1996. The Company has agreed to fund the
remaining balance of the equipment purchase prices of approximately
$732,400. Upon funding the balance, which is expected to occur in
January 1997, the Company will enter into final Secured Equipment
Leases which are expected to have substantially the same terms as those
described in Note 3. Until final Secured Equipment Leases are entered
into, the tenants will pay monthly rent in accordance with the
temporary leases.
B-46
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996 and 1995 and the Period
May 2, 1994 (Date of Inception) through
December 31, 1994
13. Subsequent Events:
During the period January 1, 1997 through January 22, 1997, the Company
received subscription proceeds for an additional 616,330 shares
($6,163,297) of common stock.
On January 1, 1997, the Company declared distributions of $827,967 or
$.0594 per share of common stock, payable on March 21, 1997, to
stockholders of record on January 1, 1997.
During the period January 1, 1997 through January 22, 1997, the Company
acquired six Properties for cash at a total cost of approximately
$6,879,700, excluding closing costs. The buildings under construction
are expected to be operational by July 1997. In connection with the
purchase of each Property, the Company, as lessor, has entered into a
long-term, triple- net lease agreement.
B-47
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
------------------------------ -----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs Land
------- ----------- ------------ ---------- -------- -----------
<S> <C>
Properties the Company
has Invested in Under
Operating Leases:
Applebee's Restaurants:
Montclair, California - $ 874,315 $ - $ - $ - $ 874,315
Salinas, California - 779,928 - 562,070 - 779,928
Arby's Restaurants:
Kendallville, Indiana - 276,567 505,359 - - 276,567
Avon, Indiana - 338,486 497,282 - - 338,486
Black-eyed Pea Restaurant:
Hillsboro, Texas - 368,942 - 20,193 - 368,942
Boston Market Restaurants:
Franklin, Tennessee (k) - 566,562 442,992 - - 566,562
Grand Island, Nebraska - 234,685 644,615 - - 234,685
Dubuque, Iowa - 353,608 663,969 - - 353,608
Chanhassen, Minnesota - 376,929 639,875 - - 376,929
Ellisville, Missouri - 397,036 - 639,422 - 397,036
Golden Valley, Minnesota - 665,555 - 475,994 - 665,555
Corvallis, Oregon - 365,934 - 595,687 - 365,934
Rockwall, Texas - 528,118 - 340,297 - 528,118
Upland, California - 787,182 - 238,273 - 787,182
Florissant, Missouri - 705,522 - 626,845 - 705,522
La Quinta, California - 681,964 - 287,597 - 681,964
Merced, California - 573,163 - 402,636 - 573,163
Atlanta, Georgia - 538,580 - 33,151 - 538,580
St. Joseph, Missouri - 378,786 388,489 - - 378,786
Burger King Restaurants:
Burbank, Illinois - 543,095 - 620,617 - 543,095
Oaklawn, Illinois - 1,211,336 - 824,061 - 1,211,336
Highland, Indiana - 672,815 - 621,133 - 672,815
Indian Head Park, Illinois - 599,949 - 170,723 - 599,949
Chicago, Illinois - 907,636 - 460,692 - 907,636
Chattanooga, Tennessee - 516,447 - 152,178 - 516,447
Denny's Restaurants:
Pasadena, Texas - 466,555 240,925 265,169 - 466,555
Shawnee, Oklahoma - 528,090 373,427 252,225 - 528,090
Grand Rapids, Michigan - 320,594 559,433 - - 320,594
McKinney, Texas - 439,961 - - - 439,961
</TABLE>
B-48
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
----------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Improvements Total Depreciation struction Acquired Computed
------------ ----------- ------------ --------- -------- ------------
<S> <C>
Properties the Company
has Invested in Under
Operating Leases:
Applebee's Restaurants:
Montclair, California (g) $ 874,315 (h) 1996 08/96 (h)
Salinas, California $ 562,070 1,341,998 (c) (d) 09/96 (c)
Arby's Restaurants:
Kendallville, Indiana 505,359 781,926 $ 8,077 1995 07/96 (e)
Avon, Indiana 497,282 835,768 4,769 1996 09/96 (e)
Black-eyed Pea Restaurant:
Hillsboro, Texas 20,193 389,135 (c) (d) 06/96 (c)
Boston Market Restaurants:
Franklin, Tennessee (k) 442,992 1,009,554 20,238 1995 08/95 (e)
Grand Island, Nebraska 644,615 879,300 27,566 1995 09/95 (e)
Dubuque, Iowa 663,969 1,017,577 27,529 1995 10/95 (e)
Chanhassen, Minnesota 639,875 1,016,804 24,543 1995 11/95 (e)
Ellisville, Missouri 639,422 1,036,458 7,007 1996 06/96 (e)
Golden Valley, Minnesota 475,994 1,141,549 4,043 1996 06/96 (e)
Corvallis, Oregon 595,687 961,621 4,733 1996 07/96 (e)
Rockwall, Texas 340,297 868,415 2,051 1996 07/96 (e)
Upland, California 238,273 1,025,455 3,503 1996 07/96 (e)
Florissant, Missouri 626,845 1,332,367 172 1996 09/96 (e)
La Quinta, California 287,597 969,561 420 1996 09/96 (e)
Merced, California 402,636 975,799 3,199 1996 09/96 (e)
Atlanta, Georgia 33,151 571,731 (c) (d) 12/96 (c)
St. Joseph, Missouri 388,489 767,275 532 1996 12/96 (e)
Burger King Restaurants:
Burbank, Illinois 620,617 1,163,712 8,275 1996 03/96 (e)
Oaklawn, Illinois 824,061 2,035,397 7,902 1996 03/96 (e)
Highland, Indiana 621,133 1,293,948 7,771 1996 04/96 (e)
Indian Head Park, Illinois 170,723 770,672 (c) (d) 04/96 (c)
Chicago, Illinois 460,692 1,368,328 (c) (d) 10/96 (c)
Chattanooga, Tennessee 152,178 668,625 (c) (d) 12/96 (c)
Denny's Restaurants:
Pasadena, Texas 506,094 972,649 22,261 1981 09/95 (e)
Shawnee, Oklahoma 625,652 1,153,742 27,515 1987 09/95 (e)
Grand Rapids, Michigan 559,433 880,027 14,714 1967 03/96 (e)
McKinney, Texas (g) 439,961 (h) 1996 06/96 (h)
</TABLE>
B-49
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs Land
------- ---------- ------------ --------- -------- -----------
<S> <C>
Golden Corral Family
Steakhouse Restaurants:
Carlsbad, New Mexico - 384,221 - 643,854 - 384,221
Cleburne, Texas - 359,455 - 653,853 - 359,455
Corsicana, Texas - 349,227 699,756 - - 349,227
Dover, Delaware - 1,043,108 - 977,508 - 1,043,108
Ft. Worth, Texas - 640,320 898,171 - - 640,320
Tampa, Florida - 825,065 - 1,222,843 - 825,065
Universal City, Texas - 357,429 - 650,249 - 357,429
Columbus, Ohio - 1,031,098 - 1,092,939 - 1,031,098
Port Richey, Florida - 627,739 - 1,025,611 - 627,739
Lufkin, Texas - 462,689 - 1,006,558 - 462,689
Columbia, Tennessee - 442,218 - - - 442,218
Moberly, Missouri - 373,214 - 9,317 - 373,214
Jack in the Box Restaurants:
Los Angeles, California - 603,354 602,630 - - 603,354
Houston, Texas - 545,485 - 527,020 - 545,485
Humble, Texas - 437,667 - 591,877 - 437,667
Houston, Texas - 376,267 - 574,359 - 376,267
Houston, Texas - 403,350 - 565,866 - 403,350
Dallas, Texas - 368,932 - 509,758 - 368,932
Kenny Rogers' Roasters
Restaurant:
Grand Rapids, Michigan - 282,806 599,309 - - 282,806
Pizza Hut Restaurants:
Adrian, Michigan - 242,239 - - - 242,239
Bedford, Ohio - 174,721 - - - 174,721
Bowling Green, Ohio - 200,442 - - - 200,442
Cleveland, Ohio - 116,849 - - - 116,849
Cleveland, Ohio - 226,163 - - - 226,163
Cleveland, Ohio - 126,494 - - - 126,494
Defiance, Ohio - 242,239 - - - 242,239
East Cleveland, Ohio - 194,012 - - - 194,012
Euclid, Ohio - 202,050 - - - 202,050
Fairview Park, Ohio - 142,570 - - - 142,570
Lambertville, Michigan - 99,166 - - - 99,166
Middleburg Heights, Ohio - 216,518 - - - 216,518
Monroe, Michigan - 152,215 - - - 152,215
Norwalk, Ohio - 261,529 - - - 261,529
North Olmstead, Ohio - 259,922 - - - 259,922
Sandusky, Ohio - 259,922 - - - 259,922
Seven Hills, Ohio - 239,023 - - - 239,023
Toledo, Ohio - 197,227 - - - 197,227
Toledo, Ohio - 176,170 - - - 176,170
Toledo, Ohio - 208,480 - - - 208,480
Mayfield Heights, Ohio - 202,552 - - - 202,552
Strongsville, Ohio - 186,476 - - - 186,476
</TABLE>
B-50
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
----------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Improvements Total Depreciation struction Acquired Computed
------------ ----------- ------------ --------- -------- ------------
<S> <C>
Golden Corral Family
Steakhouse Restaurants:
Carlsbad, New Mexico 643,854 1,028,075 28,953 1995 08/95 (e)
Cleburne, Texas 653,853 1,013,308 26,600 1995 08/95 (e)
Corsicana, Texas 699,756 1,048,983 32,558 1995 08/95 (e)
Dover, Delaware 977,508 2,020,616 41,454 1995 08/95 (e)
Ft. Worth, Texas 898,171 1,538,491 41,033 1995 08/95 (e)
Tampa, Florida 1,222,843 2,047,908 36,734 1996 08/95 (e)
Universal City, Texas 650,249 1,007,678 28,578 1995 08/95 (e)
Columbus, Ohio 1,092,939 2,124,037 39,990 1995 11/95 (e)
Port Richey, Florida 1,025,611 1,653,350 9,647 1996 05/96 (e)
Lufkin, Texas 1,006,558 1,469,247 460 1996 11/96 (e)
Columbia, Tennessee (g) 442,218 (h) 1996 12/96 (h)
Moberly, Missouri 9,317 382,531 (c) (d) 12/96 (c)
Jack in the Box Restaurants:
Los Angeles, California 602,630 1,205,984 30,184 1986 06/95 (e)
Houston, Texas 527,020 1,072,505 14,631 1996 11/95 (e)
Humble, Texas 591,877 1,029,544 6,000 1996 06/96 (e)
Houston, Texas 574,359 950,626 5,140 1996 07/96 (e)
Houston, Texas 565,866 969,216 4,806 1996 08/96 (e)
Dallas, Texas 509,758 878,690 (c) (d) 12/96 (c)
Kenny Rogers' Roasters
Restaurant:
Grand Rapids, Michigan 599,309 882,115 28,146 1995 08/95 (e)
Pizza Hut Restaurants:
Adrian, Michigan - 242,239 (f) 1989 01/96 (f)
Bedford, Ohio - 174,721 (f) 1975 01/96 (f)
Bowling Green, Ohio - 200,442 (f) 1985 01/96 (f)
Cleveland, Ohio - 116,849 (f) 1978 01/96 (f)
Cleveland, Ohio - 226,163 (f) 1987 01/96 (f)
Cleveland, Ohio - 126,494 (f) 1986 01/96 (f)
Defiance, Ohio - 242,239 (f) 1977 01/96 (f)
East Cleveland, Ohio - 194,012 (f) 1986 01/96 (f)
Euclid, Ohio - 202,050 (f) 1983 01/96 (f)
Fairview Park, Ohio - 142,570 (f) 1977 01/96 (f)
Lambertville, Michigan - 99,166 (f) 1994 01/96 (f)
Middleburg Heights, Ohio - 216,518 (f) 1975 01/96 (f)
Monroe, Michigan - 152,215 (f) 1994 01/96 (f)
Norwalk, Ohio - 261,529 (f) 1993 01/96 (f)
North Olmstead, Ohio - 259,922 (f) 1976 01/96 (f)
Sandusky, Ohio - 259,922 (f) 1978 01/96 (f)
Seven Hills, Ohio - 239,023 (f) 1983 01/96 (f)
Toledo, Ohio - 197,227 (f) 1978 01/96 (f)
Toledo, Ohio - 176,170 (f) 1985 01/96 (f)
Toledo, Ohio - 208,480 (f) 1975 01/96 (f)
Mayfield Heights, Ohio - 202,552 (f) 1980 04/96 (f)
Strongsville, Ohio - 186,476 (f) 1976 04/96 (f)
</TABLE>
B-51
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
----------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs Land
------- ---------- ------------ -------- -------- -----------
<S> <C>
Toledo, Ohio - 128,604 - - - 128,604
Beaver, West Virginia - 212,053 - - - 212,053
Beckley, West Virginia - 209,432 - - - 209,432
Belle, West Virginia - 46,737 - - - 46,737
Bluefield, West Virginia - 120,449 - - - 120,449
Cross Lanes, West Virginia - 215,881 - - - 215,881
Huntington, West Virginia - 212,093 - - - 212,093
Hurricane, West Virginia - 180,803 - - - 180,803
Marietta, Ohio - 169,454 - - - 169,454
Milton, West Virginia - 99,815 - - - 99,815
Ronceverte, West Virginia - 99,733 - - - 99,733
Bowling Green, Ohio - 135,831 - - - 135,831
Toledo, Ohio - 194,097 - - - 194,097
Ryan's Family Steak House
Restaurant:
Spring Hill, Florida - 588,586 - 933,414 - 588,586
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee - 357,760 - - - 357,760
Camarillo, California - 640,145 - 673,885 - 640,145
----------- ----------- ----------- ------- -----------
$33,850,436 $ 7,756,232 $19,247,874 $ - $33,850,436
=========== =========== =========== ======= ===========
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
----------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Improvements Total Depreciation struction Acquired Computed
------------ ----------- ------------ --------- -------- ------------
<S> <C>
Toledo, Ohio - 128,604 (f) 1988 04/96 (f)
Beaver, West Virginia - 212,053 (f) 1986 05/96 (f)
Beckley, West Virginia - 209,432 (f) 1978 05/96 (f)
Belle, West Virginia - 46,737 (f) 1980 05/96 (f)
Bluefield, West Virginia - 120,449 (f) 1986 05/96 (f)
Cross Lanes, West Virginia - 215,881 (f) 1990 05/96 (f)
Huntington, West Virginia - 212,093 (f) 1978 05/96 (f)
Hurricane, West Virginia - 180,803 (f) 1978 05/96 (f)
Marietta, Ohio - 169,454 (f) 1986 05/96 (f)
Milton, West Virginia - 99,815 (f) 1986 05/96 (f)
Ronceverte, West Virginia - 99,733 (f) 1991 05/96 (f)
Bowling Green, Ohio - 135,831 (f) 1992 12/96 (f)
Toledo, Ohio - 194,097 (f) 1993 12/96 (f)
Ryan's Family Steak House
Restaurant:
Spring Hill, Florida 933,414 1,522,000 (c) (d) 09/96 (c)
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee (g) 357,760 (h) 1996 05/96 (h)
Camarillo, California 673,885 1,314,030 9,662 1996 06/96 (e)
----------- ----------- --------
$27,004,106 $60,854,542 $611,396
=========== =========== ========
</TABLE>
B-53
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
------------------------------ ------------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs Land
------- ---------- ------------ ----------- -------- -----------
<S> <C>
Properties the Company
has Invested in Under
Direct Financing Leases:
Applebee's Restaurant:
Montclair, California - $ - $ - $ 823,193 $ - (g)
Denny's Restaurant:
McKinney, Texas - - 655,052 - - (g)
Golden Corral Family
Steakhouse Restaurants:
Brooklyn, Ohio - - 1,044,311 - - (j)
Columbia, Tennessee - - 939,713 - - (g)
Eastlake, Ohio - 256,332 1,473,306 - - (g)
TGI Friday's Restaurants:
Orange, Connecticut - - - 1,379,330 - (j)
Marlboro, New Jersey - - - 1,409,354 - (j)
Hazlet, New Jersey - - - 1,370,519 - (j)
Hamden, Connecticut - - - 1,272,835 - (j)
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee - - - 482,105 - (g)
Sevierville, Tennessee - - - 529,941 - (j)
San Diego, California - - - 653,753 - (j)
----------- ----------- ----------- -------
$ 256,332 $ 4,112,382 $ 7,921,030 $ -
=========== =========== =========== =======
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
----------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Improvements Total Depreciation struction Acquired Computed
------------ ---------- ------------ --------- -------- ------------
<S> <C>
Properties the Company
has Invested in Under
Direct Financing Leases:
Applebee's Restaurant:
Montclair, California (g) (g) (h) 1996 08/96 (h)
Denny's Restaurant:
McKinney, Texas (g) (g) (h) 1996 06/96 (h)
Golden Corral Family
Steakhouse Restaurants:
Brooklyn, Ohio (g) (g) (h) 1996 07/96 (h)
Columbia, Tennessee (g) (g) (h) 1996 12/96 (h)
Eastlake, Ohio (g) (g) (i) 1996 12/96 (i)
TGI Friday's Restaurants:
Orange, Connecticut (g) (g) (h) 1995 07/95 (h)
Marlboro, New Jersey (g) (g) (h) 1996 02/96 (h)
Hazlet, New Jersey (g) (g) (h) 1996 03/96 (h)
Hamden, Connecticut (g) (g) (h) 1996 04/96 (h)
Wendy's Old Fashioned
Hamburgers Restaurants:
Knoxville, Tennessee (g) (g) (h) 1996 05/96 (h)
Sevierville, Tennessee (g) (g) (h) 1996 06/96 (h)
San Diego, California (g) (g) (h) 1996 10/96 (h)
</TABLE>
B-55
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996
and 1995 are summarized as follows:
Accumulated
Cost (b) Depreciation
----------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1994 $ - $ -
Acquisitions (l) 19,824,044 -
Depreciation expense (e) - 100,318
----------- -----------
Balance, December 31, 1995 19,824,044 100,318
Acquisitions (l) 41,030,498 -
Depreciation expense - 511,078
----------- -----------
Balance, December 31, 1996 $60,854,542 $ 611,396
=========== ===========
(b) As of December 31, 1996 and 1995, the aggregate cost of the
Properties owned by the Company and its subsidiary for federal income
tax purposes was $73,144,286 and $21,199,004, respectively. All of
the leases are treated as operating leases for federal income tax
purposes.
(c) Property was not placed in service as of December 31, 1996;
therefore, no depreciation was taken.
(d) Scheduled for completion in 1997.
(e) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(f) The building portion of this property is owned by the tenant;
therefore, depreciation is not applicable.
(g) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as direct financing
lease. Accordingly, costs relating to these components of this lease
are not shown.
(h) For financial reporting purposes, the portion of this lease relating
to the building has been recorded as direct financing lease. The cost
of the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(i) For financial reporting purposes, the lease for the land and building
has been recorded as direct financing lease. The cost of the land and
building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
B-56
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
(j) The Company owns the building only relating to this Property. This
property is subject to a ground lease between the tenant and an
unaffiliated third party. In connection therewith, the Company
entered into either a tri-party agreement with the tenant and the
owner of the land or an assignment of interest in the ground lease
with the landlord of the land. The tri-party agreement or assignment
of interest each provide that the tenant is responsible for all
obligations under the ground lease and provide certain rights to the
Company to help protect its interest in the building in the event of
a default by the tenant under the terms of the ground lease.
(k) The restaurant on the property in Franklin, Tennessee, was converted
from a Kenny Rogers' Roasters restaurant to a Boston Market
restaurant in 1996.
(l) During the years ended December 31, 1996 and 1995, the Company (i)
incurred acquisition fees totalling $4,535,685 and $1,730,437,
respectively, paid to the Advisor, (ii) purchased land and buildings
from affiliates of the Company for an aggregate cost of approximately
$2,609,800 and $6,621,000, respectively, and (iii) paid
development/construction management fees to affiliates of the Company
totalling $159,350 during the year ended December 31, 1996. Such
amounts are included in land and buildings on operating leases, net
investment in direct financing leases and other assets at December
31, 1996 and 1995.
B-57
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount
of Loans
Subject to
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
- ------------------------------ -------- ------------- -------- ----- ----------- ----------- -----------
<S> <C>
Castle Hill Holdings V, L.L.C.
First Mortgages 10.75% January, 2016 (1) $ - $ 8,475,000 $ 8,812,787 $ -
Pizza Hut Restaurants:
Bedford, OH
Middleburg Heights, OH
Fairview Park, OH
Strongsville, OH
Cleveland, OH
East Cleveland, OH
North Olmstead, OH
Norwalk, OH
Sandusky, OH
Mayfield Heights, OH
Euclid, OH
Seven Hills, OH
Cleveland, OH
Cleveland, OH
Toledo, OH
Toledo, OH
Defiance, OH
Toledo, OH
Bowling Green, OH
Monroe, MI
Lambertville, MI
Adrian, MI
Toledo, OH
Castle Hill Holdings VI, L.L.C.
First Mortgages 10.75% June, 2016 (1) - 3,888,000 4,071,755 -
Pizza Hut Restaurants:
Hurricane, WV
Marietta, OH
Bluefield, WV
Huntington, WV
Ronceverte, WV
Milton, WV
Beckley, WV
Belle, WV
Cross Lanes, WV
Beaver, WV
Castle Hill Holdings VII, L.L.C.
First Mortgages 10.75% January, 2017 (1) - 484,000 505,065 -
Pizza Hut Restaurants:
Bowling Green, OH
Toledo, OH
Total $ - $12,847,000 $13,389,607 (3) $
===== =========== =========== =======
</TABLE>
B-58
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC. AND SUBSIDIARY
SCHEDULE IV - NOTES TO MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
(1) Equal monthly payments of principal and interest at an annual rate of
10.75%.
(2) The tax carrying value of the notes is $13,389,607.
(3) The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C>
Balance at beginning of period $ - $ - $ -
New mortgage loans 12,847,000 - -
Accrued interest 35,286 - -
Collection of principal (133,850) - -
Deferred financing income (46,268) - -
Unamortized loan costs 687,439 - -
----------- ----------- ----------
Balance at end of period $13,389,607 $ - $ -
=========== =========== ==========
</TABLE>
B-59
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain relevant summary
information concerning certain prior public partnerships sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Partnerships") which
like the Company, were formed to invest in restaurant properties leased on a
triple-net basis to operators of national and regional fast-food and
family-style restaurant chains.
A more detailed description of the acquisitions by the Prior Public
Partnerships is set forth in Part II of the registration statement filed with
the Securities and Exchange Commission for this Offering and is available from
the Company upon request, without charge. In addition, upon request to the
Company, the Company will provide, without charge, a copy of the most recent
Annual Report on Form 10-K filed with the Securities and Exchange Commission for
CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII,
Ltd., as well as a copy, for a reasonable fee, of the exhibits filed with such
reports.
The investment objectives of the Prior Public Partnerships (like those
of the Company) generally include preservation and protection of capital, the
potential for increased income and protection against inflation, and potential
for capital appreciation, all through investment in restaurant properties. In
addition, the investment objectives of the Prior Public Partnerships included
making partially tax-sheltered distributions.
STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PARTNERSHIPS.
Description of Tables
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of June 30, 1997. The following is a brief description of the
Tables:
Table I - Experience in Raising and Investing Funds
Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Partnerships, the offerings of
which became fully subscribed between July 1992 and June 1997.
C-1
<PAGE>
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
Table II - Compensation to Sponsor
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the general partners of the Prior
Public Partnerships.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Partnerships, the offerings
of which became fully subscribed between July 1992 and June 1997. The Table also
shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Partnerships on a cumulative
basis commencing with inception and ending June 30, 1997.
Table III - Operating Results of Prior Programs
Table III presents a summary of operating results for the period from
inception through June 30, 1997, of the Prior Public Partnerships, the offerings
of which became fully subscribed between July 1992 and June 1997.
The Table includes a summary of income or loss of the Prior Public
Partnerships, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Partnerships, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Partnerships, but rather are related to items of a partnership nature. These
items include proceeds from capital contributions of limited partners and
disbursements made from these sources of funds, such as syndication and
organizational costs, acquisition of the properties and other costs which are
related more to the organization of the partnership and the acquisition of
properties than to the actual operations of the partnerships.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
Table IV - Results of Completed Programs
Table IV is omitted from this Exhibit C because none of the directors
of the Company or their Affiliates has been involved in completed public
programs which made investments similar to those of the Company.
Table V - Sales or Disposal of Properties
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Partnerships between July 1992 and June 30,
1997.
This Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
<S> <C>
Dollar amount offered $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ----------- -----------
(12.0) (12.0) (12.0) (12.0)
----------- ----------- ----------- -----------
Reserve for operations -- -- -- --
----------- ----------- ----------- -----------
Percent available for
investment 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.0% 83.0% 82.5% 82.5%
Acquisition fees paid
to affiliates 5.0 5.0 5.5 5.5
Loan costs -- -- -- --
----------- ----------- ----------- ----------
Total acquisition costs 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- --
Date offering began 3/18/92 9/29/92 3/31/93 8/27/93
Length of offering (in
months) 6 6 5 6
Months to invest 90% of
amount available for
investment measured
from date of offering 6 11 10 11
</TABLE>
C-3
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ----------- ------------
<S> <C> (Note 1)
Dollar amount offered $40,000,000 $45,000,000 $30,000,000
=========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0%
----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5)
----------- ----------- -----------
(12.0) (12.0) (12.0)
----------- ----------- -----------
Reserve for operations -- -- --
----------- ----------- -----------
Percent available for
investment 88.0% 88.0% 88.0%
=========== =========== ===========
Acquisition costs:
Cash down payment 82.5% 82.5% 83.5%
Acquisition fees paid
to affiliates 5.5 5.5 4.5
Loan costs -- -- --
----------- ----------- -----------
Total acquisition costs 88.0% 88.0% 88.0%
=========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- --
Date offering began 2/23/94 9/02/94 9/02/95
Length of offering (in
months) 6 9 12
Months to invest 90% of
amount available for
investment measured
from date of offering 10 11 15
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995. Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. CNL Income Fund
XVII, Ltd. terminated its offering of Units on September 19, 1996, at
which time subscriptions for an aggregate 3,000,000 Units ($30,000,000)
had been received. Upon the termination of the offering of Units of
CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd. commenced its
offering to the public of 3,500,000 Units ($35,000,000).
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -----------
<S> <C>
Date offering commenced 3/18/92 9/29/92 3/31/93 8/27/93
Dollar amount raised $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 3,400,000 3,825,000
Real estate commissions - - - -
Acquisition fees 2,000,000 2,250,000 2,200,000 2,475,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 200,000 225,000
----------- ----------- ----------- -----------
Total amount paid to sponsor 5,600,000 6,300,000 5,800,000 6,525,000
=========== =========== =========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1997 (6 months) 1,841,174 1,981,123 1,708,175 1,856,053
1996 3,734,852 4,089,655 3,494,528 3,841,163
1995 3,758,271 3,928,473 3,482,461 3,823,939
1994 3,574,474 3,933,486 3,232,046 2,897,432
1993 3,434,512 3,320,549 1,148,550 329,957
1992 1,525,462 63,401 - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1997 (6 months) 48,260 49,885 48,767 48,170
1996 133,138 137,966 126,947 134,867
1995 106,086 109,111 103,083 114,095
1994 76,533 84,524 83,046 84,801
1993 78,926 73,789 27,003 8,220
1992 30,237 2,031 - -
1991 - - - -
1990 - - - -
1989 - - - -
1988 - - - -
1987 - - - -
1986 - - - -
1985 - - - -
1984 - - - -
1983 - - - -
1982 - - - -
1981 - - - -
1980 - - - -
1979 - - - -
1978 - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 1,044,750 1,640,000 836,411 3,196,603
Notes - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - -
Incentive fees - - - -
Other - - - -
</TABLE>
C-5
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
(continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -------------
(Note 1)
<S> <C>
Date offering commenced 2/23/94 9/02/94 9/02/95
Dollar amount raised $40,000,000 $45,000,000 $30,000,000
=========== =========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 2,550,000
Real estate commissions - - -
Acquisition fees 2,200,000 2,475,000 1,350,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 150,000
----------- ----------- -----------
Total amount paid to sponsor 5,800,000 6,525,000 4,050,000
=========== =========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1997 (6 months) 1,716,242 1,938,911 1,232,910
1996 3,557,073 3,911,609 1,340,159
1995 3,361,477 2,619,840 11,671
1994 1,154,454 212,171 -
1993 - - -
1992 - - -
1991 - - -
1990 - - -
1989 - - -
1988 - - -
1987 - - -
1986 - - -
1985 - - -
1984 - - -
1983 - - -
1982 - - -
1981 - - -
1980 - - -
1979 - - -
1978 - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1997 (6 months) 42,619 50,756 53,768
1996 122,391 157,883 107,211
1995 122,107 138,445 2,659
1994 37,620 7,023 -
1993 - - -
1992 - - -
1991 - - -
1990 - - -
1989 - - -
1988 - - -
1987 - - -
1986 - - -
1985 - - -
1984 - - -
1983 - - -
1982 - - -
1981 - - -
1980 - - -
1979 - - -
1978 - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 3,312,297 1,385,384 -
Notes - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - -
Incentive fees - - -
Other - - -
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995. Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. CNL Income Fund
XVII, Ltd. terminated its offering of Units on September 19, 1996, at
which time subscriptions for an aggregate 3,000,000 Units ($30,000,000)
had been received. Upon the termination of the offering of Units of
CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd. commenced its
offering to the public of 3,500,000 Units ($35,000,000). As of June 30,
1997, CNL Income Fund XVIII, Ltd. had sold 2,219,221 Units,
representing $22,192,212 of capital contributed by limited partners,
and 17 properties had been acquired. From commencement of the offering
through June 30, 1997, total selling commissions and discounts were
$1,886,338, due diligence expense reimbursement fees were $110,961, and
acquisition fees were $998,650, for a total amount paid to sponsor of
$2,995,949. CNL Income Fund XVIII, Ltd. had cash generated from
operations for the period October 11, 1996 (the date funds were
originally released from escrow) through June 30, 1997, of $490,897.
CNL Income Fund XVIII, Ltd. made payments of $33,405 to the sponsor
from operations for this period.
C-6
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XI, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ -----------
<S> <C>
Gross revenue $ 0 $ 1,269,086 $ 3,831,648 $ 3,852,107
Equity in earnings of unconsolidated
joint ventures 0 33,367 121,059 119,370
Profit from sale of properties (Note 5) 0 0 0 0
Interest income 0 150,535 24,258 30,894
Less: Operating expenses 0 (63,390) (206,987) (179,717)
Interest expense 0 0 0 0
Depreciation and amortization 0 (180,631) (469,127) (481,226)
Minority interests in income of
consolidated joint ventures 0 (23,529) (68,399) (68,936)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,438 3,232,452 3,272,492
============ ============ ============ ============
Taxable income
- from operations 0 1,295,104 2,855,026 2,947,445
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 4) 0 1,495,225 3,355,586 3,497,941
Cash generated from sales (Note 5) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,495,225 3,355,586 3,497,941
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (1,205,030) (2,495,002) (3,400,001)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 290,195 860,584 97,940
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Minority interests' capital
contributions 0 426,367 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (3,922,875) 0 0
Acquisition of land and buildings 0 (26,428,556) (276,157) 0
Investment in direct financing
leases 0 (6,716,561) (276,206) 0
Increase in restricted cash 0 0 0 0
Decrease in restricted cash 0 0 0 0
Investment in joint ventures 0 (1,658,925) (772) 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 (1,011,487) (900) 0
Increase in other assets 0 (122,024) 0 0
Distributions to holders of minority
interests 0 (17,467) (51,562) (57,641)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 828,667 254,987 40,299
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 45 71 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-7
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XI, LTD.
(continued)
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ ------------
<S> <C>
Gross revenue $ 3,820,990 $ 3,877,311 $ 1,847,371
Equity in earnings of unconsolidated
joint ventures 118,384 118,211 105,163
Profit from sale of properties (Note 5) 0 213,685 0
Interest income 51,192 51,381 21,104
Less: Operating expenses (237,126) (247,569) (136,290)
Interest expense 0 0 0
Depreciation and amortization (481,226) (478,198) (229,919)
Minority interests in income of
consolidated joint ventures (70,038) (70,116) (34,598)
------------ ------------ ------------
Net income - GAAP basis 3,202,176 3,464,705 1,572,831
============ ============ ============
Taxable income
- from operations 2,985,221 2,965,514 1,447,710
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations
(Notes 2 and 4) 3,652,185 3,601,714 1,792,914
Cash generated from sales (Note 5) 0 1,044,750 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,652,185 4,646,464 1,792,914
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,023) (3,540,024) (1,790,012)
- from sale of properties 0 0 0
- from cash flow from prior period 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 152,162 1,106,440 2,902
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Minority interests' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 0
Investment in direct financing
leases 0 0 0
Increase in restricted cash 0 (1,044,750) 0
Decrease in restricted cash 0 0 1,044,750
Investment in joint ventures 0 0 (1,044,750)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 0 0
Increase in other assets 0 0 0
Distributions to holders of minority
interests (54,227) (58,718) (29,095)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 97,935 2,972 (26,193)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 73 36
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-8
<PAGE>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 41 62 81
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 4
- from return of capital (Note 3) 0 1 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 42 62 85
- from cash flow from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 0.00% 6.17% 8.31% 8.56%
Total cumulative cash distributions
per $1,000 investment from inception 0 42 104 189
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) N/A 100% 100% 100%
</TABLE>
C-9
<PAGE>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 79 81 39
- from capital gain 0 5 0
- from investment income from
prior period 9 3 2
- from return of capital (Note 3) 0 0 4
------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 88 89 45
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0 0
- from operations 88 89 45
- from cash flow from prior
period 0 0 0
------------ ------------ ------------
Total distributions on cash basis
(Note 6) 88 89 45
============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 8.85% 8.85% 8.75%
Total cumulative cash distributions
per $1,000 investment from inception 277 366 411
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) 100% 97% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XI, Ltd. became effective on March 12, 1992. Activities
through April 22, 1992, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants, plus
distributions from joint ventures, less cash paid for expenses, plus
interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as a
return of capital except for purposes of this table, and CNL Income Fund
XI, Ltd. has not treated this amount as a return of capital for any
other purpose.
Note 4: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XI, Ltd.
Note 5: In November 1996, CNL Income Fund XI, Ltd. sold one if its properties
and received net sales proceeds of $1,044,750, resulting in a gain of
$213,685 for financial reporting purposes. In January 1997, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and paid
in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to the
payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as of
December 31, 1994, 1995 and 1996, and June 30, 1997 are not included in
the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: On December 31, 1995 and 1996, CNL Income Fund XI, Ltd. declared a
special distribution of cumulative excess operating reserves equal to
.10% for each year of the total invested capital. Accordingly, the total
yield for each of 1995 and 1996 was 8.85%.
Note 8: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 9: Certain data for columns representing less than 12 months have been
annualized.
C-10
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XII, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ -----------
<S> <C>
Gross revenue $ 0 $ 25,133 $ 3,374,640 $ 4,397,881
Equity in earnings of joint ventures 0 46 49,604 85,252
Profit (Loss) from sale of properties
(Note 7) 0 0 0 0
Interest income 0 45,228 190,082 65,447
Less: Operating expenses 0 (7,211) (193,804) (192,951)
Interest expense 0 0 0 0
Depreciation and amortization 0 (3,997) (286,293) (327,795)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 59,199 3,134,229 4,027,834
============ ============ ============ ============
Taxable income
- from operations 0 58,543 2,749,072 3,301,005
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 61,370 3,246,760 3,848,962
Cash generated from sales (Note 7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 61,370 3,246,760 3,848,962
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (61,370) (1,972,769) (3,768,754)
- from sale of properties 0 0 0 0
- from return of capital (Note 4) 0 (60,867) 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (60,867) 1,273,991 80,208
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,543,270 23,456,730 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (2,066,937) (2,277,637) 0
Acquisition of land and buildings 0 (7,536,009) (15,472,737) (230)
Investment in direct financing
leases 0 (2,503,050) (11,875,100) (591)
Loan to tenant of joint venture,
net of repayments 0 0 (207,189) 6,400
Investment in joint ventures 0 (372,045) (468,771) (4,400)
Increase in restricted cash 0 0 0 0
Payment of lease costs 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 (704,923) (432,749) 0
Increase in other assets 0 (654,497) 0 0
Other 0 0 0 973
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 7,634,942 (6,003,462) 82,360
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 5 64 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-11
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XII, LTD.
(continued)
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ ------------
<S> <C>
Gross revenue $ 4,404,792 $ 4,264,273 $ 2,058,864
Equity in earnings of joint ventures 81,582 200,499 141,356
Profit (Loss) from sale of properties
(Note 7) 0 (15,355) 0
Interest income 84,197 88,286 37,968
Less: Operating expenses (228,404) (279,341) (132,808)
Interest expense 0 0 0
Depreciation and amortization (327,795) (315,319) (159,551)
------------ ------------ ------------
Net income - GAAP basis 4,014,372 3,943,043 1,945,829
============ ============ ============
Taxable income
- from operations 3,262,046 3,275,495 1,617,525
============ ============ ============
- from gain (loss) on sale 0 (41,506) 0
============ ============ ============
Cash generated from operations
(Notes 2 and 5) 3,819,362 3,951,689 1,931,238
Cash generated from sales (Note 7) 0 1,640,000 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,819,362 5,591,689 1,931,238
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,819,362) (3,870,008) (1,912,504)
- from sale of properties 0 0 0
- from return of capital (Note 4) 0 0 0
- from cash flow from prior period (5,645) 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions (5,645) 1,721,681 18,734
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 (55,000)
Investment in direct financing
leases 0 0 0
Loan to tenant of joint venture,
net of repayments 7,008 7,741 4,171
Investment in joint ventures 0 (1,645,024) 0
Increase in restricted cash 0 0 0
Payment of lease costs 0 0 (24,052)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 0 0
Increase in other assets 0 0 0
Other 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,363 84,398 (56,147)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 72 72 36
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 (1) 0
============ ============ ============
</TABLE>
C-12
<PAGE>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 5 46 84
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 0 7 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 12 46 84
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 6 46 84
- from return of capital (Note 4) 0 6 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 12 46 84
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 0.00% 5.00% 6.75% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 0 12 58 142
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 7) N/A 100% 100% 100%
</TABLE>
C-13
<PAGE>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
<TABLE>
<CAPTION>
6 months
1995 1996 1997
------------ ------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 85 86 43
- from capital gain 0 0 0
- from investment income from
prior period 0 0 0
- from return of capital (Note 3) 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 85 86 43
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 85 86 43
- from return of capital (Note 4) 0 0 0
- from cash flow from prior period 0 0 0
------------ ------------ ------------
Total distributions on cash basis
(Note 6) 85 86 43
============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 8.60% 8.50% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 227 313 356
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 7) 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XII, Ltd. ("CNL XII") and CNL
Income Fund XI, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XI, Ltd. commenced March 12, 1992. Pursuant to the
registration statement, CNL XII could not commence until the offering
of Units of CNL Income Fund XI, Ltd. was terminated. CNL Income Fund
XI, Ltd. terminated its offering of Units on September 28, 1992, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XI, Ltd., CNL XII commenced its offering of Units. Activities
through October 8, 1992, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund XII, Ltd. has not treated this amount as a return of capital for
any other purpose.
Note 4: CNL Income Fund XII, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
once finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is not
required to be presented as a return of capital except for purposes of
this table, and CNL Income Fund XII, Ltd. has not treated this amount
as a return of capital for any other purpose.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XII, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as
of December 31, 1994, 1995 and 1996, and June 30, 1997 are not included
in the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: In April 1996, CNL Income Fund XII, Ltd. sold one of its properties to
an unrelated third party for $1,640,000. As a result of this
transaction, CNL Income Fund XII, Ltd. recognized a loss of $15,355 for
financial reporting purposes primarily due to acquisition fees and
miscellaneous acquisition expenses CNL Income Fund XII, Ltd. had
allocated to this property. In May 1996, CNL Income Fund XII, Ltd.
reinvested the proceeds from this sale, along with additional funds,
for a total of $1,645,024 in Middleburg Joint Venture.
Note 8: On December 31, 1995, CNL Income Fund XII, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .10% of
the total invested capital. Accordingly, the total yield for 1995 was
8.60%.
Note 9: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 10: Certain data for columns representing less than 12 months have been
annualized.
C-14
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIII, LTD.
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ -----------
<S> <C>
Gross revenue $ 0 $ 966,564 $ 3,558,447 $ 3,806,944
Equity in earnings of joint ventures 0 1,305 43,386 98,520
Profit (Loss) from sale of properties
(Notes 4 and 5) 0 0 0 (29,560)
Provision for loss on land and net
investment in direct financing leases
(Note 8) 0 0 0 0
Interest income 0 181,568 77,379 51,410
Less: Operating expenses 0 (59,390) (183,311) (214,705)
Interest expense 0 0 0 0
Depreciation and amortization 0 (148,170) (378,269) (393,435)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 941,877 3,117,632 3,319,174
============ ============ ============ ============
Taxable income
- from operations 0 978,535 2,703,252 2,920,859
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,121,547 3,149,000 3,379,378
Cash generated from sales (Notes 4 and 5) 0 0 0 286,411
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,121,547 3,149,000 3,665,789
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (528,364) (2,800,004) (3,350,014)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 0 593,183 348,996 315,775
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (3,932,017) (181) 0
Acquisition of land and buildings 0 (19,691,630) (5,764,308) (336,116)
Investment in direct financing leases 0 (6,760,624) (1,365,075) 0
Investment in joint ventures 0 (314,998) (545,139) (140,052)
Increase in restricted cash 0 0 0 0
Decrease in restricted cash 0 0 0 0
Loan to tenant 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0 (799,980) (25,036) (3,074)
Increase in other assets 0 (454,909) 9,226 0
Other 0 0 0 954
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 8,639,025 (7,341,517) (162,513)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 67 72
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-15
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIII, LTD.
(continued)
6 months
1996 1997
------------ -------------
Gross revenue $ 3,685,280 $ 1,796,451
Equity in earnings of joint ventures 60,654 70,503
Profit (Loss) from sale of properties
(Notes 4 and 5) 82,855 0
Provision for loss on land and net
investment in direct financing leases
(Note 8) 0 (41,202)
Interest income 49,820 18,246
Less: Operating expenses (253,360) (128,593)
Interest expense 0 0
Depreciation and amortization (393,434) (197,265)
----------- -----------
Net income - GAAP basis 3,231,815 1,518,140
=========== ===========
Taxable income
- from operations 2,972,159 1,387,838
=========== ===========
- from gain (loss) on sale 0 0
=========== ===========
Cash generated from operations
(Notes 2 and 3) 3,367,581 1,659,408
Cash generated from sales (Notes 4 and 5) 550,000 0
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 3,917,581 1,659,408
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,367,581) (1,659,408)
- from sale of properties 0 0
- from cash flow from prior period (32,427) (40,596)
------------ ------------
Cash generated (deficiency) after 517,573 (40,596)
cash distributions
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 0
Investment in direct financing leases 0 0
Investment in joint ventures 0 (550,000)
Increase in restricted cash (550,000) 0
Decrease in restricted cash 0 550,000
Loan to tenant 0 (190,997)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0 0
Increase in other assets 0 0
Other 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items (32,427) (231,593)
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 34
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) (Notes 4 and 5) 0 0
============ ============
C-16
<PAGE>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 18 70 82
- from capital gain 0 0 0 0
- from investment income from prior
period 0 0 0 2
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 6) 0 18 70 84
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 18 70 84
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 6) 0 18 70 84
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 0.00% 5.33% 7.56% 8.44%
Total cumulative cash distributions per
$1,000 investment from inception 0 18 88 172
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) N/A 100% 100% 100%
</TABLE>
C-17
<PAGE>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
<TABLE>
<CAPTION>
6 months
1996 1997
------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 78 38
- from capital gain 2 0
- from investment income from prior
period 5 5
------------ ------------
Total distributions on GAAP basis (Note 6) 85 43
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 84 42
- from cash flow from prior period 1 1
------------ ------------
Total distributions on cash basis (Note 6) 85 43
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 8.50% 8.50%
Total cumulative cash distributions per
$1,000 investment from inception 257 300
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) 99% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XIII, Ltd. became effective on March 17, 1993. Activities
through April 15, 1993, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIII, Ltd.
Note 4: During 1995, the partnership sold one of its properties to a tenant for
its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
to acquire an additional property. As a result of this transaction,
the partnership recognized a loss for financial reporting purposes of
$29,560 primarily due to acquisition fees and miscellaneous acquisition
expenses the partnership had allocated to the property and due to the
accrued rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale.
Note 5: In November 1996, CNL Income Fund XIII, Ltd. sold one of its properties
and received net sales proceeds of $550,000, resulting in a gain of
$82,855 for financial reporting purposes. In January 1997, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as
of December 31, 1994, 1995 and 1996, and June 30, 1997, are not
included in the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 8: During the six months ended June 30, 1997, the partnership recorded an
allowance for loss on land and net investment in the direct financing
lease of $41,202, for financial reporting purposes, relating to one of
its properties. The loss represents the difference between the
property's land carrying value and the carrying value of the net
investment in the direct financing lease, as compared to the estimated
net realizable value, based on the anticipated sales price of this
property from a third party.
Note 9: Certain data for columns representing less than 12 months have been
annualized.
C-18
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIV, LTD.
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ----------- ------------ --------------
<S> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266
Equity in earnings of joint ventures 0 1,305 35,480 338,717
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (66,518)
Interest income 0 27,874 200,499 50,724
Less: Operating expenses 0 (14,049) (181,980) (248,840)
Interest expense 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237
============ ============ ============ ============
Taxable income
- from operations 0 278,845 2,482,240 3,162,165
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 321,737 2,812,631 3,709,844
Cash generated from sales (Note 4) 0 0 0 696,012
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 321,737 2,812,631 4,405,856
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 312,687 582,679 862,105
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 28,785,100 16,214,900 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (2,771,892) (1,618,477) 0
Acquisition of land and buildings 0 (13,758,004) (11,859,237) (964,073)
Investment in direct financing leases 0 (4,187,268) (5,561,748) (75,352)
Investment in joint ventures 0 (315,209) (1,561,988) (1,087,218)
Return of capital from joint venture 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 (706,215) (376,738) (577)
Increase in other assets 0 (444,267) 0 0
Other 0 0 0 5,530
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 6,914,932 (4,180,609) (1,259,585)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-19
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XIV, LTD.
(continued)
<TABLE>
<CAPTION>
6 months
1996 1997
------------ ------------
<S> <C>
Gross revenue $ 3,999,813 $ 1,964,870
Equity in earnings of joint ventures 459,137 152,823
Profit (Loss) from sale of properties
(Note 4) 0 0
Interest income 44,089 23,015
Less: Operating expenses (246,621) (148,962)
Interest expense 0 0
Depreciation and amortization (340,089) (170,055)
------------ -----------
Net income - GAAP basis 3,916,329 1,821,691
============ ===========
Taxable income
- from operations 3,236,329 1,594,605
============ ===========
- from gain on sale 0 47,256
============ ===========
Cash generated from operations
(Notes 2 and 3) 3,706,296 1,807,883
Cash generated from sales (Note 4) 0 0
Cash generated from refinancing 0 0
------------ -----------
Cash generated from operations, sales
and refinancing 3,706,296 1,807,883
Less: Cash distributions to investors
(Note 5)
- from operating cash flow (3,706,296) (1,807,883)
- from sale of properties 0 0
- from cash flow from prior period (6,226) (48,377)
------------ -----------
Cash generated (deficiency) after cash
distributions (6,226) (48,377)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 0
Investment in direct financing leases 0 0
Investment in joint ventures (7,500) 0
Return of capital from joint venture 0 51,950
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 0
Increase in other assets 0 0
Other 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items (13,726) 3,573
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 71 35
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) (Note 4) 0 1
============ ============
</TABLE>
C-20
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79
- from capital gain 0 0 0 0
- from return of capital 0 0 0 0
- from investment income from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 1 51 79
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 51 79
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 1 51 79
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 4.50% 6.50% 8.06%
Total cumulative cash distributions
per $1,000 investment from inception 0 1 52 131
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100%
</TABLE>
C-21
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
<TABLE>
<CAPTION>
6 months
1996 1997
------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 83 40
- from capital gain 0 0
- from return of capital 0 0
- from investment income from prior
period 0 1
------------ ------------
Total distributions on GAAP basis (Note 5) 83 41
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 83 40
- from cash flow from prior period 0 1
------------ ------------
Total distributions on cash basis (Note 5) 83 41
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 8.25% 8.25%
Total cumulative cash distributions
per $1,000 investment from inception 214 255
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XIV, Ltd. ("CNL XIV") and CNL
Income Fund XIII, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XIII, Ltd. commenced March 17, 1993. Pursuant to the
registration statement, CNL XIV could not commence until the offering
of Units of CNL Income Fund XIII, Ltd. was terminated. CNL Income Fund
XIII, Ltd. terminated its offering of Units on August 26, 1993, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XIII, Ltd., CNL XIV commenced its offering of Units. Activities
through September 13, 1993, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIV, Ltd.
Note 4: During 1995, the partnership sold two of its properties to a tenant for
its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
to acquire two additional properties. As a result of these
transactions, the partnership recognized a loss for financial reporting
purposes of $66,518 primarily due to acquisition fees and miscellaneous
acquisition expenses the partnership had allocated to the property and
due to the accrued rental income relating to future scheduled rent
increases that the partnership had recorded and reversed at the time of
sale.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994, 1995 and 1996, are reflected in the 1994, 1995, 1996 and
1997 columns, respectively, for distributions on a cash basis due to
the payment of such distributions in January 1994, 1995, 1996 and 1997,
respectively. As a result of 1994, 1995, 1996 and 1997 distributions
being presented on a cash basis, distributions declared and unpaid as
of December 31, 1994, 1995 and 1996, and June 30, 1997 are not included
in the 1994, 1995, 1996 and 1997 totals, respectively.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-22
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XV, LTD.
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ ------------ -----------
<S> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320 $ 3,632,699 $ 1,799,379
Equity in earnings of joint ventures 0 8,372 280,606 392,862 117,311
Profit (Loss) from sale of properties
(Note 4) 0 0 (71,023) 0 0
Interest income 0 167,734 88,059 43,049 24,263
Less: Operating expenses 0 (62,926) (228,319) (235,319) (123,377)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (70,848) (243,175) (248,232) (124,149)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468 3,585,059 1,693,427
============ ============ ============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912 2,954,318 1,430,120
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 47,256
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,116,834 3,239,370 3,434,682 1,673,623
Cash generated from sales (Note 4) 0 0 811,706 0 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,116,834 4,051,076 3,434,682 1,673,623
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (635,944) (2,650,003) (3,200,000) (1,673,623)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period (6,377)
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 480,890 1,401,073 234,682 (6,377)
Special items (not including sales and
refinancing):
Limited partners' capital contra-
bunions 0 40,000,000 0 0 0
General partners' capital contra-
bunions 1,000 0 0 0 0
Syndication costs 0 (3,892,003) 0 0 0
Acquisition of land and buildings 0 (22,152,379) (1,625,601) 0 0
Investment in direct financing
leases 0 (6,792,806) (2,412,973) 0 0
Investment in joint venture 0 (1,564,762) (720,552) (129,939) 0
Return of capital from joint venture 0 0 0 0 51,950
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XV, Ltd. by related parties 0 (1,098,197) (23,507) 0 0
Increase in other assets 0 (187,757) 0 0 0
Other (38) (6,118) 25,150 0 0
------------ ------------ ------------ ------------ -----------
Cash generated (deficiency) after cash
distributions and special items 962 4,786,868 (3,356,410) 104,743 45,573
============ ============ ============ ============ ===========
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71 73 35
============ ============ ============ ============ ===========
- from recapture 0 0 0 0 0
============ ============ ============ ============ ===========
Capital gain (loss) (Note 4) 0 0 0 0 1
============ ============ ============ ============ ===========
</TABLE>
C-23
C-24
<PAGE>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ -------------- ------------ ------------- -------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66 80 42
- from capital gain 0 0 0 0 0
------------ ------------ ------------ ------------ -------
Total distributions on GAAP basis (Note 5) 0 21 66 80 42
============ ============ ============ ============ =======
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 21 66 80 42
------------ ------------ ------------ ------------ -------
Total distributions on cash basis (Note 5) 0 21 66 80 42
============ ============ ============ ============ =======
Total cash distributions as a percentage
of original $1,000 investment (Notes 6
and 7). 0 5.00% 7.25% 8.20% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 21 87 167 209
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
</TABLE>
Note 1: The registration statement relating to this offering of Units of CNL
Income Fund XV, Ltd. became effective February 23, 1994. Activities
through March 23, 1994, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint venture, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XV, Ltd.
Note 4: During 1995, the partnership sold three of its properties to a tenant
for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The majority of the net sales
proceeds were used to acquire additional properties. As a result of
these transactions, the partnership recognized a loss for financial
reporting purposes of $71,023 primarily due to acquisition fees and
miscellaneous acquisition expenses the partnership had allocated to the
three properties and due to the accrued rental income relating to
future scheduled rent increases that the partnership had recorded and
reversed at the time of sale.
Note 5: Distributions declared for the quarters ended December 31, 1994, 1995
and 1996 are reflected in the 1995, 1996 and 1997 columns,
respectively, due to the payment of such distributions in January 1995,
1996 and 1997, respectively. As a result of distributions being
presented on a cash basis, distributions declared and unpaid as of
December 31, 1994, 1995 and 1996, and June 30, 1997 are not included in
the 1994, 1995, 1996 and 1997 totals, respectively.
Note 6: On December 31, 1996, CNL Income Fund XV, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .20% of
the total invested capital. Accordingly, the total yield for 1996 was
8.20%
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-25
C-26
<PAGE>
<TABLE>
<CAPTION>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVI, LTD.
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ ----------- -----------
<S> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390 $ 2,145,424
Equity in earnings from joint venture 0 0 0 19,668 36,620
Profit from sale of properties (Notes 4
and 5) 0 0 0 124,305 41,148
Interest income 0 21,478 321,137 75,160 34,155
Less: Operating expenses 0 (10,700) (274,595) (261,878) (134,647)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447) (282,050)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198 1,840,650
============ ============ ============ ============ ============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830 1,598,010
============ ============ ============ ============ ============
- from gain on sale (Notes 4 and 5) 0 0 0 0 41,148
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 3,753,726 1,888,155
Cash generated from sales (Notes 4 and 5) 0 0 0 775,000 610,384
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 205,148 2,481,395 4,528,726 2,498,539
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251) (1,800,000)
- from sale of properties 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475 698,539
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 20,174,172 24,825,828 0 0
General partners' capital contri-
butions 1,000 0 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,355,627) 0
Investment in direct financing
leases 0 (975,853) (5,595,236) (405,937) (29,257)
Investment in joint venture 0 0 0 (775,000) 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVI, Ltd. by related parties 0 (854,154) (405,569) (2,494) 0
Collection of overpayment of acqui-
sition and syndication costs paid
by related parties on behalf of the
partnership 0 0 0 0 0
Increase in other assets 0 (443,625) (58,720) 0 0
Other (36) (20,714) 20,714 0 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,441,583) 669,282
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71 35
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 0 1
============ ============ ============ ============ ============
</TABLE>
C-27
C-28
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 months
(Note 1) 1994 1995 1996 1997
------------ ------------ ------------ ------------ --------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76 39
- from capital gain 0 0 0 0 1
- from investment income from
prior period 0 0 0 0 0
------------ ------------ ------------ ------------ --------
Total distributions on GAAP basis (Note 6) 0 1 45 76 40
============ ============ ============ ============ ========
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 1 45 76 40
------------ ------------ ------------ ------------ --------
Total distributions on cash basis (Note 6) 0 1 45 76 40
============ ============ ============ ============ ========
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 0.00% 4.50% 6.00% 7.88% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122 162
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) N/A 100% 100% 100% 99%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL XVI") and CNL
Income Fund XV, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XV, Ltd. commenced February 23, 1994. Pursuant to the
registration statement, CNL XVI could not commence until the offering
of Units of CNL Income Fund XV, Ltd. was terminated. CNL Income Fund
XV, Ltd. terminated its offering of Units on September 1, 1994, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XV, Ltd., CNL XVI commenced its offering of Units. Activities
through September 22, 1994, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVI, Ltd.
Note 4: In April 1996, CNL Income Fund XVI, Ltd. sold one of its properties and
received net sales proceeds of $775,000, resulting in a gain of
$124,305 for financial reporting purposes. In October 1996, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
Note 5: In March 1997, CNL Income Fund XVI, Ltd. sold one of its properties and
received net sales proceeds of $610,384, resulting in a gain of $41,148
for financial reporting purposes.
Note 6: Distributions declared for the quarters ended December 31, 1994, 1995
and 1996 are reflected in the 1995, 1996 and 1997 columns,
respectively, due to the payment of such distributions in January 1995,
1996 and 1997, respectively. As a result of distributions being
presented on a cash basis, distributions declared and unpaid as of
December 31, 1994, 1995 and 1996, and June 30, 1997 are not included in
the 1994, 1995, 1996 and 1997 totals, respectively.
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-29
C-30
<PAGE>
TABLE III
Operating Results of Prior Programs
CNL INCOME FUND XVII, LTD.
<TABLE>
<CAPTION>
1995 6 months
(Note 1) 1996 1997
------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,195,263 $ 1,237,898
Equity in earnings of unconsolidated
joint ventures 0 4,834 45,358
Interest income 12,153 244,406 48,537
Less: Operating expenses (3,493) (169,536) (103,397)
Interest expense 0 0 0
Depreciation and amortization (309) (179,208) (188,038)
Minority interest in income of
consolidated joint venture 0 (10,432)
------------ ------------ ------------
Net income - GAAP basis 8,351 1,095,759 1,029,926
============ ============ ============
Taxable income
- from operations 12,153 1,114,964 1,138,900
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations
(Notes 2 and 3) 9,012 1,232,948 1,179,142
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 9,012 1,232,948 1,179,142
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (1,199) (703,681) (1,015,084)
- from sale of properties 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 7,813 529,267 164,058
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 5,696,921 24,303,079 0
General partners' capital contri-
butions 1,000 0 0
Contributions from minority interest 0 140,676 278,170
Syndication costs (604,348) (2,407,317) 0
Acquisition of land and buildings (332,928) (19,735,346) (1,978,419)
Investment in direct financing
leases 0 (1,784,925) (1,009,775)
Investment in joint ventures 0 (201,501) (934,196)
Increase in restricted cash 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVII, Ltd. by related parties (347,907) (326,483) (26,068)
Increase in other assets (221,282) 0 0
Distributions to holder of minority
interest 0 0 (16,943)
Other (410) 410 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860 (3,523,173)
============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37 38
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-31
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
<TABLE>
<CAPTION>
1995 6 months
(Note 1) 1996 1997
------------ ------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23 34
- from capital gain 0 0 0
- from investment income from
prior period 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 23 34
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 4 23 34
------------ ------------ ------------
Total distributions on cash basis (Note 4) 4 23 34
============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 5.00% 5.50% 7.25%
Total cumulative cash distributions per
$1,000 investment from inception 4 27 61
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by
original total acquisition cost of all
properties in program) N/A 98% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd. each registered
for sale $30,000,000 units of limited partnership interests ("Units").
The offering of Units of CNL Income Fund XVII, Ltd. commenced September
2, 1995. Pursuant to the registration statement, CNL XVIII could not
commence until the offering of Units of CNL Income Fund XVII, Ltd. was
terminated. CNL Income Fund XVII, Ltd. terminated its offering of
Units on September 19, 1996, at which time subscriptions for the
maximum offering proceeds of $30,000,000 had been received. Upon the
termination of the offering of Units of CNL Income Fund XVII, Ltd., CNL
XVIII commenced its offering of Units. Activities through October 11,
1996, were devoted to organization of the partnership and operations
had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVII, Ltd.
Note 4: Distributions declared for the quarters ended December 31, 1995 and
1996 are reflected in the 1996 and 1997 columns, respectively, due to
the payment of such distributions in January 1996 and 1997,
respectively. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1996 and
June 30, 1997 are not included in the 1996 and 1997 totals,
respectively.
Note 5: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 4 above)
Note 6: Certain data for columns representing less than 12 months have been
annualized.
C-32
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===============================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
==========================================================================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH 11/18/87 11/30/94 626,582 0 0 0 626,582
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 620,800 0 0 0 620,800
KFC -
Eagan, MN 06/01/87 06/02/97 623,882 0 42,000 0 665,882
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL 06/02/88 01/10/97 496,418 0 0 0 496,418
Perkins -
Bradenton, FL 06/30/88 03/14/97 1,310,001 0 0 0 1,310,001
Pizza Hut -
Kissimmee, FL 02/23/88 04/08/97 673,159 0 0 0 673,159
Burger King -
Roswell, GA 06/08/88 06/20/97 257,981 0 685,000 0 942,981
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000
Ponderosa -
St. Cloud, FL (6) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012
Franklin National Bank -
Franklin, TN 06/26/89 01/07/97 960,741 0 0 0 960,741
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
=====================================================================================
Cost of Properties
Including Closing and
Soft Costs
----------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
=====================================================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA 0 861,500 861,500 156,990
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH 0 743,000 743,000 (116,418)
Denny's -
Show Low, AZ (8) 0 484,185 484,185 136,615
KFC -
Eagan, MN 0 601,100 601,100 64,782
CNL Income Fund III, Ltd.:
Wendy's -
Chicago, IL 0 591,362 591,362 (94,944)
Perkins -
Bradenton, FL 0 1,080,500 1,080,500 229,501
Pizza Hut -
Kissimmee, FL 0 474,755 474,755 198,404
Burger King -
Roswell, GA 0 775,226 775,226 167,755
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
Wendy's -
Tampa, FL 0 828,350 828,350 221,200
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
Ponderosa -
St. Cloud, FL (6) 0 996,769 996,769 134,243
Franklin National Bank -
Franklin, TN 0 1,138,164 1,138,164 (177,423)
</TABLE>
C-33
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===========================================================================================================
<S> <C>
Shoney's -
Smyrna, TN 03/22/89 05/13/97 636,788 0 0 0 636,788
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0 982,980
Denny's -
Show Low, AZ (8) 05/22/87 01/31/97 349,200 0 0 0 349,200
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (4) 04/30/90 12/01/95 0 0 240,000 0 240,000
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0 1,044,909
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0 617,035
Hardee's -
Columbus, IN 09/04/90 05/30/97 223,590 0 0 0 223,590
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (4) 09/28/90 12/01/95 0 0 240,000 0 240,000
Church's Fried Chicken -
Jacksonville, FL (5) 09/28/90 12/01/95 0 0 220,000 0 220,000
Ponderosa -
Orlando, FL (6) 12/17/90 10/24/96 0 0 1,353,775 0 1,353,775
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
===================================================================================
Cost of Properties
Including Closing and
Soft Costs
---------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
===================================================================================
<S> <C>
Shoney's -
Smyrna, TN 0 554,200 554,200 82,588
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
Jack in the Box -
Dallas, TX 0 964,437 964,437 18,543
Denny's -
Show Low, AZ (8) 0 272,354 272,354 76,846
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (4) 0 233,728 233,728 6,272
Shoney's -
Colorado Springs, CO 0 893,739 893,739 151,170
Hardee's -
Hartland, MI 0 841,642 841,642 (224,607)
Hardee's -
Columbus, IN 0 219,676 219,676 3,914
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) 0 215,845 215,845 4,155
Ponderosa -
Orlando, FL (6) 0 1,179,210 1,179,210 174,565
</TABLE>
C-34
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===========================================================================================================
<S> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH 05/31/91 12/12/96 918,445 0 0 0 918,445
Burger King -
Alpharetta, GA 09/20/91 06/30/97 1,053,571 0 0 0 1,053,571
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0 1,044,750
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0 1,640,000
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
Checkers -
Richmond, VA 03/31/94 11/21/96 550,000 0 0 0 550,000
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
=====================================================================================
Cost of Properties
Including Closing and
Soft Costs
---------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
=====================================================================================
<S> <C>
CNL Income Fund IX, Ltd.:
Burger King -
Woodmere, OH 0 918,445 918,445 0
Burger King -
Alpharetta, GA 0 713,866 713,866 339,705
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 0 818,850 818,850 225,900
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 0 1,636,643 1,636,643 3,357
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
Checkers -
Richmond, VA 0 413,288 413,288 136,712
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
</TABLE>
C-35
<PAGE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
==========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
==========================================================================================================
<S> <C>
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0 775,000
Checker's -
Oviedo, FL 11/14/94 02/28/97 610,384 0 0 0 610,384
</TABLE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
========================================================================================
Cost of Properties
Including Closing and
Soft Costs
---------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
========================================================================================
<S> <C>
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 0 613,838 613,838 161,162
Checker's -
Oviedo, FL 0 506,311 506,311 104,073
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,006,004 in July 2000.
(3) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,106,657 in July 2000.
(4) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $200,324 in December 2005.
(6) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.75% per annum and
provides for 12 monthly payments of interest only and thereafter, 168 equal
monthly payments of principal and interest.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for each of CNL Income Fund XIV, Ltd. and
CNL Income Fund XV, Ltd. represent each partnership's 50 percent interest
in the properties owned by Wood-Ridge Real Estate Joint Venture.
(8) CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund VI,
Ltd. owns a 36 percent interest in this joint venture. The amounts
presented for each of CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
represent each partnership's percent interest in the properties owned by
Show Low Joint Venture.
C-36
<PAGE>
EXHIBIT D
SUBSCRIPTION AGREEMENT
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
----------------------------------
Up to 34,500,000 Shares -- $10.00 per Share
Minimum Purchase -- 250 Shares ($2,500)
100 Shares ($1,000) for IRAs, Keogh, and Qualified Plans
(Minimum purchase may be higher in certain states)
================================================================================
PLEASE READ CAREFULLY this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your check, to your Financial Advisor. YOUR CHECK SHOULD BE MADE
PAYABLE TO:
SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
================================================================================
Overnight Packages: Regular Mail Packages:
Attn: Investor Services Attn: Investor Services
400 E. South Street, Suite 500 Post Office Box 1033
Orlando, Florida 32801 Orlando, Florida 32802-1033
For Telephone Inquiries:
CNL SECURITIES CORP.
(407) 422-1574 OR (800) 522-3863
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
----------------------------------
<TABLE>
<CAPTION>
1. INVESTMENT
--------------- --------------------------------------------------
<S> <C>
This subscription is in the amount of $____________ for the purchase of
_________ Shares ($10.00 per Share). The minimum initial subscription is 250
Shares ($2,500); 100 Shares ($1,000) for IRA, Keogh and qualified plan accounts
(except in states with higher minimum purchase requirements).
[ ] ADDITIONAL PURCHASE [ ] REINVESTMENT PLAN - Investor elects to participate
in Plan (See prospectus for details.)
2. SUBSCRIBER INFORMATION
--------------- ---------------------------------------
Name (1st) ______________________________________ [ ] M [ ] F Date of Birth (MM/DD/YY) ____________________
Name (2nd) ______________________________________ [ ] M [ ] F Date of Birth (MM/DD/YY) ____________________
Address _______________________________________________________________________________________________________
City __________________________________________ State _______________________ Zip Code ____________________
Custodian Account No. Daytime Phone # (_______) _______________________
[ ] U.S. Citizen [ ] Resident Alien [ ] Foreign Resident Country ___________________________
[ ] Check if Subscriber is a U.S. citizen residing outside the U.S. Income Tax Filing State ________________
ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required) ________________________________
Taxpayer Identification Number: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed. For IRAs, Keoghs and
qualified plans, enter both the Social Security number and the taxpayer
identification number.
Taxpayer ID# ___________ - _________________ Social Security # _________ - __________ - _________
3. INVESTOR MAILING ADDRESS
--------------- -------------------------------------
For the Subscriber of an IRA, Keogh, or qualified plan to receive informational
mailings, please complete if different from address in Section 2.
Name __________________________________________________________________________________________________________
Address _______________________________________________________________________________________________________
City _________________________________________________ State ___________________ Zip Code _________________
Daytime Phone #(________) ________________________________
4. DIRECT DEPOSIT ADDRESS
-------------- -----------------------------------------------------------------------
Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the Company
or Affiliates be responsible for any adverse consequences of direct deposit.
Company _______________________________________________________________________________________________________
Address _______________________________________________________________________________________________________
City ___________________________________________________ State ___________________ Zip Code __________________
Account No. ________________________________________________ Phone #(_______)_________________________________
5. FORM OF OWNERSHIP
-------------- ---------------------------------------------------------------------------
(Select only one)
[ ]INDIVIDUAL-one signature required (1)
[ ]HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two signatures required (15)
[ ]TENANTS IN COMMON-two signatures required (9)
[ ]TENANTS BY THE ENTIRETY-two signatures required (31)
[ ]S-Corporation (22)
[ ]C-Corporation (5)
[ ]IRA-custodian signature required (23)
[ ]SEP-custodian signature required (38)
[ ]TAXABLE TRUST (7)
[ ]TAX-EXEMPT TRUST (20)
[ ]JOINT TENANTS WITH RIGHT OF SURVIVORSHIP-all parties must sign (8)
[ ]A MARRIED PERSON/SEPARATE PROPERTY-one signature required (34)
[ ]KEOGH (H.R.10)-trustee signature required (24)
[ ]CUSTODIAN-custodian signature required (33)
[ ]PARTNERSHIP (3)
[ ]NON-PROFIT ORGANIZATION (12)
[ ]PENSION PLAN-trustee signature(s) required (19)
[ ]PROFIT SHARING PLAN-trustee signature(s) required (27)
[ ]CUSTODIAN UGMA-STATE of __________________-custodian signature required (16)
[ ]CUSTODIAN UTMA-STATE of __________________-custodian signature required (42)
[ ]ESTATE-Personal Representative signature required (13)
[ ]REVOCABLE GRANTOR TRUST-grantor signature required (25)
[ ]IRREVOCABLE TRUST-trustee signature required (21)
[ ] SUBSCRIBER elects to have the Shares covered by this subscription placed
in a new sponsored IRA account offered by Franklin Bank as custodian. IRA
documents will be sent to subscriber upon receipt of subscription
documents. There is no annual fee involved for CNL American Properties
Fund, Inc. investments.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6. SUBSCRIBER SIGNATURES
-------------- ------------------------------------------------------------------------
If the Subscriber is executing the Subscriber Signature Page, the Subscriber
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X X
------------------------------------ -------------- ---------------------------------- ----------------
Signature of 1st Subscriber Date Signature of 2nd Subscriber Date
7. BROKER/DEALER INFORMATION
-------------- --------------------------------------------------------------------
Broker/Dealer NASD Firm Name___________________________________________________________________________________
Financial Advisor______________________________________________________________________________________________
Branch Mail Address____________________________________________________________________________________________
City _________________________ State ________________ Zip Code ____________ [ ] Please check if new address
Phone #(_________)___________________________ Fax #(_________) _________________________ [ ] Sold CNL before
Shipping Address___________________________ City ________________ State_______________ Zip Code ____________
[ ] Telephonic Subscriptions (check here): If the Registered Representative
and Branch Manager are executing the signature page on behalf of the
Subscriber, both must sign below. Registered Representatives and Branch
Managers may not sign on behalf of residents of Florida, Iowa, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
Mexico, North Carolina, Ohio, Oregon, South Dakota, Tennessee, or
Washington. [NOTE: Not to be executed until Subscriber(s) has (have)
acknowledged receipt of final prospectus.] Telephonic subscriptions may
not be completed for IRA accounts.
[ ] Registered Investment Advisor (RIA) (check here): This investment is
made through the RIA in its capacity as an RIA and not in its capacity
as a Registered Representative, if applicable. If an owner or principal
or any member of the RIA firm is an NASD licensed Registered
Representative affiliated with a Broker/Dealer, the transaction should
be conducted through that Broker/Dealer, not through the RIA.
PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND SUBSCRIPTION
AGREEMENT BEFORE COMPLETING
X
------------------------------------------------------- -------------- ------------------------------------
Principal, Branch Manager or Other Authorized Signature Date Print or Type Name of Person Signing
X
------------------------------------------------------ -------------- ------------------------------------
Registered Representative/Investment Advisor Signature Date Print or Type Name of Person Signing
- ---------------------------------------------------------------------------------------------------------------
Make check payable to : SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT
Please remit check and subscription document to: For overnight delivery, please send to:
CNL SECURITIES CORP. CNL SECURITIES CORP.
Attn: Investor Services Attn: Investor Services
P. O. Box 1033 400 E. South Street, Suite 500
Orlando, FL 32802-1033 Orlando, FL 32801
(800) 522-3863 (407) 422-1574
(800) 522-3863
For Office Use Only
Sub. # __________________________________
Admit Date ______________________________
Amount __________________________________
Region __________________________________
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTICE TO ALL INVESTORS:
(a) The purchase of Shares by an IRA, Keogh, or other tax-qualified plan does
not, by itself, create the plan.
(b) The Company, in its sole and absolute discretion, may accept or reject the
Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. stockholders (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.
(c) THE SALE OF SHARES SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL AT
LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
NOTICE TO CALIFORNIA RESIDENTS: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
California investors who do not execute the Subscription Agreement will receive
a confirmation of investment accompanied by a second copy of the final
Prospectus, and will have the opportunity to rescind the investment within ten
(10) days from the date of confirmation.
NOTICE TO NORTH CAROLINA RESIDENTS: By signing this Subscription Agreement,
North Carolina investors acknowledge receipt of the Prospectus and represent
that they meet the suitability standards for North Carolina investors listed in
the Prospectus.
BROKER/DEALER AND FINANCIAL ADVISOR:
By signing this subscription agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Conduct Rules, and
hereby further certify as follows: (i) a copy of the Prospectus, including the
Subscription Agreement attached thereto as Exhibit C, as amended and/or
supplemented to date, has been delivered to the Subscriber; (ii) they have
discussed such investor's prospective purchase of Shares with such investor and
have advised such investor of all pertinent facts with regard to the liquidity,
valuation, and marketability of the Shares; and (iii) they have reasonable
grounds to believe that the purchase of Shares is a suitable investment for such
investor, that such investor meets the suitability standards applicable to such
investor set forth in the Prospectus and related supplements, if any, that such
investor is legally capable of purchasing such Shares and will not be in
violation of any laws for having engaged in such purchase, and that such
investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; (iv) under penalties of perjury,
(a) the information provided in this Subscription Agreement to the best of our
knowledge and belief is true, correct, and complete, including, but not limited
to, the number shown above as the Subscriber's taxpayer identification number;
(b) to the best of our knowledge and belief, the Subscriber is not subject to
backup withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup withholding as result of failure to report all
interest or dividends or the Internal Revenue Service has notified the
subscriber that the Subscriber is no longer subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our knowledge and belief, the Subscriber is not a nonresident
alien, foreign corporation, foreign trust, or foreign estate for U.S. tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.
<PAGE>
Franklin Bank, N.A.
- --------------------------------------------------------------------------------
FRANKLIN BANK, N.A., INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
ACCOUNTHOLDER INFORMATION: NAME ______________________________________________
DISCLAIMER:
Franklin Bank, N.A. is a national bank, not associated with CNL
Group, Inc. or any CNL entity. Franklin Bank, N.A. is a custodian for IRAs and
will act in a custodial capacity for all beneficial owners of IRAs. CNL has no
affiliation with Franklin Bank, N.A.
It is not reasonable to project the growth of your IRA investments
include assets other than bank time deposits or savings accounts. Therefore,
your final account balance will depend upon many factors - the amount of your
contributions, the amount of time the funds are invested, the earnings and/or
losses from the investments, expenses incurred such as brokerage commissions and
trustee's fees and the overall performance of your investments. We expressly
state that the growth in the value of your IRA cannot be guaranteed or
projected.
SIGNATURES IMPORTANT: Please read before signing. I understand the
eligibility requirements for the type of IRA deposit I am
making and I state that I do qualify to make the deposit. I
understand that the terms and conditions which apply to the
Individual Retirement Account are contained in this
Application and Form 5305A (which will be provided within 10
days of our receipt of this application). I agree to be
bound by those terms and conditions. I understand that I
will not be required to pay an annual fee as long as all
investments in this IRA are sponsored by a CNL entity.
Within seven (7) days from the date I establish the
Individual Retirement Account I may revoke it without
penalty by mailing or delivering a written notice to the
Custodian.
I assume complete responsibility for:
1. Determining that I am eligible for an IRA each year I
make a contribution.
2. Insuring that all contributions I make are within the
limits set forth by the tax laws.
3. The tax consequences of any contribution (including
rollover contributions) and distributions.
Signature _______________________________________________
Accountholder
____________________________ __________________________
Authorized Signature Trustee Date
DESIGNATION OF
BENEFICIARY(IES): I designate the individual(s) named below as my primary and
contingent Beneficiary(ies) of the IRA. I revoke all prior
IRA Beneficiary designations, if any, made by me. I
understand that I may change or add Beneficiaries at any
time by completing and delivering the proper form to the
Custodian. (If you wish to name more than one Beneficiary,
attach a list of each Beneficiary's name, social security
number, relationship to you and percentage share in this
IRA.) If any primary or contingent Beneficiary dies before
me, his or her interest and the interest of his or her heirs
shall terminate completely, and the percentage share of any
remaining Beneficiary(ies) shall be increased on a pro rata
basis.
Primary The following individual(s) shall be my Primary
Beneficiary(ies) Beneficiary(ies):
Name________________________ Social Security #_____________
Address_____________________ Date of Birth_______ Share____
______________________________ Relationship_________________
Contingent If none of the Primary Beneficiaries survive me, the
Beneficiary(ies) following individual(s) shall be my Beneficiary(ies):
Name_________________________ Social Security #____________
Address___________________ Date of Birth________ Share_____
______________________________Relationship__________________
Spousal Consent
I am the spouse of IRA accountholder named above. I agree to
my spouse's naming of a primary Beneficiary other than
myself. I acknowledge that I have received a fair and
reasonable disclosure of my spouse's property and financial
obligation. I also acknowledge that I shall have no claim
whatsoever against the Custodian for any payments to my
spouse's Beneficiary(ies).
--------------------------------------- -------------------
Spouse's Signature Date
- --------------------------------------------------------------------------------
Custodial Services P.O. Box 7090 Troy, MI 48007-7090
1-800-344-0667
<PAGE>
INVESTMENT OPTIONS:
[ ] I would like to receive information regarding mutual fund investments.
[ ] I would like to receive information regarding money market accounts.
Note: Franklin Bank, N.A. may consider other investment options for your IRA.
Please provide the following information on your options.
Fund Name ______________________________________________________________________
Sponsor Name ___________________________________________________________________
Address ________________________________________________________________________
Account No.______________________________________ Telephone # _________________
Registered Representative information:
Registered Representative's Name _______________________________________________
Company ________________________________________________________________________
Address ________________________________________________________________________
Telephone # ____________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
Amount
------
SEC registration fee............................ $104,546
NASD filing fee................................. 30,500
Accounting fees and expenses.................... *
Escrow Agent's Fees............................. *
Sales and advertising
expenses.................................... *
Legal fees and expenses......................... *
Blue Sky fees and expenses...................... *
Printing expenses............................... *
Miscellaneous................................... *
Total............................... *
----------------------
*To be supplied by amendment.
Item 31. Sales to Special Parties.
The registrant was capitalized through the purchase by the Advisor
of 20,000 Shares for aggregate consideration of $200,000.
Item 32. Recent Sales of Unregistered Securities.
See response to Item 31. The offer and sale of the shares is
claimed to be exempt from the registration provisions of the Securities Act of
1933, as amended, by virtue of Section 4(2) thereunder.
Item 33. Indemnification of Directors and Officers.
Pursuant to Maryland corporate law and the Company's Articles of
Incorporation, the Company is required to indemnify and hold harmless a present
or former Director, officer, Advisor, or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities reasonably incurred by the Indemnitee
in connection with or by reason of any act or omission performed or omitted to
be performed on behalf of the Company while a Director, officer, Advisor,
Affiliate, employee, or agent and in such capacity, provided, that the
Indemnitee has determined, in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the Indemnitee if: (i) the loss or liability was
the result of negligence or misconduct, or if the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct, (ii) the act or omission was material to the loss or liability and
was committed in bad faith or was the result of active or deliberate dishonesty,
(iii) the Indemnitee actually received an improper personal
II-1
<PAGE>
benefit in money, property, or services, (iv) in the case of any criminal
proceeding, the Indemnitee had reasonable cause to believe that the act or
omission was unlawful, or (v) in a proceeding by or in the right of the Company,
the Indemnitee shall have been adjudged to be liable to the Company. In
addition, the Company will not provide indemnification for any loss or liability
arising from an alleged violation of federal or state securities laws unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular Indemnitee and finds that
indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities regulatory authority in which securities of the Company
were offered or sold as to indemnification for violations of securities laws.
Pursuant to its Articles of Incorporation, the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse reasonable expenses incurred by
any other Indemnitee in advance of final disposition of a proceeding if the
following are satisfied: (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a Director, officer, Advisor, Affiliate,
employee or agent of the Company, (ii) the Indemnitee provides the Company with
written affirmation of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation, (iii) the Indemnitee provides the Company with
a written agreement to repay the amount paid or reimbursed by the Company,
together with the applicable legal rate of interest thereon, if it is ultimately
determined that the Indemnitee did not comply with the requisite standard of
conduct, and (iv) the legal proceeding was initiated by a third party who is not
a stockholder or, if by a stockholder of the Company acting in his or her
capacity as such, a court of competent jurisdiction approves such advancement.
The Company's Articles of Incorporation further provide that any
indemnification, payment, or reimbursement of the expenses permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.
Any indemnification may be paid only out of Net Assets of the
Company, and no portion may be recoverable from the stockholders.
The Company will enter into indemnification agreements with each
of the Company's officers and Directors. The indemnification agreements will
require, among other things, that the Company indemnify its officers and
Directors to the fullest extent permitted by law, and advance to the officers
and Directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. In accordance
with this agreement, the Company must indemnify and advance all expenses
incurred by officers and Directors seeking to enforce their rights under the
indemnification agreements.
Item 34. Treatment of Proceeds from Securities Being Registered.
Not applicable.
Item 35. Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements are included in the Prospectus.
(1) Pro Forma Consolidated Balance Sheet as of June 30, 1997
(2) Pro Forma Consolidated Statement of Earnings for the six
months ended June 30, 1997
(3) Pro Forma Consolidated Statement of Earnings for the year
ended December 31, 1996
(4) Notes to Pro Forma Consolidated Financial Statements for
the six months ended June 30, 1997 and the year ended
December 31, 1996
(5) Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996
II-2
<PAGE>
(6) Condensed Consolidated Statements of Earnings for the six
months ended June 30, 1997 and 1996
(7) Condensed Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 1997 and the year ended
December 31, 1996
(8) Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996
(9) Notes to Condensed Consolidated Financial Statements for
the six months ended June 30, 1997 and 1996
(10) Report of Independent Accountants
(11) Consolidated Balance Sheets as of December 31, 1996 and
1995
(12) Consolidated Statements of Earnings for the years ended
December 31, 1996 and 1995 and the period May 2, 1994
(date of inception) through December 31, 1994
(13) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996 and 1995 and the period May
2, 1994 (date of inception) through December 31, 1994
(14) Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period May 2, 1994
(date of inception) through December 31, 1994
(15) Notes to Consolidated Financial Statements for the years
ended December 31, 1996 and 1995 and the period May 2,
1994 (date of inception) through December 31, 1994
(16) Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1996
(17) Notes to Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1996
(18) Schedule IV - Mortgage Loans on Real Estate as of
December 31, 1996
(19) Notes to Schedule IV - Mortgage Loans on Real Estate as
of December 31, 1996
(b) Exhibits:
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
3.1 CNL American Properties Fund, Inc. Amended and Restated
Articles of Incorporation (Previously filed as Exhibit 3.4
to the Registrant's Registration Statement on Form S-11
(Registration No. 33-78790) (the "1995 Form S-11") and
incorporated herein by reference.)(1)
3.2 CNL American Properties Fund, Inc. Bylaws (Previously
filed as Exhibit 3.5 to the 1995 Form S-11 and
incorporated herein by reference.)(1)
3.3 CNL American Properties Fund, Inc. Articles of Amendment
dated May 8, 1997 (Previously filed as Exhibit 3.3 to the
Registrant's Registration Statement on Form S-11
(Registration No. 333-15411) (the "1997 Form S-11") and
incorporated herein by reference.)(1)
4.1 CNL American Properties Fund, Inc. Amended and Restated
Articles of Incorporation (Previously filed as Exhibit 3.4
to the 1995 Form S-11 and incorporated herein by
reference.)
II-3
<PAGE>
4.2 CNL American Properties Fund, Inc. Bylaws (Previously
filed as Exhibit 3.5 to the 1995 Form S-11 and
incorporated herein by reference.)
4.3 CNL American Properties Fund, Inc. Articles of Amendment
dated May 8, 1997 (Previously filed as Exhibit 3.3 to the
1997 Form S-11 and incorporated herein by reference.)
4.4 Form of Amended Reinvestment Plan (Included in the
Prospectus as Exhibit A and incorporated herein by
reference.)
4.5 Form of Stock Certificate (Previously filed as Exhibit 4.5
to the 1995 Form S-11 and incorporated herein by
reference.)(1)
*5.1 Opinion of Shaw, Pittman, Potts & Trowbridge as to the
legality of the securities being registered by CNL
American Properties Fund, Inc.
*8.1 Opinion of Shaw, Pittman, Potts & Trowbridge regarding
certain material tax issues relating to CNL American
Properties Fund, Inc.
10.1 Form of Escrow Agreement between CNL American Properties
Fund, Inc. and SouthTrust Asset Management Company of
Florida, N.A. (Filed herewith.)
10.2 Advisory Agreement (Previously filed as Exhibit 10.10 to
the 1997 Form S-11 and incorporated herein by
reference.)(1)
10.3 Form of Joint Venture Agreement (Previously filed as
Exhibit 10.3 to the 1997 Form S-11 and incorporated herein
by reference.)(1)
10.4 Form of Indemnification and Put Agreement (Previously
filed as Exhibit 10.4 to the 1997 Form S-11 and
incorporated herein by reference.)(1)
10.5 Form of Unconditional Guaranty of Payment and Performance
(Previously filed as Exhibit 10.5 to the 1997 Form S-11
and incorporated herein by reference.)(1)
10.6 Form of Purchase Agreement (Previously filed as Exhibit
10.6 to the 1997 Form S-11 and incorporated herein by
reference.)(1)
10.7 Form of Lease Agreement including Rent Addendum,
Construction Addendum and Memorandum of Lease (Previously
filed as Exhibit 10.7 to the 1997 Form S-11 and
incorporated herein by reference.)(1)
10.8 Form of Reinvestment Plan (Included in the Prospectus as
Exhibit A and incorporated herein by reference.)
10.9 Form of Indemnification Agreement dated as of April 18,
1995 between CNL American Properties Fund, Inc. and each
of James M. Seneff, Jr., Robert A. Bourne, G. Richard
Hostetter, J. Joseph Kruse, Richard C. Huseman, John T.
Walker, Jeanne A. Wall, Lynn E. Rose and Edgar J.
McDougall and dated as of January 27, 1997 between CNL
American Properties Fund, Inc. and Steven D. Shackelford
(Previously filed as Exhibit 10.9 to the 1997 Form S-11
and incorporated herein by reference.)(1)
23.1 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated October 7, 1997 (Filed herewith.)
II-4
<PAGE>
*23.2 Consent of Shaw, Pittman, Potts & Trowbridge (To be
contained in its opinion filed as Exhibit 5.1 and
incorporated herein by reference.)
- ------------------------------------
* To be filed by amendment.
(1) Filed herewith in connection with state filings only.
Item 36. Undertakings.
The registrant undertakes (a) to file any prospectus required by
Section 10(a)(3) as post-effective amendments to this registration statement,
(b) during any period in which offers or sales are being made, to file a
post-effective amendment to this registration statement (i) to reflect in the
prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, and (ii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement, (c) that, for the purpose of
determining any liability under the Securities Act of 1933, as amended, each
such post-effective amendment may be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof, (d)
that all post-effective amendments will comply with the applicable forms, rules
and regulations of the Commission in effect at the time such post-effective
amendments are filed, and (e) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The registrant undertakes to send to each stockholder, at least on
an annual basis, a detailed statement of any transactions with the Advisor or
its Affiliates, and of fees, commissions, compensation, and other benefits paid
or accrued to the Advisor or its Affiliates, for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services performed.
The registrant undertakes to provide to the stockholders the
financial statements required by Form 10-K for the first full fiscal year of
operations.
The registrant undertakes to file a sticker supplement pursuant to
Rule 424(b)(3) under the Act during the distribution period describing each
property not identified in the Prospectus at such time as there arises a
reasonable probability that such property will be acquired and to consolidate
all such stickers into a post-effective amendment filed at least once every
three months, with the information contained in such amendment provided
simultaneously to the existing stockholders. Each sticker supplement will
disclose all compensation and fees received by the Advisor and its Affiliates in
connection with any such acquisition. The post-effective amendment will include
audited financial statements meeting the requirements of Rule 3-14 of
Registration S-X only for properties acquired during the distribution period.
The registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
10% or more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the stockholders at least
once each quarter after the distribution period of the offering has ended.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any such action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
II-5
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that (a) for purposes
of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective, and (b) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS
Table VI presents information concerning the acquisition of real
properties by the public real estate limited partnerships sponsored by
Affiliates of the Company through June 30, 1997. The information includes the
gross leasable space or number of units and total square feet of units, dates of
purchase, locations, cash down payment and contract purchase price plus
acquisition fee. This information is intended to assist the prospective investor
in evaluating the terms involved in acquisitions by such prior programs.
II-7
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 2) (Note 3) (Note 4) (Note 5)
<S> <C>
AZ,CA,FL,GA, AL,DC,FL,GA,
AL,AZ,CO,FL, IA,IL,IN,KS, IL,IN,KS,MA,
AL,AZ,CA,FL, GA,IL,IN,LA, KY,MD,MI,MN, MD,MI,MS,NC,
GA,LA,MD,OK, MI,MN,MO,NC, MO,NC,NE,OK, OH,PA,TN,TX,
Locations TX,VA NM,OH,TX,WY TX VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 20 units 44 units 33 units 45 units
total square feet
of units 67,645 s/f 157,461 s/f 138,102 s/f 159,196 s/f
Dates of purchase 6/17/86 - 2/11/87- 10/04/87- 6/24/88-
12/17/87 6/11/97 6/11/97 12/31/96
Cash down payment (Note 1) $12,296,264 $23,683,368 $20,909,969 $27,611,441
Contract purchase price
plus acquisition fee $12,222,062 $23,524,561 $20,788,872 $27,506,106
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 74,202 158,807 121,097 105,335
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $12,296,264 $23,683,368 $20,909,969 $27,611,441
=========== =========== =========== ===========
</TABLE>
Note 1: This amount was derived from capital contributions from partners and
net sales proceeds reinvested in other properties.
Note 2: The partnership owns a 50% interest in three separate joint ventures
which each own a restaurant property.
Note 3: The partnership owns a 49%, 50% and 64% interest in three separate
joint ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 33.87% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 4: The partnership owns a 73.4% and 69.07% interest in two separate joint
ventures. Each joint venture owns one restaurant property.
Note 5: The partnership owns a 51%, 26.6%, 57%, 96.1% and 68.87% interest in
five separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 53.68% interest in one
restaurant property held as tenants-in-common with affiliates.
II-8
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- -----------
(Note 6) (Note 7) (Note 8) (Note 9)
<S> <C>
AR,AZ,FL,GA,
FL,GA,IL,IN, IN,MA,MI,MN, AZ,CO,FL,GA,
MI,NH,NY,OH, NC,NE,NM,NY, IN,LA,MI,MN, AZ,FL,IN,LA,
SC,TN,TX,UT, OH,OK,PA,TN, OH,SC,TN,TX, MI,MN,NC,NY,
Locations WA TX,VA,WY UT,WA OH,TN,TX,VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 30 units 48 units 47 units 42 units
total square feet
of units 117,652 s/f 186,888 s/f 166,648 s/f 179,885 s/f
Dates of purchase 2/06/89- 7/13/89- 3/30/90- 9/13/90-
1/05/90 6/11/97 2/5/97 5/31/96
Cash down payment (Note 1) $22,113,522 $34,073,497 $28,968,733 $31,985,071
Contract purchase price
plus acquisition fee $21,706,859 $33,528,770 $28,296,750 $31,450,507
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 406,663 544,727 671,983 534,564
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $22,113,522 $34,073,497 $28,968,733 $31,985,071
=========== =========== =========== ===========
</TABLE>
Note 6: The partnership owns a 43%, 49% and 66.5% interest in three separate
joint ventures. Each joint venture owns one restaurant property.
Note 7: The partnership owns a 3.9%, 14.5%, 36% and a 66.14% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 51.67% and a 17.93%
interest in two restaurant properties held separately as
tenants-in-common with affiliates.
Note 8: The partnership owns a 51%, 83.3%, 4.79%, 18%, and 79% interest in five
separate joint ventures. Four of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties. In addition, the partnership owns a 48.33% interest in one
restaurant property held as tenants-in-common with an affiliate.
Note 9: The partnership owns a 85.5%, 87.68%, 36.8% and a 12% interest in four
separate joint ventures. Three of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties.
II-9
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund IX, Fund X, Fund XI, Fund XII,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 10) (Note 11) (Note 12) (Note 13)
<S> <C>
AL,AZ,CA,CO,
AL,CA,CO,FL, CT,FL,KS,LA,
AL,FL,GA,IL, ID,IL,LA,MI, MA,MI,MS,NC, AL,AZ,CA,FL,
IN,LA,MI,MN, MO,MT,NC,NH, NH,NM,OH,OK, GA,LA,MO,MS,
MS,NC,NH,NY, NM,NY,OH,PA, PA,SC,TX,VA, NC,NM,OH,SC,
Locations OH,SC,TN,TX SC,TN,TX WA TN,TX,WA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 42 units 49 units 40 units 49 units
total square feet
of units 180,843 s/f 203,466 s/f 176,062 s/f 206,865 s/f
Dates of purchase 5/31/91- 10/01/91- 5/18/92- 11/20/92-
12/12/96 1/24/96 1/28/97 5/31/96
Cash down payment (Note 1) $31,763,146 $36,036,814 $36,245,591 $40,840,795
Contract purchase price
plus acquisition fee $31,016,376 $35,320,865 $35,644,633 $40,339,796
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 746,770 715,949 600,958 500,999
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $31,763,146 $36,036,814 $36,245,591 $40,840,795
=========== =========== =========== ===========
</TABLE>
Note 10: The partnership owns a 50%, 45.2% and 27.3% interest in three
separate joint ventures. One of the joint ventures owns one
restaurant property and the other two joint ventures own six
restaurant properties each.
Note 11: The partnership owns a 50%, 88.3%, 40.95% and 10.5% interest in
four separate joint ventures. Three of the joint ventures own one
restaurant property each and the other joint venture owns six
restaurant properties. In addition, the partnership owns a 13.37%
interest in one restaurant property held as tenants-in-common with
affiliates.
Note 12: The partnership owns a 62.2%, 77.33%, 85% and 76.6% interest in
four separate joint ventures. Each joint venture owns one
restaurant property. In addition, the partnership owns a 72.5%
interest in one restaurant property held as a tenants-in-common
with an affiliate.
Note 13: The partnership owns a 31.13%, 59.05%, 18.61% and 88% interest in
four separate joint ventures. Each joint venture owns one
restaurant property.
II-10
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
---------- ---------- ---------- ----------
(Note 14) (Note 15) (Note 16) (Note 17)
<S> <C>
AL,AR,AZ,CA, AL,AZ,CO,FL, AL,CA,FL,GA, AZ,CA,CO,DC,
CO,FL,GA,IN, GA,KS,LA,MN, KS,KY,MN,MO, FL,GA,ID,IN,
KS,LA,MD,NC, MO,MS,NC,NJ, MS,NC,NJ,NM, KS,MN,MO,NC,
OH,PA,SC,TN, NV,OH,SC,TN, OH,OK,PA,SC, NM,NV,OH,TN,
Locations TX,VA TX,VA TN,TX,VA TX,UT,WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 49 units 62 units 54 units 44 units
total square feet
of units 159,378 s/f 184,689 s/f 166,249 s/f 169,867 s/f
Dates of purchase 5/18/93- 9/27/93- 4/28/94- 10/21/94-
1/28/97 1/10/97 1/10/97 10/04/96
Cash down payment (Note 1) $35,455,235 $42,392,436 $38,227,474 $40,197,565
Contract purchase price
plus acquisition fee $35,087,109 $41,961,701 $37,834,633 $39,805,020
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 368,126 430,735 392,841 392,545
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $35,455,235 $42,392,436 $38,227,474 $40,197,565
=========== =========== =========== ===========
</TABLE>
Note 14: The partnership owns a 50% and 28% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the Partnership owns a 66.13% and a 63.03% interest in
two restaurant properties held separately as tenants-in-common
with affiliates.
Note 15: The partnership owns a 50% interest in two separate joint ventures
and a 72% interest in one joint venture. Two of the joint ventures
each own one restaurant property and the other joint venture owns
six restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which owns
six restaurant properties. In addition, the partnership owns a
15.02% interest in one restaurant property held as
tenants-in-common with affiliates.
Note 17: The partnership owns a 80.27% interest in one restaurant property
held as tenants-in-common with an affiliate.
II-11
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
CNL Income CNL Income
Fund XVII, Fund XVIII,
Ltd. Ltd.
---------- -----------
(Note 18)
CA,FL,GA,IL, CA,GA,KY,MD,
IN,MI,NC,NV, MN,NC,NV,OH,
Locations OH,SC,TN,TX TN,TX
Type of property Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 27 units 17 units
total square feet
of units 113,774 s/f 84,401 s/f
Dates of purchase 12/20/95 - 12/27/96 -
2/5/97 5/21/97
Cash down payment (Note 1) $24,443,059 $18,411,910
Contract purchase price
plus acquisition fee $24,406,400 $18,359,382
Other cash expenditures
expensed - -
Other cash expenditures
capitalized 36,659 52,528
----------- -----------
Total acquisition cost
(Note 1) $24,443,059 $18,411,910
=========== ===========
Note 18: The partnership owns an 80% and 21% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 19.73%, 27.5% and 36.97% interest
in three restaurant properties held separately as
tenants-in-common with affiliates.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Orlando, State of Florida, on October 7, 1997.
CNL AMERICAN PROPERTIES FUND, INC.
(Registrant)
By: /s/ James M. Seneff, Jr.
------------------------
James M. Seneff, Jr.
Chairman of the Board and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Robert A. Bourne and James M. Seneff, Jr. and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any and all
documents (including both pre- and post-effective amendments in connection with
the registration statement), and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C>
/s/ James M. Seneff, Jr. Chairman of the Board and Chief October 7, 1997
- ---------------------------
James M. Seneff, Jr. Executive Officer
(Principal Executive Officer)
/s/ Robert A. Bourne Director and President October 7, 1997
- --------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
/s/ G. Richard Hostetter Director October 7, 1997
- ---------------------------
G. Richard Hostetter
/s/ J. Joseph Kruse Director October 7, 1997
- ---------------------------
J. Joseph Kruse
/s/ Richard C. Huseman Director October 7, 1997
- ---------------------------
Richard C. Huseman
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibits Page #
1.1 Form of Managing Dealer Agreement (Filed herewith.)
1.2 Form of Participating Broker Agreement (Filed herewith.)
3.1 CNL American Properties Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.4 to the Registrant's
Registration Statement on Form S-11 (Registration No. 33-78790) (the
"1995 Form S-11") and incorporated herein by reference.)(1)
3.2 CNL American Properties Fund, Inc. Bylaws (Previously filed as Exhibit
3.5 to the 1995 Form S-11 and incorporated herein by reference.)(1)
3.3 CNL American Properties Fund, Inc. Articles of Amendment dated May 8,
1997 (Previously filed as Exhibit 3.3 to the Registrant's Registration
Statement on Form S-11 (Registration No. 333-15411) (the "1997 Form
S-11") and incorporated herein by reference.)(1)
4.1 CNL American Properties Fund, Inc. Amended and Restated Articles of
Incorporation (Previously filed as Exhibit 3.4 to the 1995 Form S-11
and incorporated herein by reference.)
4.2 CNL American Properties Fund, Inc. Bylaws (Previously filed as Exhibit
3.5 to the 1995 Form S-11 and incorporated herein by reference.)
4.3 CNL American Properties Fund, Inc. Articles of Amendment dated May 8,
1997 (Previously filed as Exhibit 3.3 to the 1997 Form S-11 and
incorporated herein by reference.)
4.4 Form of Amended Reinvestment Plan (Included in the Prospectus as
Exhibit A and incorporated herein by reference.)
4.5 Form of Stock Certificate (Previously filed as Exhibit 4.5 to the 1995
Form S-11 and incorporated herein by reference.)(1)
*5.1 Opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
securities being registered by CNL American Properties Fund, Inc.
*8.1 Opinion of Shaw, Pittman, Potts & Trowbridge regarding certain material
tax issues relating to CNL American Properties Fund, Inc.
10.1 Form of Escrow Agreement between CNL American Properties Fund, Inc. and
SouthTrust Asset Management Company of Florida, N.A. (Filed herewith.)
10.2 Advisory Agreement (Previously filed as Exhibit 10.10 to the 1997 Form
S-11 and incorporated herein by reference.)(1)
10.3 Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to
the 1997 Form S-11 and incorporated herein by reference.)(1)
10.4 Form of Indemnification and Put Agreement (Previously filed as Exhibit
10.4 to the 1997 Form S-11 and incorporated herein by reference.)(1)
<PAGE>
10.5 Form of Unconditional Guaranty of Payment and Performance (Previously
filed as Exhibit 10.5 to the 1997 Form S-11 and incorporated herein by
reference.)(1)
10.6 Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the
1997 Form S-11 and incorporated herein by reference.)(1)
10.7 Form of Lease Agreement including Rent Addendum, Construction Addendum
and Memorandum of Lease (Previously filed as Exhibit 10.7 to the 1997
Form S-11 and incorporated herein by reference.)(1)
10.8 Form of Reinvestment Plan (Included in the Prospectus as Exhibit A and
incorporated herein by reference.)
10.9 Form of Indemnification Agreement dated as of April 18, 1995 between
CNL American Properties Fund, Inc. and each of James M. Seneff, Jr.,
Robert A. Bourne, G. Richard Hostetter, J. Joseph Kruse, Richard C.
Huseman, John T. Walker, Jeanne A. Wall, Lynn E. Rose and Edgar J.
McDougall and dated as of January 27, 1997 between CNL American
Properties Fund, Inc. and Steven D. Shackelford (Previously filed as
Exhibit 10.9 to the 1997 Form S-11 and incorporated herein by
reference.)(1)
23.1 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants,
dated October 7, 1997 (Filed herewith.)
*23.2 Consent of Shaw, Pittman, Potts & Trowbridge (To be contained in its
opinion filed as Exhibit 5.1 and incorporated herein by reference.)
- ------------------------------------
* To be filed by amendment.
(1) Filed herewith in connection with state filings only.
Exhibit 1.1
Form of Managing Dealer Agreement
<PAGE>
FORM OF MANAGING DEALER AGREEMENT
THIS AGREEMENT, dated as of ___________, 1997, is made by and between
CNL AMERICAN PROPERTIES FUND, INC., a Maryland corporation (the "Company"); and
CNL SECURITIES CORP., a Florida corporation (the "Managing Dealer").
WHEREAS, the Company proposes to offer and sell up to an aggregate of
34,500,000 shares of common stock in the Company (the "Shares") to the public
pursuant to a public offering;
WHEREAS, the Managing Dealer is registered with the National
Association of Securities Dealers, Inc. as a broker-dealer, and is presently or,
prior to any offers or sales of Shares, will be licensed in all fifty states,
the District of Columbia, and the Commonwealth of Puerto Rico as a broker-dealer
qualified to offer and sell to the public securities of the type represented by
the Shares; and
WHEREAS, the Company desires to retain the Managing Dealer to use its
best efforts to sell the Shares and to manage the sale by others of the Shares,
and the Managing Dealer is willing and desires to serve as the Managing Dealer
for the Company for the sale of the Shares upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Company and the Managing
Dealer agree as follows:
SECTION 1
DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
following specified meanings.
1.1 "NASD" means the National Association of Securities Dealers, Inc.
1.2 "Offering" means the offering of up to 34,500,000 Shares of CNL
AMERICAN PROPERTIES FUND, INC. to the public pursuant to the terms and
conditions of the Registration Statement.
1.3 "Offering Period" means the period commencing on the effective date
of the Registration Statement and ending on the earliest of the following: (i)
the later of one year after the initial date of the Prospectus or, at the
Company's election, two years after the initial date of the Prospectus; (ii) the
acceptance by the Company of subscriptions for 34,500,000 Shares, with 2,000,000
of such Shares available only to investors who participate in the Company's
dividend reinvestment plan, subject to Paragraph 3.8 hereof; (iii) the
termination of the Offering by the Company; (iv) the termination of the
effectiveness of the Registration Statement; or (v) the termination of the
Company.
<PAGE>
1.4 "Participating Brokers" mean those broker-dealers engaged by the
Managing Dealer to participate in the Offering pursuant to Paragraph 3.2.
1.5 "Prospectus" means the final prospectus included in the
Registration Statement, pursuant to which the Company will offer Shares to the
public, as the same may be amended or supplemented from time to time after the
effective date of the Registration Statement.
1.6 "Registration Statement" means the registration statement pursuant
to which the Company has registered the Shares with the SEC as provided in the
Securities Act of 1933, as amended, as such registration statement may be
amended or supplemented from time to time.
1.7 "SEC" means the Securities and Exchange Commission.
1.8 "Shares" mean the shares of Common Stock of the Company, par value
$.01 per share, with a purchase price of $10.00 per share. An aggregate of up to
34,500,000 Shares will be offered pursuant to the Registration Statement.
1.9 "State Regulatory Authorities" mean the commissions, departments,
agencies or other authorities in the fifty states, the District of Columbia, and
the Commonwealth of Puerto Rico which regulate the offer and sale of securities.
1.10 "Company" means CNL American Properties Fund, Inc., a Maryland
corporation.
SECTION 2
APPOINTMENT
Subject to the terms and conditions set forth in this Agreement,
including Paragraph 3.8 hereof, the Company hereby appoints the Managing Dealer
as the managing dealer of the Offering to use its best efforts to sell up to
34,500,000 Shares of the Company and to manage the sale by others of such Shares
for the Company's account. The Managing Dealer hereby accepts such appointment.
SECTION 3
SALE OF SHARES
3.1 Best Efforts. The Managing Dealer shall use its best efforts during
the Offering Period to sell or cause to be sold the Shares in such quantities
and to such persons and in accordance with such terms as are set forth in this
Agreement, the Prospectus and the Registration Statement. Notwithstanding
anything herein to the contrary, the Managing Dealer shall have no obligation
under this Agreement to purchase any of the Shares for its own account.
-2-
<PAGE>
3.2 Association of Other Broker-Dealers. The Company hereby
acknowledges and agrees that the Managing Dealer may engage Participating
Brokers to participate in the Offering, provided that (i) all Participating
Brokers are registered with the NASD and are duly licensed by the State
Regulatory Authorities in the jurisdictions in which they will offer and sell
Shares or exempt from broker-dealer registration with the NASD and the State
Regulatory Authorities, and (ii) all such engagements are evidenced by written
agreements, the terms and conditions of which substantially conform to the form
of Participating Broker Agreement approved by the Company and attached hereto as
Exhibit A (the "Participating Broker Agreement"). The Managing Dealer is
authorized to reallow so much of the commissions which it receives under
Paragraph 4.1 to Participating Brokers as it sees fit.
3.3 Telephonic Subscriptions.
(a) The Managing Dealer may permit certain Participating
Brokers to accept telephonic or other oral subscriptions for Shares;
provided, however, that any such Participating Broker agrees that: (i)
the registered representative and branch manager of the Participating
Broker shall execute the subscription agreement on behalf of any
investor who telephonically or orally subscribes for Shares; (ii) the
Participating Broker shall not charge investors who telephonically or
orally subscribe for Shares any additional fees, including but not
limited to fees relating to opening an account with the Participating
Broker; and (iii) the Participating Broker shall not accept telephonic
or oral subscriptions for Shares from any investor unless such investor
has received a copy of the Company's Prospectus prior to making a
decision to invest. The Managing Dealer shall enter into a written
agreement with each Participating Broker who wishes to accept
telephonic or other oral subscriptions for Shares from investors in
certain states more particularly identified in the Prospectus, pursuant
to which the Participating Broker shall agree to explain to such
investor that: (i) the investor shall have the right to rescind such
subscription for a period of ten days following the receipt of the
Confirmation (as hereinafter defined); and (ii) unless the investor
rescinds such subscription within the applicable period of time, the
investor shall be bound by the subscription agreement. The Managing
Dealer shall confirm the receipt of subscriptions for Shares which have
been subscribed for by telephone or other oral instructions by written
notice to the investor (the "Confirmation"). Such Confirmation shall be
mailed to the investor not later than seven (7) days after the date on
which the investor's funds are deposited, shall contain a statement
that the investor has a right to rescind his subscription, and shall be
accompanied by a Prospectus and a Subscriber's Signature Page.
(b) Notwithstanding anything to the contrary contained in
Paragraph 4.3(a) of this Agreement, in the event that the Company pays
any commission to the Managing Dealer for sale by a Participating
Broker of one or more Shares pursuant to a telephonic or other oral
subscription where representatives of such Participating Broker execute
the subscription agreement relating to such Shares, and the
subscription is rescinded as to one or more of the Shares covered by
such subscription, the Company shall decrease the next payment of
commissions or other compensation otherwise payable to the Managing
Dealer by the
-3-
<PAGE>
Company under this Agreement by an amount equal to the commission rate
established in Paragraph 4.1 of this Agreement, multiplied by the
number of Shares as to which the subscription is rescinded. In the
event that no payment of commissions or other compensation is due to
the Managing Dealer after such withdrawal occurs, the Managing Dealer
shall pay the amount specified in the preceding sentence to the Company
within ten (10) days following receipt of notice by the Managing Dealer
from the Company stating the amount owed as a result of rescinded
subscriptions.
3.4 Suitability and Minimum Purchase Requirements.
(a) The Managing Dealer will use every reasonable effort, to
the extent it sells Shares to investors, to assure that any such Shares
are sold only to investors who:
(i) meet the investor suitability standards,
including the minimum income and net worth standard
established by the Company, and minimum purchase requirements
set forth in the Registration Statement;
(ii) can reasonably benefit from the Company based
on the prospective investor's overall investment objectives
and portfolio structure;
(iii) is able to bear the economic risk of the
investment based on the prospective investor's overall
financial situation; and
(iv) has apparent understanding of: (A) the
fundamental risks of the investment; (B) the risk that the
prospective investor may lose the entire investment; (C) the
lack of liquidity of the Shares; (D) the restrictions on
transferability of the Shares; (E) the background and
qualifications of the officers and directors of CNL Fund
Advisors, Inc., the advisor to the Company (the "Advisor");
and (F) the tax consequences of an investment in the Shares.
(b) The Managing Dealer will make the determinations required
to be made by it pursuant to Paragraph 3.4(a) above based on
information it has obtained from a prospective investor, including, at
a minimum, but not limited to, the prospective investor's age,
investment objectives, investment experience, income, net worth,
financial situation, other investments of the prospective investor, as
well as any other pertinent factors deemed by the Managing Dealer to be
relevant.
(c) The Managing Dealer shall maintain such records evidencing
compliance with the determination of the investor suitability standards
and minimum purchase requirements set forth in the Registration
Statement, as required by Paragraphs 3.4(a) and 3.4(b) above for a
period of not less than six years, or for such greater time period as
shall comply with all applicable federal, state and other regulatory
requirements.
-4-
<PAGE>
(d) In addition to the foregoing, the Managing Dealer shall
comply fully with all the applicable provisions of the NASD's Conduct
Rules and the following provisions:
(i) the Managing Dealer shall have reasonable grounds
to believe, based upon information provided by the investor
concerning his investment objectives, other investments,
financial situation and needs, and upon any other information
known by the Managing Dealer, that (A) each investor to whom
the Managing Dealer sells Shares is or will be in a financial
position appropriate to enable him to realize to a significant
extent the benefits (including tax benefits) of an investment
in the Shares, (B) each investor to whom the Managing Dealer
sells Shares has a fair market net worth sufficient to sustain
the risks inherent in an investment in the Shares (including
potential loss and lack of liquidity), and (C) the Shares
otherwise are or will be a suitable investment for each
investor to whom the Managing Dealer sells Shares, and the
Managing Dealer shall maintain files disclosing the basis upon
which the determination of suitability was made;
(ii) the Managing Dealer shall not execute any
transaction involving the purchase of Shares in a
discretionary account without prior written approval of the
transaction by the investor;
(iii) the Managing Dealer shall have reasonable
grounds to believe, based upon the information made available
to it, that all material facts are adequate and accurately
disclosed in the Registration Statement and provide a basis
for evaluating the Shares;
(iv) in making the determination set forth in item
(iii) above, the Managing Dealer shall evaluate items of
compensation, properties, tax aspects, financial stability and
experience of the sponsor, conflicts of interest and risk
factors, and any other information deemed pertinent by it; and
(v) prior to executing a purchase transaction in the
Shares, the Managing Dealer shall have informed the
prospective investor of all pertinent facts relating to the
liquidity and marketability of the Shares.
(e) The Managing Dealer shall comply with the requirements for
determining the suitability of investors who elect to participate in
the Dividend Reinvestment Plan (the "Reinvestment Plan") in accordance
with the procedure set forth in Paragraph 6 of such Reinvestment Plan
in the form of Exhibit A to the Prospectus.
3.5 Sales Literature. The Managing Dealer shall use and distribute in
conjunction with the offer and sale of any Shares only the Prospectus and such
sales literature and advertising as shall have been previously approved in
writing by the Company.
-5-
<PAGE>
3.6 Jurisdictions. The Managing Dealer shall cause Shares to be offered
and sold only in those jurisdictions specified in writing by the Company for
whose account Shares are then offered for sale, and such list of jurisdictions
shall be updated by the Company as additional states are added. The Company
shall specify only such jurisdictions in which the offering and sale of its
Shares has been authorized by appropriate State Regulatory Authorities. No
Shares shall be offered or sold for the account of the Company in any other
states.
3.7 Escrow. All funds received by the Managing Dealer for the sale of
Shares shall be deposited in an escrow account established by the Company at
SouthTrust Asset Management Company of Florida, N.A. (the "Escrow Agent"), by
the close of the first business day following receipt of such funds by the
Managing Dealer. Such escrow account shall be denominated "ESCROW ACCOUNT FOR
THE BENEFIT OF SUBSCRIBERS FOR COMMON STOCK OF CNL AMERICAN PROPERTIES FUND,
INC." The Managing Dealer shall, and shall cause Participating Brokers to
instruct subscribers to make checks for subscriptions payable to the order of
"SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT" or the
Company. The Managing Dealer may authorize certain Participating Brokers which
are "$250,000 broker-dealers" to instruct their customers to make their checks
for Shares subscribed for payable directly to the Participating Broker. In such
case, the Soliciting Dealer will collect the proceeds of the subscribers' checks
and issue a check made payable to the order of the Escrow Agent for the
aggregate amount of the subscription proceeds.
SECTION 4
COMPENSATION
4.1 Commissions.
(a) The Company shall pay to the Managing Dealer, as
compensation for all services to be rendered by the Managing Dealer
pursuant to this Agreement, a commission equal to seven and one-half
percent (7.5%) of the selling price of each Share for which a sale is
completed, regardless of whether such Share is sold by the Managing
Dealer or a Participating Broker; provided, however, that the Company
will pay reduced commissions or may eliminate commissions on certain
sales of Shares, including the reduction or elimination of commissions
in accordance with, and on the terms set forth in, the Prospectus and
the following paragraph of this Paragraph 4.1, which reduction or
elimination of commissions will not change the net proceeds to the
Company. Shareholders who elect to participate in the Reinvestment Plan
will be charged commissions on Shares purchased for their accounts on
the same basis as investors who otherwise purchase Shares in the
Offering.
(b) A registered principal or representative of the Managing
Dealer or a Participating Broker, employees, officers, and directors of
the Company or the Advisor, any of their Affiliates (and the families
of any of the foregoing persons), and any Plan (as defined in the
Prospectus) established exclusively for the benefit of such persons or
entities may purchase Shares net of 7% commissions, at a per Share
purchase price of $9.30. In addition, clients
-6-
<PAGE>
of an investment adviser registered under the Investment Advisers Act
of 1940, as amended, who have been advised by such adviser on an
ongoing basis regarding investments other than in the Company, and who
are not being charged by such adviser or its Affiliates, through
payment of commissions or otherwise, for the advice rendered by such
adviser in connection with the purchase of the Shares, may purchase the
Shares net of commissions.
4.2 Marketing Support and Due Diligence. The Company shall pay to the
Managing Dealer a nonaccountable fee for expenses incurred in selling and
marketing the Shares and for bona fide expenses incurred in connection with due
diligence activities. This marketing support and due diligence expense
reimbursement fee shall be equal to one-half of one percent (0.5%) of the
selling price of each Share for which a sale is completed, regardless of whether
such Share is sold by the Managing Dealer or a Participating Broker. All due
diligence expense reimbursements shall be paid by the Managing Dealer from this
fee.
4.3 Completed Sale.
(a) A sale of a Share shall be deemed to be completed under
Paragraph 4.1 if and only if (i) the Company has received a properly
completed and executed subscription agreement, together with payment of
the full purchase price of each purchased Share, from or, in accordance
with Paragraph 3.3(a), on behalf of an investor who satisfies the
applicable suitability standards and minimum purchase requirements set
forth in the Registration Statement as determined by the Managing
Dealer in accordance with the provisions of this Agreement, (ii) the
Company has accepted such subscription, and (iii) such investor has
been admitted as a shareholder of the Company.
(b) The Managing Dealer hereby acknowledges and agrees that
the Company, in its sole and absolute discretion, may accept or reject
any subscription, in whole or in part, for any reason whatsoever, and
no commission will be paid to the Managing Dealer with respect to that
portion of any subscription which is rejected.
4.4 Payment. The commissions specified in Paragraph 4.1 for the sale of
any Share shall be payable in cash by the Company, as specified in Paragraph
4.1, no later than the end of the calendar month in which the investor
subscribing for the Share is admitted as a shareholder of the Company. Investors
whose subscriptions for Shares are accepted shall be admitted no later than the
end of the calendar month in which such subscriptions are accepted. The Company
will accept or reject all subscriptions within 30 days after receipt.
Notwithstanding anything to the contrary contained herein, in the event that the
Company pays any commission to the Managing Dealer for sale by a Participating
Broker of one or more Shares and the subscription is rescinded as to one or more
of the Shares covered by such subscription, the Company shall decrease the next
payment of commissions or other compensation otherwise payable to the Managing
Dealer by the Company under this Agreement by an amount equal to the commission
rate established in Paragraph 4.1 of this Agreement, multiplied by the number of
Shares as to which the subscription is rescinded. In the event that no payment
of commissions or other compensation is due to the Managing Dealer after such
-7-
<PAGE>
withdrawal occurs, the Managing Dealer shall pay the amount specified in the
preceding sentence to the Company within ten (10) days following receipt of
notice by the Managing Dealer from the Company stating the amount owed as a
result of rescinded subscriptions.
4.5 Sales Incentives. The Company or its Affiliates also may provide
incentive items for registered representatives of the Managing Dealer and the
Participating Brokers, which in no event shall exceed an aggregate of $100 per
annum per participating salesperson. In the event other incentives are provided
to registered representatives of the Managing Dealer or the Participating
Brokers, they will only be paid in cash and such payments will only be made to
the Managing Dealer or the Participating Brokers rather than their registered
representatives. Before any such sales incentive program is offered, the Company
agrees to obtain prior approval of the terms of such program from the NASD.
4.6 Wholesaling Compensation. The Company hereby acknowledges that the
Managing Dealer may pay each of its wholesalers 1% of the gross sales price
(computed at $10.00 per Share) of all Shares sold in such wholesaler's
geographic territory (as the same may be established from time to time by
agreement between the Managing Dealer and one or more of its wholesalers) but
not in excess, in the aggregate, of 1% of the gross sales price (computed at
$10.00 per Share) of all Shares sold, or a maximum of 34,500,000 Shares. The
Company and the Managing Dealer hereby agree that the Company shall have no
obligation to pay any portion of such amounts. The Company hereby agrees to
reimburse reasonable out-of-pocket expenses that such wholesalers incur in
connection with the distribution of its Shares from and after such time as at
least 250,000 Shares have been sold for the account of the Company; provided,
however, that in no event will the Managing Dealer or the Company pay any
amounts to any person if (i) such amounts constitute "underwriting
compensation," and (ii) payment of such amounts could cause total underwriting
compensation paid to underwriters, broker-dealers, or affiliates thereof from
any source, and deemed to be in connection with or related to the distribution
of the Offering, to exceed then-applicable compensation NASD guidelines.
4.7 Soliciting Dealer Servicing Fee. The Company shall pay to the
Managing Dealer an annual servicing fee (the "Soliciting Dealer Servicing Fee")
of .20% of the Company's Invested Capital (as defined below) on December 31 of
each year, commencing in the year following the year in which the Offering
terminates. The Managing Dealer may reallow all or a portion of the Soliciting
Dealer Servicing Fee to Participating Brokers whose clients hold Shares on
December 31 of the applicable year. The Company may also pay the Soliciting
Dealer Servicing Fee directly to any Participating Broker exempt from
registration as a broker-dealer whose clients hold Shares on December 31 of the
applicable year. In general, Invested Capital is the amount of cash contributed
by shareholders to the Company, reduced by certain prior capital distributions
to the shareholders from the sale of Company's properties. The Soliciting Dealer
Servicing Fee will terminate as of the beginning of any year in which the
Company is liquidated or the Shares become listed on a national securities
exchange or over-the-counter market.
-8-
<PAGE>
SECTION 5
TERM OF AGREEMENT
5.1 Commencement and Expiration. This Agreement shall commence as of
the date first above written and, unless sooner terminated pursuant to Paragraph
5.2 or by operation of law or otherwise, shall expire at the end of the Offering
Period.
5.2 Termination. Any party may terminate this agreement at any time and
for any reason by giving 30 days' prior written notice of intention to terminate
to each other party hereto.
5.3 Obligations Surviving Expiration or Termination.
(a) In addition to any other obligations of the Managing
Dealer that survive the expiration or termination of this Agreement,
the Managing Dealer, upon the expiration or termination of this
Agreement, shall (i) promptly deposit any and all funds in its
possession which were received from investors for the sale of Shares
into the appropriate escrow account specified in Paragraph 3.7 into
such other account as the Company may designate, and (ii) promptly
deliver to the Company all records and documents in its possession
which relate to the Offering and are not designated as dealer copies.
The Managing Dealer, at its sole expense, may make and retain copies of
all such records and documents, but shall keep all such information
confidential. The Managing Dealer shall use its best efforts to
cooperate with the Company to accomplish an orderly transfer of
management of the Offering to a party designated by the Company.
(b) In addition to any other obligations of the Company that
survive the expiration or termination of this Agreement, the Company,
upon expiration or termination of this Agreement, shall pay to the
Managing Dealer all commissions to which the Managing Dealer is or
becomes entitled under Section 4 at such time or times as such
commissions become payable pursuant to Paragraph 4.3.
SECTION 6
COVENANTS OF THE MANAGING DEALER
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) it is (i) a corporation duly organized and validly
existing under the laws of the State of Florida, (ii) a member of the
NASD, and (iii) a broker-dealer registered under the securities laws of
all fifty states, the District of Columbia, and the Commonwealth of
Puerto Rico.
-9-
<PAGE>
(b) it will use its best efforts to assure that all Shares are
offered and sold in accordance with (i) the terms of the Registration
Statement, the Prospectus and this Agreement, (ii) the requirements of
applicable federal and state securities laws and regulations, and (iii)
the applicable rules of the NASD, including, without limitation, the
NASD's Conduct Rules;
(c) it will cause the Shares to be offered or sold only in
those jurisdictions specified in writing by the Company;
(d) it will not use any offering or selling materials other
than materials furnished or previously approved in writing by the
Company; and
(e) it either (i) will not purchase Shares for its own account
or (ii) will hold all such Shares for investment.
SECTION 7
COVENANTS OF THE COMPANY
The Company covenants, warrants and represents, during the full term of
this Agreement, that:
(a) it will use its best efforts to maintain the effectiveness
of the Registration Statement, and will file, or cause to be filed,
such amendments to the Registration Statement as may be reasonably
necessary for that purpose;
(b) It will use its best efforts to (i) prevent the issuance
of any order by the SEC, any State Regulatory Authority or any other
regulatory authority which suspends the effectiveness of the
Registration Statement, prevents the use of the Prospectus, or
otherwise prevents or suspends the Offering, and (ii) obtain the
lifting of any such order if issued;
(c) it will give the Managing Dealer written notice when the
Registration Statement becomes effective and shall deliver to the
Managing Dealer a signed copy of the Registration Statement, including
its exhibits, and such number of copies of the Registration Statement,
without exhibits, and the Prospectus, and any supplements and
amendments thereto which are finally approved by the SEC, as the
Managing Dealer may reasonably request for sale of the Shares, which
Prospectus shall not contain any untrue statement of a material fact
required to be stated therein or omit any material statement necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading;
(d) if at any time any event occurs and becomes known to the
Company prior to the end of the Offering Period, as a result of which
the Registration Statement or Prospectus would include an untrue
statement of a material fact or, in view of the circumstances under
-10-
<PAGE>
which they were made, omit to state any material fact necessary to make
the statements therein not misleading, the Company will effect the
preparation of an amended or supplemented Registration Statement or
Prospectus which will correct such statement or omission;
(e) it will promptly notify the Managing Dealer of any
post-effective amendments or supplements to the Registration Statement
or Prospectus;
(f) it will, during the full term of this Agreement, abide by
all applicable provisions of its governing instruments, as the same may
be amended; and
(g) it will use its best efforts to cause, at or prior to the
time the Registration Statement becomes effective, the qualification or
registration of the Shares for offering and sale under the securities
laws of such jurisdictions as shall be determined by the Company.
SECTION 8
PAYMENT OF COSTS AND EXPENSES
8.1 Managing Dealer. The Managing Dealer shall pay all costs and
expenses incident to the performance of its obligations under this Agreement
which are not expressly assumed by the Company under Paragraph 8.2 below.
8.2 Company. The Company shall pay all costs and expenses related to:
(a) the registration of the offer and sale of the Shares with
the SEC, including the cost of preparation, printing, filing and
delivery of the Registration Statement and all copies of the Prospectus
used in the Offering, and any amendments or supplements to such
documents;
(b) the preparation and printing of the form of subscription
agreement to be used in the sale of the Shares;
(c) the qualification or registration of the Shares under
state securities or "blue sky" laws of states where the Shares are to
be offered or sold;
(d) the filing of the Registration Statement and any related
documents, including any amendments or supplements to such documents,
with the NASD;
(e) any filing fees, and fees and disbursements to counsel,
accountants and escrow agents which are in any way related to any of
the above items; and
(f) the preparation, printing and filing of all advertising
originated by it relating to the sale of Shares.
-11-
<PAGE>
SECTION 9
INDEMNIFICATION
The Managing Dealer agrees to indemnify, defend and hold harmless the
Company from all losses, claims, demands, liabilities and expenses, including
reasonable legal and other expenses incurred in defending such claims or
liabilities, whether or not resulting in any liability to the Company, which the
Company may incur in connection with the offer or sale of any Shares, either by
the Managing Dealer pursuant to this Agreement or any Participating Broker
acting on the Managing Dealer's behalf pursuant to the Participating Broker
Agreement which arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact, or any omission or alleged omission
of a material fact, other than a statement or omission contained in the
Prospectus, the Registration Statement, or any state securities filing which was
not based on information supplied to the Company by the Managing Dealer or a
Participating Broker, or (ii) the breach by the Managing Dealer or any
Participating Broker acting on its behalf of any of the terms and conditions of
this Agreement or any Participating Broker Agreement, including, but not limited
to, alleged violations of the Securities Act of 1933, as amended.
SECTION 10
MISCELLANEOUS
10.1 Notices. Any notice, approval, request, authorization, direction
or other communication under this Agreement shall be given in writing and shall
be deemed to be delivered when delivered in person or deposited in the United
States mail, properly addressed and stamped with the required postage,
registered or certified mail, return receipt requested, to the intended
recipient as set forth below.
If to the Company: 400 East South Street, Suite 500
Orlando, Florida 32801
Attention: James M. Seneff, Jr.,
Chairman of the Board
If to the Managing Dealer: CNL Securities Corp.
400 East South Street, Suite 500
Orlando, Florida 32801
Attention: Robert A. Bourne,
President
Any party may change its address specified above by giving each other party
notice of such change in accordance with this Paragraph 10.1.
10.2 Invalid Provision. The invalidity or unenforceability of any
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
-12-
<PAGE>
10.3 No Partnership. Nothing in this Agreement shall be construed or
interpreted to constitute the Managing Dealer as in association with or in
partnership with the Company, and instead, this Agreement only shall constitute
the Managing Dealer as a dealer authorized by the Company to sell and to manage
the sale by others of the Shares according to the terms set forth in the
Registration Statement, the Prospectus or this Agreement.
10.4 No Third Party Beneficiaries. No provision of this Agreement is
intended to be for the benefit of any person or entity not a party to this
Agreement, and no third party shall be deemed to be a beneficiary of any
provision of this Agreement. Further, no third party shall by virtue of any
provision of this Agreement have a right of action or an enforceable remedy
against either party to this Agreement.
10.5 Survival. Paragraph 5.3 and Section 9 and all provisions of this
Agreement which may reasonably be interpreted or construed as surviving the
expiration or termination of this Agreement shall survive the expiration or
termination of this Agreement.
10.6 Entire Agreement. This Agreement constitutes the complete
understanding among the parties hereto, and no variation, modification or
amendment to this Agreement shall be deemed valid or effective unless and until
it is signed by all parties hereto.
10.7 Successors and Assigns. No party shall assign (voluntarily, by
operation of law or otherwise) this Agreement or any right, interest or benefit
under this Agreement without the prior written consent of each other party.
Subject to the foregoing, this Agreement shall be fully binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns.
10.8 Nonwaiver. The failure of any party to insist upon or enforce
strict performance by any other party of any provision of this Agreement or to
exercise any right under this Agreement shall be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, such provision or
right shall be and remain in full force and effect.
-13-
<PAGE>
10.9 Applicable Law. This Agreement shall be interpreted, construed
and enforced in all respects in accordance with the laws of the State of
Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Company: CNL AMERICAN PROPERTIES FUND, INC.
By:
-------------------------------------
JAMES M. SENEFF, JR., Chairman of the
Board
Managing Dealer: CNL SECURITIES CORP.
By:
--------------------------------------
ROBERT A. BOURNE, President
-14-
EXHIBIT 1.2
Form of Participating Broker Agreement
<PAGE>
FORM OF PARTICIPATING BROKER AGREEMENT
CNL AMERICAN PROPERTIES FUND, INC.
THIS PARTICIPATING BROKER AGREEMENT (the "Agreement") is made and
entered into as of the day indicated on Exhibit A attached hereto and by this
reference incorporated herein, between CNL SECURITIES CORP., a Florida
corporation (the "Managing Dealer"), and the Participating Broker (the "Broker")
identified in Exhibit A hereto.
WHEREAS, CNL AMERICAN PROPERTIES FUND, INC. is a Maryland corporation
(the "Company"); and
WHEREAS, the Company proposes to offer and sell up to 34,500,000 shares
of Common Stock of the Company (the "Shares") to the general public, pursuant to
a public offering (the "Offering") of the Shares pursuant to a prospectus (the
"Prospectus") filed with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Managing Dealer, which has heretofore entered into a
Managing Dealer Agreement with the Company pursuant to which it has been
designated the managing dealer to sell and manage the sale by others of the
Shares pursuant to the terms of such agreement and the Offering, is a
corporation incorporated in and presently in good standing in the State of
Florida, and is presently registered with the Florida Securities Commission and
with the National Association of Securities Dealers, Inc. ("NASD") as a
securities broker-dealer qualified to offer and sell to members of the public
securities of the type represented by the Shares; and
WHEREAS, the Broker is an entity, as designated in Exhibit A hereto,
organized and presently in good standing in the state or states designated in
Exhibit A hereto, presently registered as a broker-dealer with the NASD, and
presently licensed by the appropriate regulatory agency of each state in which
it will offer and sell the Shares as a securities broker-dealer qualified to
offer and sell to members of the public securities of the type represented by
the Shares or exempt from all such registration requirements; and
WHEREAS, the Company has filed with the SEC a registration statement on
Form S-11, including a preliminary or final prospectus, for the registration of
the Shares under the Securities Act of 1933, as amended (such registration
statement, as it may be amended, and the prospectus and exhibits on file with
the SEC at the time the registration statement becomes effective, including any
post-effective amendments or supplements to such registration statement or
prospectus after the effective date of registration, being herein respectively
referred to as the "Registration Statement" and the "Prospectus"); and
WHEREAS, the offer and sale of the Shares shall be made pursuant to the
terms and conditions of the Registration Statement and the Prospectus and,
further, pursuant to the terms and conditions of all applicable securities laws
of all states in which the Shares are offered and sold; and
WHEREAS, the Managing Dealer desires to retain the Broker to use its
best efforts to sell the Shares, and the Broker is willing and desires to serve
as a broker for the Managing Dealer for the sale of the Shares upon the
following terms and conditions;
NOW, THEREFORE, in consideration of the premises and terms and
conditions thereof, it is agreed between the Managing Dealer and the Broker as
follows.
1. Employment.
(a) Subject to the terms and conditions herein set forth, the Managing
Dealer hereby employs the Broker to use its best efforts to sell for the account
of the Company a portion of the Shares described in the Registration Statement,
as specified on Exhibit A hereto. The Broker hereby accepts such employment and
covenants, warrants and agrees to sell the Shares according to all of the terms
and conditions of the Registration Statement, all applicable state and federal
laws, including the Securities Act of 1933, as amended, and any and all
regulations and rules pertaining thereto, heretofore or hereafter issued by the
SEC and the NASD. Neither the Broker nor any other person shall have any
authority to give any information or make any representations in connection with
any offer or sale of the Shares other than as contained in the Prospectus, as
amended and supplemented, and as is otherwise expressly authorized in writing by
the Managing Dealer.
<PAGE>
(b) The Broker shall use its best efforts, promptly following receipt
of written notice from the Managing Dealer of the effective date of the
Registration Statement, to sell the Shares in such quantities and for the
account of Company as shall be agreed between the Broker and the Managing Dealer
and specified on Exhibit A hereto, and to such persons and according to all such
terms as are contained in the Registration Statement and the Prospectus. The
Broker shall comply with all requirements set forth in the Registration
Statement and the Prospectus. The Broker shall use and distribute, in connection
with the offer and sale of the Shares, only the Prospectus and such sales
literature and advertising as shall conform in all respects to any restrictions
of local law and the applicable requirements of the Securities Act of 1933, as
amended, and which has been approved in writing by the Company or the Managing
Dealer. The Managing Dealer reserves the right to establish such additional
procedures as it may deem necessary to ensure compliance with the requirements
of the Registration Statement, and the Broker shall comply with all such
additional procedures to the extent that it has received written notice thereof.
(c) The Broker shall be permitted to accept subscriptions for the
Shares by telephone from residents of those states identified on Schedule A
attached hereto and made a part hereof provided that: (1) the registered
representative and branch manager of the Broker execute the subscription
agreement on behalf of any investor who subscribes for Shares by telephone; and
(2) the Broker does not charge any additional fees, including but not limited to
fees relating to opening an account with the Broker, to any investor who
telephonically or orally subscribes for Shares. It is understood and agreed
between the Managing Dealer and the Broker that the Managing Dealer may, in its
discretion, change, modify, add to or delete from the list of states identified
on Schedule A. Any such modification shall be effective ten days from the date
written notice to the Broker has been mailed by the Managing Dealer. The Broker
shall not execute a subscription agreement on behalf of any investor who
subscribes for Shares by telephone unless such investor has specifically
authorized the registered representative and the branch manager of the Broker to
execute the subscription agreement on behalf of such investor and has made or
agreed to make full payment for all Shares covered by such subscription
agreement. Notwithstanding anything contained herein to the contrary, the Broker
shall have no authority to make representations on behalf of an investor or to
initial representations contained in the subscription agreement on behalf of an
investor. In connection with telephonic or other oral subscriptions for Shares,
the Broker represents and warrants as follows: (i) that a Prospectus was
delivered to the investor before the investor made a decision to invest; (ii)
that the investor meets the suitability requirements set forth in the
Prospectus; and (iii) that, in compliance with the NASD's Conduct Rules, the
Broker has reasonable grounds to believe that the investment in the Company is
suitable for the investor, based upon information supplied by the investor to
such Broker. Further, the Broker shall explain to any investor from a state
identified in the Prospectus as having such additional requirements, that: (i)
the investor has the right to rescind such subscription for a period of at least
ten days following the date written confirmation of the subscription has been
received by the investor from the Managing Dealer; and (ii) unless the investor
rescinds such subscription within the applicable period of time, the investor
shall be bound by the subscription agreement.
(d) Notwithstanding anything to the contrary contained in Section 2 of
this Agreement, in the event that the Managing Dealer pays any commission to the
Broker for sale of one or more Shares, including, but not limited to, those
Shares sold pursuant to a telephonic or other oral subscription therefor, where
representatives of the Broker execute the subscription agreement relating to
such Shares, and the subscription is rescinded as to one or more of the Shares
covered by such subscription, the Managing Dealer shall decrease the next
payment of commissions or other compensation otherwise payable to the Broker by
the Managing Dealer under this Agreement by an amount equal to the commission
rate established in Section 2 and Exhibit A of this Agreement, multiplied by the
number of Shares as to which the subscription is rescinded. In the event that no
payment of commissions or other compensation is due to the Broker after such
withdrawal occurs, the Broker shall pay the amount specified in the preceding
sentence to the Managing Dealer within ten (10) days following mailing of notice
to the Broker by the Managing Dealer stating the amount owed as a result of
rescinded subscriptions.
(e) All monies received for purchase of any of the Shares shall be
forwarded by the Broker to the Managing Dealer for delivery to SouthTrust Asset
Management Company of Florida, N.A. (the "Escrow Agent"), where such monies will
be deposited in an escrow account established by the Company solely for such
subscriptions. The Broker may accept checks made payable to either the Company
or the Escrow Agent. Subscriptions will be executed as described in the
Registration Statement or as directed by the Managing Dealer. The monies shall
be deposited or transmitted by the Broker to the Managing Dealer no later than
the close of business of the first business day after receipt of the
subscription documents by the Broker; provided, however, that if the Broker
maintains a branch office, the branch office shall transmit the subscription
documents and check to the Broker by the close of business on the first business
day following their receipt by the branch office and the Broker shall review the
subscription documents and check to ensure their proper execution and form and,
if
-2-
<PAGE>
they are acceptable, transmit the check to the Managing Dealer by the close
of business on the first business day after their receipt by the Broker.
Pursuant to the terms of the Managing Dealer Agreement, the Managing Dealer will
transmit the check or monies to the Escrow Agent by no later than the close of
business on the first business day after the check is received from the Broker.
(f) During the full term of this Agreement the Managing Dealer shall
have full authority to take such action as it may deem advisable in respect to
all matters pertaining to the performance of the Broker under this Agreement.
(g) The Shares shall be offered and sold by the Broker only where the
Shares may be legally offered and sold, and only to such persons in such states
who shall be legally qualified to purchase the Shares. The Managing Dealer shall
give the Broker written notice at the time of effectiveness of those states in
which the offering and sale of Shares may be made, and shall amend such notice
thereafter as additional states are added; no Shares shall be offered or sold in
any other states.
(h) The Broker shall have no obligation under this Agreement to
purchase any of the Shares for its own account.
(i) The Broker will use every reasonable effort to assure that Shares
are sold only to investors who:
(1) meet the investor suitability standards, including the
minimum income and net worth standard established by the Company, and
minimum purchase requirements set forth in the Registration Statement;
(2) can reasonably benefit from the Company based on the
prospective investor's overall investment objectives and portfolio
structure;
(3) are able to bear the economic risk of the investment
based on the prospective investor's overall financial situation; and
(4) have apparent understanding of: (a) the fundamental risks
of the investment; (b) the risk that the prospective investor may lose
the entire investment; (c) the lack of liquidity of the Shares; (d) the
restrictions on transferability of the Shares; (e) the background and
qualifications of the officers and directors of CNL Fund Advisors,
Inc., the advisor to the Company (the "Advisor"); and (f) the tax
consequences of an investment in the Shares.
The Broker will make the determinations required to be made by it
pursuant to subparagraph (i) based on information it has obtained from a
prospective investor, including, at a minimum, but not limited to, the
prospective investor's age, investment objectives, investment experience,
income, net worth, financial situation, other investments of the prospective
investor, as well as any other pertinent factors deemed by the Broker to be
relevant.
(j) In addition to the complying with the provisions of subparagraph
(i) above, and not in limitation of any other obligations of the Broker to
determine suitability imposed by state or federal law, the Broker agrees that it
will comply fully with all of the applicable provisions of the NASD's Conduct
Rules, and the following provisions:
(1) The Broker shall have reasonable grounds to believe, based
upon information provided by the investor concerning his investment
objectives, other investments, financial situation and needs, and upon
any other information known by the Broker, that (A) each investor to
whom the Broker sells Shares is or will be in a financial position
appropriate to enable him to realize to a significant extent the
benefits (including tax benefits) of an investment in the Shares, (B)
each investor to whom the Broker sells Shares has a fair market net
worth sufficient to sustain the risks inherent in an investment in the
Shares (including potential loss and lack of liquidity), and (C) the
Shares otherwise are or will be a suitable investment for each investor
to whom it sells Shares, and the Broker shall maintain files disclosing
the basis upon which the determination of suitability was made;
(2) The Broker shall not execute any transaction involving the
purchase of Shares in a discretionary account without prior written
approval of the transactions by the investor;
(3) The Broker shall have reasonable grounds to believe, based
upon the information made available to it, that all material facts are
adequately and accurately disclosed in the Registration Statement and
provide a basis for evaluating the Shares;
-3-
<PAGE>
(4) In making the determination set forth in subparagraph (3)
above, the Broker shall evaluate items of compensation, physical
properties, tax aspects, financial stability and experience of the
sponsor, conflicts of interest and risk factors, appraisals, as well as
any other information deemed pertinent by it;
(5) If the Broker relies upon the results of any inquiry
conducted by another member of the NASD with respect to the obligations
set forth in subparagraphs (3) or (4) above, the Broker shall have
reasonable grounds to believe that such inquiry was conducted with due
care, that the member or members conducting or directing the inquiry
consented to the disclosure of the results of the inquiry and that the
person who participated in or conducted the inquiry is not a sponsor or
an affiliate of the sponsor of the Company; and
(6) Prior to executing a purchase transaction in the Shares,
the Broker shall have informed the prospective investor of all
pertinent facts relating to the liquidity and marketability of the
Shares.
(k) The Broker agrees that it will comply with Rules 2730, 2740 and
2750 of the NASD's Conduct Rules.
(l) The Broker agrees to retain in its files, for a period of at least
six years, information which will establish that each purchaser of Shares falls
within the permitted class of investors.
(m) The Broker shall not, directly or indirectly, pay or award any
finder's fees, commissions or other compensation to any persons engaged by a
potential investor for investment advice as an inducement to such advisor to
advise the potential investor to purchase Shares in the Company.
(n) The Broker either (i) shall not purchase Shares for its own account
or (ii) shall hold for investment any Shares purchased for its own account.
(o) The Broker hereby confirms that it is familiar with Securities Act
Release No. 4968 and Rule 15c2-8 under the Securities Exchange Act of 1934,
relating to the distribution of preliminary and final prospectuses, and confirms
that it has and will comply therewith.
(p) The Broker shall deliver a copy of the Articles of Incorporation of
the Company with each Prospectus that is delivered to potential investors in
Mississippi.
2. Compensation of Broker.
The Managing Dealer shall pay the Broker, as compensation for all
services to be rendered by the Broker hereunder, a commission equal to 7.0% on
sales of Shares by such Broker, as set forth in Exhibit A hereto, subject to
reduction as specified in this Section 2 and the Prospectus. The Managing
Dealer, in its sole discretion, may reallow to the Broker, from its marketing
support and due diligence expense reimbursement fee, up to an additional 0.5% on
sales of Shares by such Broker, based on such factors as the number of Shares
sold by the Broker, the assistance of the Broker in marketing the Offering, and
bona fide due diligence expenses incurred by the Broker. Such commission rates
shall remain in effect during the full term of this Agreement unless otherwise
changed by a written agreement between the parties hereto. A sale of Shares
shall be deemed to be completed only after the Company receives a properly
completed subscription agreement for Shares from the Broker evidencing the fact
that the investor had received a final Prospectus for a period of not less than
five full business days, together with payment of the full purchase price of
each purchased Share from a buyer who satisfies each of the terms and conditions
of the Registration Statement and Prospectus, and only after such subscription
agreement has been accepted in writing by the Company. Such compensation shall
be payable to the Broker by the Managing Dealer after such acceptance of the
subscription agreement; provided, however, that compensation or commissions
shall not be paid by the Managing Dealer: (i) other than from funds received as
compensation or commissions from the Company for the sale of its Shares; (ii)
until any and all compensation or commissions payable by the Company to the
Managing Dealer have been received by the Managing Dealer; and (iii) if the
commission payable to any broker-dealer or salesman exceeds the amount allowed
by any regulatory agency. The Broker shall not reallow any commissions to
non-NASD members. The Company
-4-
<PAGE>
(and the Managing Dealer) may pay reduced commissions or may eliminate
commissions on certain sales of Shares, including the reduction or elimination
of commissions in accordance with the following paragraph of this Section 2. Any
such reduction or elimination of commissions will not, however, change the net
proceeds to the Company.
A registered principal or representative of the Managing Dealer or a
Broker, employees, officers, Directors, and directors of the Company or the
Advisor, or any of their Affiliates (and the families of any of the foregoing
persons), and any Plan (as defined in the Prospectus) established exclusively
for the benefit of such persons may purchase Shares net of 7% commissions, at a
per Share purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended, who have been
advised by such adviser on an ongoing basis regarding investments other than in
the Company, and who are not being charged by such adviser or its Affiliates,
through the payment of commissions or otherwise, for the advice rendered by such
adviser in connection with the purchase of the Shares, may purchase the Shares
net of commissions. In addition, brokers that have a contractual agreement with
their clients for the payment of fees which is inconsistent with accepting
selling commissions, in their sole discretion, may elect not to accept any
selling commissions offered by the Company for Shares that they sell. In that
event, such Shares shall be sold to the investor net of all selling commissions,
at a per share purchase price of $9.30.
In addition to the commissions described above in this Section 2, the
Managing Dealer in its sole discretion may reallow to the Broker all or a
portion of its annual fee actually received from the Company of .20% of the
Company's Invested Capital (as defined below) on December 31 of each year,
commencing in the year following the year in which the Offering terminates. It
is understood that payment of such fee by the Company to the Managing Dealer is
subject to any limitations imposed on the Company by the NASD, state securities
regulators or otherwise. The Managing Dealer may reallow this fee only to a
Broker whose clients hold Shares on December 31 of the applicable year. In
general, Invested Capital is the amount of cash contributed by the shareholders
to the Company, reduced by certain prior capital distributions to the
shareholders from the sale of Company properties. This fee will terminate as of
the beginning of any year in which the Company is liquidated or the Shares
become listed on a national securities exchange or over-the-counter market.
The Managing Dealer shall pay the Broker commissions on Shares
purchased pursuant to the Company's Dividend Reinvestment Plan on the same basis
as commissions paid for Shares otherwise purchased in the Offering.
3. Association with Other Dealers.
It is expressly understood between the Managing Dealer and the Broker
that the Managing Dealer may cooperate with other broker-dealers who are
registered as broker-dealers with the NASD and duly licensed by the appropriate
regulatory agency of each state in which they will offer and sell the Shares or
with broker-dealers exempt from all such registration requirements. Such other
participating broker-dealers may be employed by the Managing Dealer as brokers
on terms and conditions identical or similar to this Agreement and shall receive
such rates of commission as are agreed to between the Managing Dealer and the
respective other participating broker-dealers and as are in accordance with the
terms of the Registration Statement. The Broker understands that, to that
extent, such other participating broker-dealers shall compete with the Broker in
the sale of the Shares.
4. Conditions of the Broker's Obligations.
The Broker's obligations hereunder are subject, during the full term of
this Agreement and the Offering, to (a) the performance by the Managing Dealer
of its obligations hereunder; and (b) the conditions that: (i) the Registration
Statement shall become and remain effective; and (ii) no stop order shall have
been issued suspending the effectiveness of the Offering.
5. Conditions to the Managing Dealer's Obligations.
The obligations of the Managing Dealer hereunder are subject, during
the full term of this Agreement and the Offering, to the conditions that: (a) at
the effective date of the Registration Statement and thereafter during the term
of this Agreement while any Shares remain unsold, the Registration Statement
shall remain in full force and effect authorizing the offer and sale of the
Shares; (b) no stop order suspending the effectiveness of the Offering or other
order restraining the offer or sale of the Shares shall have been issued nor
proceedings therefor initiated or threatened by any state regulatory agency or
the SEC; and (c) the Broker shall have satisfactorily performed all of its
obligations hereunder.
-5-
<PAGE>
6. Covenants of the Managing Dealer.
The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:
(a) It shall use its best efforts to prevent the sale of the Shares
through persons other than registered NASD broker-dealers.
(b) It shall use its best efforts to cause the Company to maintain the
effectiveness of the Registration Statement and to file such applications or
amendments to the Registration Statement as may be reasonably necessary for that
purpose.
(c) It shall advise the Broker whenever and as soon as it receives or
learns of any order issued by the SEC, any state regulatory agency or any other
regulatory agency which suspends the effectiveness of the Registration Statement
or prevents the use of the Prospectus or which otherwise prevents or suspends
the offering or sale of the Shares, or receives notice of any proceedings
regarding any such order.
(d) It shall use its best efforts to prevent the issuance of any order
described herein at subparagraph (c) hereof and to obtain the lifting of any
such order if issued.
(e) It shall give the Broker written notice when the Registration
Statement becomes effective and shall deliver to the Broker such number of
copies of the Prospectus, and any supplements and amendments thereto, which are
finally approved by the SEC, as the Broker may reasonably request for sale of
the Shares.
(f) It shall promptly notify the Broker of any post-effective
amendments or supplements to the Registration Statement or Prospectus, and shall
furnish the Broker with copies of any revised Prospectus and/or supplements and
amendments to the Prospectus.
(g) To the extent to which the Managing Dealer has knowledge, it shall
keep the Broker fully informed of any material development to which the Company
is a party or which concerns the business and condition of the Company.
(h) In conjunction with the Company, it shall use its best efforts to
cause, at or prior to the time the Registration Statement becomes effective, the
qualification of the Shares for offering and sale under the securities laws of
such states as the Company shall elect.
7. Payment of Costs and Expenses.
The Broker shall pay all costs and expenses incident to the performance
of its obligations under this Agreement, including:
(a) All expenses incident to the preparation, printing and filing of
all advertising originated by it related to the sale of the Shares; and
(b) All other costs and expenses incurred in connection with its sales
efforts related to the sales of the Shares which are not expressly assumed by
the Company in its Managing Dealer Agreement with the Managing Dealer.
8. Indemnification.
(a) The Broker agrees to indemnify, defend and hold harmless the
Company, its affiliates and their or its officers, directors, trustees,
employees and agents, including the Managing Dealer, against all losses, claims,
demands, liabilities and expenses, joint or several, including reasonable legal
and other expenses incurred in defending such claims or liabilities, whether or
not resulting in any liability to the Company, its affiliates and their or its
officers, directors, trustees, employees or agents, which they or any of them
may incur arising out of the offer or sale by the Broker, or any person acting
on its behalf, of any Shares pursuant to this Agreement if such loss, claim,
demand, liability, or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement of a material fact, or any omission or
alleged omission of a material fact, other than a statement, omission, or
alleged omission by the Broker which is also, as the case may be, contained in
or omitted from the Prospectus or the Registration Statement and which statement
or omission was not based on information supplied to the Company or the Managing
Dealer by such Broker, or (ii) the breach by the Broker, or any person acting on
-6-
<PAGE>
its behalf, of any of the terms and conditions of this Agreement. This indemnity
provision shall survive the termination of this Agreement.
(b) The Managing Dealer agrees to indemnify, defend and hold harmless
the Broker, its officers, directors, employees and agents, against all losses,
claims, demands, liabilities and expenses, including reasonable legal and other
expenses incurred in defending such claims or liabilities, which they or any of
them may incur, including, but not limited to, alleged violations of the
Securities Act of 1933, as amended, but only to the extent that such losses,
claims, demands, liabilities and expenses shall arise out of or be based upon
(i) any untrue statement of a material fact contained in the Prospectus or the
Registration Statement, as filed and in effect with the SEC, or in any amendment
or supplement thereto, or in any application prepared or approved in writing by
counsel to the Company and filed with any state regulatory agency in order to
register or qualify the Shares under the securities laws thereof (the "Blue Sky
applications"), or (ii) any omission or alleged omission to state therein a
material fact required to be stated in the Prospectus or the Registration
Statement or the Blue Sky applications, or necessary to make such statements,
and any part thereof, not misleading; provided, further, that any such untrue
statement, omission or alleged omission is not based on information included in
any such document which was supplied to the Managing Dealer, the Company, or any
officer of the Company by such Broker. This indemnity provision shall survive
the termination of this Agreement.
(c) No indemnifying party shall be liable under the indemnity
agreements contained in subparagraphs (a) and (b) above unless the party to be
indemnified shall have notified such indemnifying party in writing promptly
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the party to be indemnified, but
failure to notify an indemnifying party of any such claim shall not relieve it
from any liabilities which it may have to the indemnified party against whom
action is brought other than on account of its indemnity agreement contained in
subparagraphs (a) and (b) above. In the case of any such claim, if the party to
be indemnified notified the indemnifying party of the commencement thereof as
aforesaid, the indemnifying party shall be entitled to participate at its own
expense in the defense of such claim. If it so elects, in accordance with
arrangements satisfactory to any other indemnifying party or parties similarly
notified, the indemnifying party has the option to assume the entire defense of
the claim, with counsel who shall be satisfactory to such indemnified party and
all other indemnified parties who are defendants in such action; and after
notice from the indemnifying party of its election so to assume the defense
thereof and the retaining of such counsel by the indemnifying party, the
indemnifying party shall not be liable to such indemnified party under
subparagraphs (a) and (b) above for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, other
than for the reasonable costs of investigation.
9. Term of Agreement.
This Agreement shall become effective at 8:00 A.M. (Eastern Standard
Time) on the first full business day following the day on which the Registration
Statement becomes effective, or if later, the date on which this Agreement is
executed by the Managing Dealer and the Broker. The Broker and the Managing
Dealer may each prevent this Agreement from becoming effective, without
liability to the other, by written notice before the time this Agreement would
otherwise become effective. After this Agreement becomes effective, either party
may terminate it at any time for any reason by giving thirty (30) days' written
notice to the other party; provided, however, that this Agreement shall in any
event automatically terminate at the first occurrence of any of the following
events: (a) the Registration Statement for offer and sale of the Shares shall
cease to be effective; (b) the Company shall be terminated; or (c) the Broker's
license or registration to act as a broker-dealer shall be revoked or suspended
by any federal, self-regulatory or state agency and such revocation or
suspension is not cured within ten (10) days from the date of such occurrence.
In any event, this Agreement shall be deemed suspended during any period for
which such license is revoked or suspended.
10. Notices.
All notices and communications hereunder shall be in writing and shall
be deemed to have been given and delivered when deposited in the United States
mail, postage prepaid, registered or certified mail, to the applicable address
set forth below.
If sent to the Managing Dealer:
CNL SECURITIES CORP.
400 East South Street, Suite 500
Orlando, Florida 32801
Attention: Robert A. Bourne, President
-7-
<PAGE>
If sent to the Broker: to the person whose name and address are
identified in Exhibit A hereto.
11. Successors.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and shall not be assigned or transferred by the Broker by
operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be construed in accordance with the applicable
laws of the State of Florida.
(b) Nothing in this Agreement shall constitute the Broker as in
association with or in partnership with the Managing Dealer. Instead, this
Agreement shall only authorize the Broker to sell the Shares according to the
terms as expressly set forth herein; provided, further, that the Broker shall
not in any event have any authority to act as the agent or broker of the
Managing Dealer except according to the terms expressly set forth herein.
(c) This Agreement, including Exhibit A and Schedule A hereto, embodies
the entire understanding between the parties to the Agreement, and no variation,
modification or amendment to this Agreement shall be deemed valid or effective
unless it is in writing and signed by both parties hereto.
(d) If any provision of this Agreement shall be deemed void, invalid or
ineffective for any reason, the remainder of the Agreement shall remain in full
force and effect.
(e) This Agreement may be executed in counterpart copies, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument comprising this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year indicated on Exhibit A hereto.
BROKER: MANAGING DEALER FOR CNL AMERICAN
PROPERTIES FUND, INC.:
_______________________________ CNL SECURITIES CORP.
(Name of Broker)
By:____________________________ By:______________________________
Print Name:____________________ Print Name:______________________
Title:_________________________ Title:___________________________
Witness:_______________________ Witness:_________________________
Date:__________________________
-8-
<PAGE>
EXHIBIT A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL AMERICAN PROPERTIES FUND, INC.
This Exhibit A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ___________________,
19__, by and between CNL SECURITIES CORP., as Managing Dealer, and_____________
________________, as Broker.
1. Date of Agreement:____________________________________________________
2. Identity of Broker:
Name:_________________________________________________________________
Firm NASD (CRD) No:___________________________________________________
Type of Entity:_______________________________________________________
(To be completed by Broker, e.g., corporation,
partnership or sole proprietorship.)
State Organized in:___________________________________________________
(To be completed by Broker)
Qualified To Do Business and in Good Standing in the Following
Jurisdictions (including your state of organization) (Note:
Qualification to do business in any jurisdiction is generally a
requirement imposed by the secretary of state or other authority of
jurisdictions in which you do business, and is not related to your
holding a license as a securities broker-dealer in such jurisdictions.
Questions concerning this matter should be directed to you or your
legal counsel.):
______________________________________________________________________
______________________________________________________________________
(To be completed by Broker)
Licensed as Broker-Dealer in The Following States:____________________
______________________________________________________________________
______________________________________________________________________
(To be completed by Broker)
3. Schedule of Commissions Payable to Participating Broker (see Section 2
of Agreement):
Number of Shares
Purchased In Sales Price As a Percentage
Individual Order To Subscriber of the Sales Price(1) Dollar Amount
---------------- ------------- --------------------- -------------
1 or more $10.00 7.0% $0.70
- --------------------------
(1) Subject to reduction as set forth in Section 2 of the Participating
Broker Agreement.
Exhibit A
Page 1 of 2
<PAGE>
4. Name and Address for Notice Purposes (see Paragraph 10 of Agreement):
Name:_________________________________________________________________
Title:________________________________________________________________
Company:______________________________________________________________
Address:______________________________________________________________
City, State and Zip Code:_____________________________________________
Telephone Number (including area code):_______________________________
5. Please complete the following for our records:
(a) Please name those individuals who hold the following
positions:
President:___________________________________________________
Due Diligence Officer:_______________________________________
Marketing Director:__________________________________________
In-House Editor:_____________________________________________
(b) Does your company hold national or regional conferences?
Yes ________ No _________
If so, when?_________________________________________________
Who is the coordinator?______________________________________
(c) How many representatives are registered with your
broker-dealer?
PLEASE ENCLOSE A CURRENT LIST. ALL INFORMATION WILL BE HELD
IN CONFIDENCE.
(d) Does your firm publish a newsletter? Yes _______ No ________
What is/are the frequency of the publication(s)?
_______ Weekly _______ Monthly _______ Quarterly
_______ Bi-weekly _______ Bi-monthly _______ Other
(please specify)
PLEASE PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE OF
THE PUBLICATION IF AVAILABLE.
(e) Does your firm have regular internal mailings, or bulk package
mailings to representatives?
Yes _______ No _______
PLEASE PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE OF
THE PUBLICATION IF AVAILABLE.
(f) Does your firm have a computerized electronic mail (E-Mail)
system for your representatives?
Yes _______ No _______
Exhibit A
Page 2 of 2
<PAGE>
SCHEDULE A
TO
PARTICIPATING BROKER AGREEMENT
OF
CNL AMERICAN PROPERTIES FUND, INC.
This Schedule A is attached to and made a part of that certain
Participating Broker Agreement, dated as of the ___ day of ____________________,
19__, by and between CNL SECURITIES CORP., as Managing Dealer, and_____________
________________, as Broker.
TELEPHONIC SUBSCRIPTION AUTHORIZATION
The list of states in which the Broker is permitted to accept
telephonic subscriptions shall be those states identified by Item 2 of Exhibit
A, as amended from time to time, to the Broker Agreement between the parties
hereto, as states in which the Broker is licensed as a Broker-Dealer, except for
the following states in which the Broker is specifically prohibited from
accepting telephonic subscriptions: Florida, Iowa, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North
Carolina, Ohio, Oregon, South Dakota, Tennessee, and Washington.
Initials: __________________ -- CNL SECURITIES CORP.
__________________ - PARTICIPATING BROKER
Exhibit 10.1
Form of Escrow Agreement between CNL American Properties Fund, Inc.
and SouthTrust Asset Management Company of Florida, N.A.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is dated this ___ day of
_____________, 1997, by and among CNL AMERICAN PROPERTIES FUND, INC., a Maryland
corporation (the "Company"), CNL SECURITIES CORP., a Florida corporation (the
"Managing Dealer"), and SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
(the "Escrow Agent"). This Agreement shall be effective as of the effective date
of the Company's Registration Statement filed with the Securities and Exchange
Commission (the "Effective Date").
WHEREAS, the Company proposes to offer and sell, on a best-efforts
basis through the Managing Dealer and selected broker-dealers registered with
the National Association of Securities Dealers, Inc. (the Managing Dealer and
such selected broker-dealers are hereinafter referred to collectively as the
"Soliciting Dealers") up to 34,500,000 shares of common stock of the Company
(the "Shares") to investors at $10.00 per Share pursuant to a registration
statement (the "Registration Statement") filed with the Securities and Exchange
Commission; and
WHEREAS, the Company and the Managing Dealer desire to establish an
escrow in which funds received from subscribers will be deposited and the Escrow
Agent is willing to serve as Escrow Agent upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties covenant and agree as follows.
1. Establishment of Escrow Accounts. On or prior to the Effective Date,
the Company and the Managing Dealer shall establish an interest-bearing escrow
account with the Escrow Agent, which escrow account shall be entitled "ESCROW
ACCOUNT FOR THE BENEFIT OF SUBSCRIBERS FOR COMMON STOCK OF CNL AMERICAN
PROPERTIES FUND, INC. (the "Escrow Account"). All monies deposited in the Escrow
Account are hereinafter referred to as the "Escrowed Funds." The Managing Dealer
will, and will cause selected broker-dealers acting as Soliciting Dealers to,
instruct subscribers to make checks for subscriptions payable to the order of
either "SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT" or
the Company. The Managing Dealer may authorize certain Soliciting Dealers which
are "$250,000 broker-dealers" to instruct their customers to make their checks
for Shares subscribed for payable directly to the Soliciting Dealer. In such
case, the Soliciting Dealer will collect the proceeds of the subscribers' checks
and issue a check made payable to the order of the Escrow Agent for the
aggregate amount of the subscription proceeds.
2. Deposits into the Escrow Account. The Managing Dealer will promptly
deliver all monies received from subscribers for the payment of Shares to the
Escrow Agent for deposit in the Escrow Account.
3. Collection Procedure.
(a) The Escrow Agent is hereby authorized to forward each check
for collection and, upon collection of the proceeds of each check, to
deposit the collected proceeds in the Escrow Account or, alternatively,
the Escrow Agent may telephone the bank on which the check is drawn to
confirm that the check has been paid.
(b) Any check returned unpaid to the Escrow Agent shall be
returned to the Soliciting Dealer that submitted the check. In such
cases the Escrow Agent will promptly notify the Company of such return.
(c) In the event that (i) the Company rejects any subscription
for Shares or (ii) an investor who has telephonically or orally
subscribed for Shares properly withdraws such subscription within
fifteen (15) days from the date written confirmation has been mailed to
the subscriber, and, in either such event, the Escrow Agent has already
collected funds for such subscription, the Escrow Agent shall promptly
issue a refund check to the drawer of the check submitted by or on
behalf of the rejected or withdrawing subscriber. If either of the
events specified in the clauses (i) or (ii) of the preceding sentence
occur and, in either such event, the Escrow Agent has not yet collected
funds for such subscription but has submitted the check relating to
such subscription for collection, the Escrow Agent shall promptly issue
a check in the amount of such check to the rejected or withdrawing
subscriber after the Escrow Agent has cleared such funds. If the Escrow
Agent has not yet submitted the check relating to the
<PAGE>
subscription of the rejected or withdrawing subscriber, the Escrow
Agent shall promptly remit such check directly to the drawer of the
check submitted by or on behalf of the subscriber.
4. Investment of Escrowed Funds. The Escrow Agent, immediately upon
receipt of each check remitted to it, shall deposit such check in
interest-bearing savings accounts, in short-term certificates of deposit issued
by a bank, or in other short-term securities directly or indirectly issued or
guaranteed by the United States government, all as directed by the Company.
Interest and dividends earned on such investments shall be similarly reinvested.
Following the distribution of Escrowed Funds to the Company pursuant to
Paragraph 5 below, any funds remaining in the Escrow Account shall be invested
in bank money market funds or other similar instruments as directed by the
Company.
5. Distribution of Escrowed Funds. The Escrow Agent shall release from
the Escrow Account to the Company any and all Escrowed Funds therein, together
with all interest earned thereon, upon the written request of an officer of the
Company.
6. Liability of Escrow Agent.
(a) In performing any of its duties under this Agreement, or upon
the claimed failure to perform its duties hereunder, the Escrow Agent
shall not be liable to anyone for any damages, losses, or expenses
which it may incur as a result of the Escrow Agent so acting, or
failing to act; provided, however, the Escrow Agent shall be liable for
damages arising out of its willful default or misconduct or its gross
negligence under this Agreement. Accordingly, the Escrow Agent shall
not incur any such liability with respect to (i) any action taken or
omitted to be taken in good faith upon advice of its counsel or counsel
for the Company which is given with respect to any questions relating
to the duties and responsibilities of the Escrow Agent hereunder, or
(ii) any action taken or omitted to be taken in reliance upon any
document, including any written notice or instructions provided for in
this Escrow Agreement, not only as to its due execution and to the
validity and effectiveness of its provisions but also as to the truth
and accuracy of any information contained therein, if the Escrow Agent
shall in good faith believe such document to be genuine, to have been
signed or presented by a proper person or persons, and to conform with
the provisions of this Agreement.
(b) The Company hereby agrees to indemnify and hold harmless the
Escrow Agent against any and all losses, claims, damages, liabilities
and expenses, including, without limitation, reasonable costs of
investigation and counsel fees and disbursements which may be incurred
by it resulting from any act or omission of the Company; provided,
however, that the Company shall not indemnify the Escrow Agent for any
losses, claims, damages, or expenses arising out of the Escrow Agent's
willful default, misconduct, or gross negligence under this Agreement.
(c) If a dispute ensues between any of the parties hereto which,
in the opinion of the Escrow Agent, is sufficient to justify its doing
so, the Escrow Agent shall be entitled to tender into the registry or
custody of any court of competent jurisdiction, including the Circuit
Court of Orange County, Florida, all money or property in its hands
under the terms of this Agreement, and to file such legal proceedings
as it deems appropriate, and shall thereupon be discharged from all
further duties under this Agreement. Any such legal action may be
brought in any such court as the Escrow Agent shall determine to have
jurisdiction thereof. The Company shall indemnify the Escrow Agent
against its court costs and attorneys' fees incurred in filing such
legal proceedings.
7. Inability to Deliver. In the event that checks for subscriptions
delivered to the Escrow Agent by the Company pursuant to this Agreement are not
cleared through normal banking channels within 120 days after such delivery, the
Escrow Agent shall deliver such uncleared checks to the Company.
8. Notice. All notices, requests, demands and other communications or
deliveries required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or deposited for mailing, first class, postage prepaid,
registered or certified mail, as follows:
If to the subscribers for Shares: To their respective addresses as
specified in their Subscription
Agreements.
-2-
<PAGE>
If to the Company: 400 East South Street, Suite 500
Orlando, Florida 32801
Attention: Mr. James M. Seneff, Jr.
Chairman of the Board
If to the Managing Dealer: 400 East South Street, Suite 500
Orlando, Florida 32801
Attention: Mr. Robert A. Bourne,
President
If to the Escrow Agent: SOUTHTRUST ASSET MANAGEMENT COMPANY
OF FLORIDA, N.A.
135 West Central Boulevard,
Suite 1200
Orlando, Florida 32801
Attention: Mr. William E. Legg
9. Fees to Escrow Agent. In consideration of the services to be
provided by the Escrow Agent hereunder, the Company will pay the Escrow Agent a
fee for its services hereunder (the "Escrow Fee"). The Escrow Fee shall be $350
for each month or any portion thereof that the Escrow Account continues for the
Company. Payments by the Company shall be due and payable no less frequently
than six-month intervals while the escrow continues for the Company. In no event
shall the total Escrow Fees payable by the Company pursuant to this Agreement be
less than $2,100, nor more than $4,200, for any 12-month period. Notwithstanding
anything contained in this Agreement to the contrary, in no event shall any fee,
reimbursement for costs and expenses, indemnification for any damages incurred
by the Escrow Agent, or monies whatsoever be paid out of or chargeable to the
Escrowed Funds in the Escrow Account.
10. General.
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida.
(b) The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties with regard to this escrow transaction and
supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.
(d) This Agreement may be amended, modified, superseded or
cancelled, and any of the terms or conditions hereof may be waived,
only by a written instrument executed by each party hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce
the same. No waiver in any one or more instances by any party of any
condition, or of the breach of any term contained in this Agreement,
whether by conduct or otherwise, shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach, or
a waiver of any other condition or of the breach of any other terms of
this Agreement.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of the parties
hereto and their respective administrators, successors, and assigns.
11. Representation of the Company. The Company hereby acknowledges that
the status of the Escrow Agent with respect to the offering of the Shares is
that of agent only for the limited purposes herein set forth, and hereby agrees
it will not represent or imply that the Escrow Agent, by serving as the Escrow
Agent hereunder or otherwise, has investigated the desirability or advisability
of an investment in the Shares, or has approved, endorsed or passed upon the
merits of the Shares, nor shall the Company use the name of the Escrow Agent in
any manner whatsoever in connection with the offer or sale of the Shares, other
than by acknowledgement that it has agreed to serve as Escrow Agent for the
limited purposes herein set forth.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
"Company"
CNL AMERICAN PROPERTIES FUND, INC.
By:___________________________________________
JAMES M. SENEFF, JR., Chairman of the Board
"MANAGING DEALER"
CNL SECURITIES CORP.
Attest: ________________________ By:___________________________________________
ROBERT A. BOURNE, President
"ESCROW AGENT"
SOUTHTRUST ASSET MANAGEMENT COMPANY
OF FLORIDA, N.A.
Attest: ________________________ By:___________________________________________
Name:_________________________________________
Title:________________________________________
-4-
Exhibit 23.1
Consent of Coopers & Lybrand L.L.P.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of our
report dated January 22, 1997 on our audits of the financial statements and the
financial statement schedules of CNL American Properties Fund, Inc. and
Subsidiary. We also consent to the reference to our Firm under the caption
"Experts".
/s/Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
Orlando, Florida
October 7, 1997
