FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to ____________________
Commission file number
0-28380
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CNL American Properties Fund, Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Maryland 59-3239115
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
37,348,464 shares of common stock, $.01 par value, outstanding as of August 10,
1999.
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Earnings
Condensed Consolidated Statements of
Stockholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II
Other Information
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less accumulated
depreciation and allowance for loss on land and buildings $ 569,567,003 $ 393,339,334
Net investment in direct financing leases 132,179,949 91,675,650
Investment in joint venture 1,081,046 988,078
Mortgage notes receivable 22,142,819 19,631,693
Equipment and other notes receivable 41,208,688 19,377,380
Other investments 16,197,812 16,201,014
Cash and cash equivalents 18,764,033 123,199,837
Certificates of deposit 2,006,690 2,007,540
Receivables, less allowance for doubtful accounts
of $1,194,454 and $1,069,024, respectively 649,972 526,650
Accrued rental income 5,875,698 3,959,913
Intangibles and other assets 12,551,632 9,444,924
----------------- -----------------
$ 822,225,342 $ 680,352,013
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 149,000,000 $ 10,143,044
Accrued construction costs payable 9,745,014 4,170,410
Accounts payable and accrued expenses 1,288,825 1,035,436
Due to related parties 1,444,444 1,308,464
Rents paid in advance 1,617,367 954,271
Deferred rental income 2,466,355 1,189,883
Other payables 816,900 458,402
----------------- -----------------
Total liabilities 166,378,905 19,259,910
----------------- -----------------
Minority interests 644,611 281,817
----------------- -----------------
Commitments and Contingencies (Note 13)
Stockholders' equity:
Preferred stock, without par value. Authorized
and unissued 3,000,000 shares -- --
Excess shares, $0.01 par value per share.
Authorized and unissued 78,000,000 shares -- --
Common stock, $0.01 par value per share. Authorized 62,500,000
shares, issued 37,383,221 and 37,372,684 shares,
respectively, 373,484 746,759
outstanding 37,348,464 and 37,337,927 shares, respectively
Capital in excess of par value 669,997,715 669,610,058
Accumulated distributions in excess of net earnings (15,169,373) (9,546,531 )
----------------- -----------------
Total stockholders' equity 655,201,826 660,810,286
----------------- -----------------
$ 822,225,342 $ 680,352,013
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------- -------------- -------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 12,433,749 $ 5,696,205 $ 22,188,551 $ 11,012,231
Earned income from direct
financing leases 3,283,137 1,432,718 5,712,343 2,795,390
Interest income from mortgage,
equipment and other notes
receivable 1,186,184 748,136 2,040,720 1,506,140
Investment and interest income 793,313 1,412,830 2,150,660 2,293,590
Other income 55,201 11,385 58,081 21,727
--------------- -------------- -------------- --------------
17,751,584 9,301,274 32,150,355 17,629,078
--------------- -------------- -------------- --------------
Expenses:
General operating and administrative 1,195,808 484,508 2,244,408 1,036,835
Asset management fees to
related party 984,506 367,201 1,681,870 729,860
State and other taxes 183,089 77,180 464,966 182,703
Depreciation and amortization 2,155,493 869,329 3,711,674 1,648,827
Transaction costs 357,079 -- 483,005 --
--------------- -------------- -------------- --------------
--------------- -------------- -------------- --------------
4,875,975 1,798,218 8,585,923 3,598,225
--------------- -------------- -------------- --------------
Earnings Before Minority Interest in
Income of Consolidated Joint Ventures,
Equity in Earnings of Unconsolidated
Joint Venture, Loss on Sales
of Properties, and Provision for
Losses on Buildings 12,875,609 7,503,056 23,564,432 14,030,853
Minority Interest in Income of
Consolidated Joint Ventures (9,847 ) (7,612 ) (17,610 ) (15,380 )
Equity in Earnings of Unconsolidated
Joint Venture 23,817 -- 48,851 --
Loss on Sales of Properties (201,843 ) -- (201,843 ) --
Provision for Losses on Buildings (324,725 ) -- (540,522 ) --
--------------- -------------- -------------- --------------
Net Earnings $ 12,363,011 $ 7,495,444 $ 22,853,308 $ 14,015,473
=============== ============== ============== ==============
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.33 $ 0.32 $ 0.61 $ 0.65
=============== ============== ============== ==============
Weighted Average Number of Shares
of Common Stock Outstanding 37,348,464 23,524,385 37,347,883 21,583,217
=============== ============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1999 and Year Ended December 31, 1998
<TABLE>
<CAPTION>
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
------------ ---------- --------------- -------------- ----------------
<S> <C>
Balance at
December 31, 1997 18,096,486 $180,965 $323,706,926 $ (2,249,790 ) $321,638,101
Subscriptions received
for common stock
through public
offerings and
distribution
reinvestment plan 19,276,198 192,762 385,331,204 -- 385,523,966
Retirement of
common stock (34,757 ) (348 ) (639,180 ) -- (639,528 )
Stock issuance costs -- -- (38,415,512 ) -- (38,415,512 )
Net earnings -- -- -- 32,152,408 32,152,408
Distributions declared
and paid ($1.52 per
share) -- -- -- (39,449,149 ) (39,449,149 )
------------ ---------- --------------- -------------- ----------------
Balance at
December 31, 1998 37,337,927 373,379 669,983,438 (9,546,531 ) 660,810,286
Subscriptions received
for common stock
through public
offering 10,537 105 210,631 -- 210,736
Stock issuance costs -- -- (196,354 ) -- (196,354 )
Net earnings -- -- -- 22,853,308 22,853,308
Distributions declared
and paid ($0.76 per
share) -- -- -- (28,476,150 ) (28,476,150 )
------------ ---------- --------------- -------------- ----------------
Balance at
June 30, 1999 37,348,464 $373,484 $669,997,715 $ (15,169,373 ) $655,201,826
============ ========== =============== ============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
------------------ ------------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 28,256,292 $ 16,600,953
------------------ ------------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (170,153,724 ) (36,742,586 )
Investment in direct financing leases (44,186,644 ) (71,360,700 )
Proceeds from sale of land, buildings and
equipment under direct financing leases 3,673,907 1,233,679
Investment in mortgage notes receivable (2,596,244 ) --
Collections on mortgage notes receivable 224,373 147,051
Investment in equipment and other notes receivable (22,358,869 ) (2,903,600 )
Collections on equipment and other notes receivable 626,959 666,633
Investment in joint venture (117,663 ) (112,847 )
Increase in intangibles and other assets (3,198,326 ) (1,845,005 )
------------------ ------------------
Net cash used in investing activities (238,086,231 ) (110,917,375 )
------------------ ------------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and stock
issuance costs paid by related parties on
behalf of the Company (1,258,062 ) (2,570,126 )
Proceeds from borrowing on line of credit 151,437,245 2,979,403
Payment on line of credit (12,580,289 ) --
Payment of loan costs (3,548,744 ) (30,842 )
Subscriptions received from stockholders 210,736 152,570,391
Distributions to minority interests (21,105 ) (16,956 )
Contributions from minority interests 366,289 --
Distributions to stockholders (28,476,150 ) (15,992,806 )
Payment of stock issuance costs (735,785 ) (13,840,339 )
------------------ ------------------
Net cash provided by financing activities 105,394,135 123,098,725
------------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents (104,435,804 ) 28,782,303
Cash and Cash Equivalents at Beginning of Period 123,199,837 47,586,777
------------------ ------------------
Cash and Cash Equivalents at End of Period $ 18,764,033 $ 76,369,080
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------------- -----------------
<S> <C>
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 $ 392,301 $ 536,646
Stock issuance costs 124,031 2,190,143
----------------- -----------------
$ 516,332 $ 2,726,789
================= =================
Land and buildings under operating leases
exchanged for land and buildings under
operating leases $ -- $ 2,754,419
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. was organized in Maryland on May 2,
1994. CNL APF GP Corp. and CNL APF LP Corp., organized in Delaware in
May 1998, and CFA Acquisition Corp., CFC Acquisition Corp. and CFS
Acquisition Corp., organized in Maryland in February 1999, are wholly
owned subsidiaries of CNL American Properties Fund, Inc. CNL APF
Partners, LP is a Delaware limited partnership formed in May 1998. CNL
APF GP Corp. and CNL APF LP Corp. are the general and limited partner,
respectively, of CNL APF Partners, LP. The term "Company" includes,
unless the context otherwise requires, CNL American Properties Fund,
Inc., CNL APF GP Corp., CNL APF LP Corp., CFA Acquisition Corp., CFC
Acquisition Corp., CFS Acquisition Corp. and CNL APF Partners, LP,
CNL/Corral South Joint Venture and CNL/Chevys Annapolis Joint Venture.
The Company was formed 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 selected national and regional
fast-food, family-style and casual dining restaurant chains. The
Company also provides financing (the "Mortgage Loans") for the purchase
of buildings, generally by tenants that lease the underlying land from
the Company. In addition, the Company offers furniture, fixtures and
equipment financing through leases or loans (the "Secured Equipment
Leases") to operators of restaurant chains.
2. Basis of Presentation:
The accompanying unaudited condensed 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, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, 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, 1998.
The Company determines the appropriate classification of other
investments at the time of purchase and reevaluates such designation at
each balance sheet date. Other investments have been classified as held
to maturity and are carried at their amortized cost (which approximates
market value).
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
2. Basis of Presentation - Continued:
The Company accounts for its 85.47% interest in CNL/Corral South Joint
Venture and its 73.79% interest in CNL/Chevys Annapolis Joint Venture
using the consolidation method. Minority interest represents the
minority joint venture partners' proportionate share of the equity in
the Company's consolidated joint ventures. All significant intercompany
balances and transactions have been eliminated. The Company accounts
for its 59.22% interest in CNL/Lee Vista Joint Venture using the equity
method because it shares control with the other joint venture partner.
Certain items in the prior year's financial statements have been
reclassified to conform with the 1999 presentation. These
reclassifications had no effect on stockholders' equity or net
earnings.
3. Leases:
The Company leases its land, buildings and equipment 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." For Property leases classified as direct financing leases, the
building portions of these leases are accounted for as direct financing
leases while the land portions of the majority of these leases are
accounted for as operating leases. The Company's equipment financing
offered pursuant to leases are recorded as direct financing leases.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31, 1998
1999
-------------------- --------------------
<S> <C>
Land $ 287,491,252 $ 210,451,742
Buildings 269,068,855 169,708,652
-------------------- --------------------
556,560,107 380,160,394
Less accumulated depreciation (9,884,469 ) (6,242,782 )
-------------------- --------------------
546,675,638 373,917,612
Construction in progress 23,911,844 20,033,256
-------------------- --------------------
570,587,482 393,950,868
Less allowance for loss on
land and buildings (1,020,479 ) (611,534 )
-------------------- --------------------
$ 569,567,003 $ 393,339,334
==================== ====================
</TABLE>
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
4. Land and Buildings on Operating Leases - Continued:
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,
1999 and 1998, the Company recognized $2,466,357 and $1,303,987,
respectively, (net of $140,014 and $273,013 in write-offs and reserves
during the six months ended June 30, 1999) of such rental income,
$1,235,512 and $547,789 of which was earned during the quarters ended
June 30, 1999 and 1998, respectively.
At December 31, 1998, the Company had recorded provisions for losses on
land and buildings totaling $611,534 for financial reporting purposes
relating to two Shoney's Properties and two Boston Market Properties.
In addition, during the six months ended June 30, 1999, the Company
recorded provisions for losses on buildings totaling $408,945 for
financial reporting purposes relating to one Shoney's Property and
three Boston Market Properties. The tenants of these Properties
experienced financial difficulties and ceased payment of rents under
the terms of their lease agreements. The allowances represented the
difference between the carrying value of the Properties at December 31,
1998 and June 30, 1999, respectively, and the estimated net realizable
value for these Properties.
During the six months ended June 30, 1999, the Company sold its Boston
Market Property in Ellisville, Missouri and its Golden Corral Property
in Brooklyn, Ohio. The Company received total net proceeds of
$2,186,720, resulting in a total loss of $201,843 for financial
reporting purposes.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at June 30, 1999:
1999 $ 23,201,658
2000 46,886,894
2001 47,136,906
2002 47,964,652
2003 49,231,776
Thereafter 649,679,441
-------------------
$ 864,101,327
===================
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
4. Land and Buildings on Operating Leases - Continued:
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 13).
5. Net Investment in Direct Financing Leases:
The following lists the components of net investment in direct
financing leases at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
Minimum lease payments
receivable $264,142,411 $ 186,515,403
Estimated residual values 31,006,537 17,680,858
Interest receivable from
Secured Equipment Leases 82,706 81,690
Less unearned income (162,920,128 ) (112,602,301 )
Less allowance for loss on
direct financing leases (131,577 ) --
------------------- -------------------
Net investment in direct financing
leases $132,179,949 $ 91,675,650
=================== ===================
</TABLE>
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at June 30, 1999:
1999 $ 8,006,612
2000 16,265,762
2001 16,038,242
2002 15,947,516
2003 15,796,519
Thereafter 192,087,760
------------------
$ 264,142,411
==================
The above table does not include future minimum lease payments for
renewal periods or contingent rental payments that may become due in
future periods (see Note 4).
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
5. Net Investment in Direct Financing Leases:
During the six months ended June 30, 1999, the Company received
proceeds from various borrowers for the payoff of nine Secured
Equipment Leases. The Company collected $1,487,187 which were
approximately equal to the net investment in the direct financing
leases at the time of the payoff. As a result, no gain or loss was
recognized for financial reporting purposes.
6. Equipment and Other Notes Receivable:
On June 30, 1999, the Company advanced approximately $20,100,000 to a
borrower for the purpose of purchasing and taking by assignment three
existing Notes from third parties with an outstanding principal balance
of approximately $14,600,000, as well as, advancing additional funds of
approximately $5,500,000, both of which were then consolidated with an
existing $2,200,000 equipment loan for a total of $22,300,000
("Consolidated Note"). The Consolidated Note is collateralized by
leasehold mortgages, equipment and a security interest in other
miscellaneous collateral associated with restaurant properties, and
matures August 31, 1999. A portion of the Consolidated Note,
$5,200,000, bears interest at a rate of 10.5%, and the remaining
portion, $17,100,000, bears interest at a rate of 11.53%.
7. Other Investments:
During the six months ended June 30, 1999, the Company reassessed the
classification of its franchise loan certificates purchased in a
mortgage loan securitization (the "Certificates") and transferred the
Certificates from the available for sale category to the held to
maturity category for financial reporting purposes. The estimated fair
value of the Certificates represented the carrying value at the time of
transfer resulting in no unrealized gains or losses at the time of
transfer. At June 30, 1999 and December 31, 1998, the estimated fair
values of the Certificates approximated their carrying values.
8. Line of Credit:
At December 31, 1998, the Company had a revolving $35,000,000 unsecured
line of credit with a bank which enabled the Company to receive
advances to provide equipment financing, to purchase and develop
Properties and to fund Mortgage Loans. In March 1999, the Company
obtained a new unsecured revolving credit facility in an amount up to
$200,000,000 (the "Credit Facility"). In conjunction with obtaining the
Credit Facility, the Company terminated and repaid the balance of
approximately $12,600,000 under the previous line of credit. In June,
1999, the Company amended the Credit Facility to increase the borrowing
amount up to $300,000,000. Interest on advances under the Credit
Facility is determined according to (i) a tiered rate structure up to a
maximum rate of 200 basis points above LIBOR (based upon the Company's
overall leverage ratio) or
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
8. Line of Credit - Continued:
(ii) the lenders' prime rate plus 0.25%, whichever the Company selects
at the time of each advance. The Company obtained advances of
$151,437,245 under the Credit Facility during the six months ended June
30, 1999 and had an outstanding balance of $149,000,000 at June 30,
1999. As of June 30, 1999, $20,000,000 of the balance under the Credit
Facility incurred interest at a rate of eight percent per annum and the
remaining balance of $129,000,000 incurred interest at a rate of 6.71%
per annum. In connection with obtaining the new Credit Facility and the
June amendment, the Company incurred commitment fees, legal fees and
closing costs of $3,548,744. Interest incurred on prime rate advances
on the Credit Facility is payable monthly. LIBOR rate advances have
interest payment periods of one, two, three or six months, with
interest payable at the end of the selected period (except for six
month loans, on which interest is payable at the end of three and six
months). The principal balance, together with all unpaid interest, is
due in full upon termination of the facility on June 9, 2002. The terms
of the agreement for the amended Credit Facility include financial
covenants which provide for the maintenance of certain financial
ratios. The Company was in compliance with all such covenants as of
June 30, 1999.
As of June 30, 1999 and December 31, 1998, $149,000,000 and
$10,143,044, respectively, of principal was outstanding relating to the
respective lines of credit. The Company believes, based on current
terms, that the carrying values of its lines of credit at June 30, 1999
and December 31, 1998 approximated fair value.
For the six months ended June 30, 1999 and 1998, the Company incurred
interest costs (including amortization of loan costs) of $1,262,160 and
$124,702, respectively, all of which were capitalized as part of the
cost of buildings under construction. For the six months ended June 30,
1999 and 1998, the Company paid interest of $994,253 and $106,305,
respectively.
In June, 1999, in connection with the amended Credit Facility, the
Company entered into a new swap agreement. The purpose of the interest
rate swap agreement is to reduce the impact of changes in interest
rates on its floating rate Credit Facility. The agreement effectively
changes the Company's interest rate exposure on a notional amount of
approximately $75,000,000 of the outstanding floating rate Credit
Facility to a fixed rate of 6.17% per annum, as of June 30, 1999. The
Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement; however, the Company
does not anticipate nonperformance by the counterparty as they maintain
long-term credit ratings of "A" or better, as rated by Moody's or
Standard & Poors.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
8. Line of Credit - Continued:
The effective interest rate for the outstanding balance of $149,000,000
as of June 30, 1999 as a result of the impact of the interest rate swap
in the amount of $75,000,000 was 7.49% per annum.
9. Reverse Stock Split:
On May 27, 1999, the stockholders approved a one for two reverse split
of common stock that was effective on June 3, 1999 with the filing of
the amended Articles of Incorporation with the Maryland Department of
Assessments and Taxation. A total of $180,965 was transferred from
common stock to additional paid in capital in connection with the stock
split. All share and per share amounts have been restated herein to
reflect the one for two reverse stock split.
10. Distributions:
For the six months ended June 30, 1999 and 1998, approximately 85
percent and 86 percent, respectively, of the distributions paid to
stockholders were considered ordinary income and approximately 15
percent and 14 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, 1999
and 1998 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, 1999 may not
be indicative of the results that may be expected for the year ending
December 31, 1999.
11. Related Party Transactions:
During the six months ended June 30, 1999 and June 30, 1998, the
Company incurred $15,805 and $11,442,779, respectively, in selling
commissions due to CNL Securities Corp. for services in connection with
the offering of shares. A substantial portion of these amounts ($14,751
and $10,689,329) were paid by CNL Securities Corp. as commissions to
other broker-dealers during the six months ended June 30, 1999 and
1998, respectively.
In addition, CNL Securities Corp. received 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 was re-allowed to
other broker-dealers. During the six months ended June 30, 1999 and
June 30, 1998, the Company incurred $1,054 and $762,852, respectively,
of such fees, the majority of which was re-allowed to other
broker-dealers and from which all bona fide due diligence expenses were
paid.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
11. Related Party Transactions - Continued:
The advisor of the Company, CNL Fund Advisors, Inc. (the "Advisor") is
entitled to receive acquisition fees for services in identifying the
Properties and structuring the terms of the acquisition and leases of
these Properties and structuring the terms of Mortgage Loans and other
investments equal to 4.5% of the total amount raised from the sale of
shares. To the extent the Company uses proceeds from its Credit
Facility to acquire Properties or make mortgage loans, the Company also
pays the Advisor an acquisition fee equal to 4.5% of the purchase price
paid by the Company. During the six months ended June 30, 1999 and
1998, the Company incurred $4,492,940 and $6,865,668, respectively, of
such fees. Such fees are included in land and buildings on operating
leases, net investment in direct financing leases, mortgage notes
receivable, investment in joint venture and other assets.
In connection with the acquisition of Properties subject to approval by
the Company's Board of Directors, the Company may incur development or
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, 1999 and 1998, the
Company incurred $38,853 and $68,759, respectively, of such fees
relating to four and three Properties, respectively.
In connection with the acquisition of Properties subject to approval by
the Company's Board of Directors, the Company may incur advisory 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, 1999, the Company incurred $539,976 of such
fees relating to 25 Properties. No such fees were incurred for the six
months ended June 30, 1998.
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 each Secured Equipment
Lease. During the six months ended June 30, 1999 and 1998, the Company
incurred $67,967 and $14,899, 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 management
fee of one-twelfth of 0.60% of the Company's real estate asset value
and the outstanding principal balance 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
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
11. Related Party Transactions - Continued:
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, 1999 and 1998, the Company incurred $1,788,771 and
$756,791, respectively, of such fees, of which $106,901 and $26,931,
respectively, was capitalized as part of the cost of the buildings for
Properties under construction.
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. However, if the sales
proceeds are reinvested in a replacement property, no such real estate
disposition fees will be incurred until such replacement property is
sold and the net sales proceeds are distributed. 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 (the
"Stockholders' 8% Return") plus their aggregate invested capital. As of
June 30, 1999, no deferred subordinated real estate disposition fees
had been incurred.
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. However, if net sales proceeds are reinvested in
replacement assets, no such share of net sales proceeds will be paid to
the Advisor until such replacement assets are sold. This amount will be
payable only after the stockholders receive distributions equal to the
sum of the stockholders' aggregate invested capital and the
Stockholders' 8% Return. As of June 30, 1999, no such fees had been
incurred.
The Advisor and its affiliates provide administrative services
(including services for accounting; financial, tax and regulatory
compliance and reporting; lease and loan compliance; stockholder
distributions and reporting; due diligence and marketing; and investor
relations) to the Company on a day-to-day basis as well as services in
connection
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
11. Related Party Transactions - Continued:
with the offering of shares and services in connection with the
proposed mergers referred to in Note 13. The expenses incurred for
these services were classified as follows for the six months ended June
30:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C>
Stock issuance costs $ 55,463 $1,378,104
Transaction costs 286,544 --
General operating and
administrative expenses 600,992 488,710
--------------- ---------------
$ 942,999 $1,866,814
=============== ===============
</TABLE>
During the six months ended June 30, 1999 and 1998, the Company
acquired 40 Properties and one Property, respectively, for
approximately $38,500,000 and $2,200,000, respectively, from affiliates
of 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. Of the 40 Properties
acquired from affiliates in 1999, 38 were acquired for a total purchase
price of approximately $36,800,000 from Commercial Net Lease Realty,
Inc. ("NNN") a publicly traded real estate investment trust. James M.
Seneff, Jr., the Chairman of the Board and Chief Executive Officer of
the Company, is also the Chairman of the Board and Chief Executive
Officer of NNN and Robert A. Bourne, a Director and Treasurer of the
Company, is also a board member of NNN. This transaction was approved
by the Company's independent directors.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
11. Related Party Transactions - Continued:
The due to related parties consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31, 1998
1999
------------------ -------------------
<S> <C>
Due to the Advisor:
Expenditures incurred on behalf of the
Company and accounting and
administrative services $ 683,189 $ 1,238,148
Acquisition fees 761,255 39,788
------------------ -------------------
1,444,444 1,277,936
------------------ -------------------
Due to CNL Securities Corp:
Commissions -- 30,528
Marketing support and due diligence
expense reimbursement fees -- --
------------------ -------------------
-- 30,528
------------------ -------------------
$ 1,444,444 $ 1,308,464
================== ===================
</TABLE>
12. 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, investment and interest income from its
Properties, Mortgage Loans, Secured Equipment Leases and Certificates
for each of the six months ended June 30:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C>
S & A Properties Corporation $3,529,789 $ N/A
Foodmaker, Inc. N/A 1,811,447
Phoenix Restaurant Group, Inc. N/A 1,771,121
Houlihan's Restaurants, Inc. N/A 1,650,339
</TABLE>
The information denoted by N/A indicates that for the applicable period
presented, the tenant or group of affiliated tenants did not represent
more than ten percent of the Company's total rental, earned, investment
and interest income.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
12. Concentration of Credit Risk - Continued:
Although the Company's Properties are geographically diverse throughout
the United States and the Company's lessees and borrowers operate a
variety of restaurant concepts, failure of any one of these lessees or
borrowers that contributes more than ten percent of the Company's
rental, earned, investment and interest income could significantly
impact the results of operations of the Company if the Company is not
able to re-lease the Properties in a timely manner.
13. Commitments and Contingencies:
On March 11, 1999, the Company entered into agreements to acquire (i)
the Advisor, (ii) CNL Financial Corp. and CNL Financial Services, Inc.,
affiliates of the Advisor that provide mortgage loans and perform
securitization transactions and (iii) 18 CNL Income Funds, limited
partnerships that are affiliated with the Advisor and whose properties
are substantially the same type as the Company's (the "CNL Income
Funds"). In connection therewith, the Company agreed to issue 3.8
million, 2.35 million and up to 30.5 million shares of common stock,
respectively, after restatement for the one for two reverse stock
split.
Subsequent to entering into the merger agreements, the general partners
of the CNL Income Funds received a number of comments from
broker-dealers who sold units of CNL Income Fund XVII, Ltd. and CNL
Income Fund XVIII, Ltd. ("CNL Income Fund XVII and XVIII") concerning
the loss of passive income treatment in the event that those Income
Funds merged with APF. On June 3, 1999, the general partners, on behalf
of CNL Income Funds XVII and XVIII, and the Company agreed that it
would be in the best interests of CNL Income Funds XVII and XVIII and
the Company that the Company not attempt to acquire CNL Income Funds
XVII and XVIII in the acquisition. Representatives of the Company
stated that they would, depending on market conditions, seek to acquire
CNL Income Funds XVII and XVIII after the Company was listed on the New
York Stock Exchange. The representatives further noted that they would
be willing to structure any future acquisition in a manner so that the
limited partners could retain passive income treatment most likely by
offering the limited partners an exchange offer whereby limited
partners would exchange their units of limited partnership interest for
the Company's common stock. Therefore, in June 1999, the Company
entered into termination agreements with CNL Income Funds XVII and
XVIII. The Company's Board of Directors accordingly reduced its offer
to acquire the 16 CNL Income Funds to an aggregate of 27.3 million
shares of common stock. The acquisition of each of the 16 CNL Income
Funds is contingent upon certain conditions, including approval by the
Company's stockholders to increase the number of authorized shares of
common stock and approval by a majority of the limited partners of such
Income Fund.
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
13. Commitments and Contingencies - Continued:
On May 11, 1999, four limited partners in several CNL Income Funds
served a lawsuit against the general partners of the CNL Income Funds
and the Company in connection with the proposed merger with the CNL
Income Funds. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on
June 22, 1999, a limited partner in certain of the CNL Income Funds
filed a lawsuit against the Company, CNL Fund Advisors, Inc., certain
of its affiliates and the CNL Income Funds in connection with the
proposed merger. The Company, the general partners of the CNL Income
Funds and CNL Fund Advisors, Inc. believe that the lawsuits are without
merit and intend to defend vigorously against the claims. See Part
II-Item 1. Legal Proceedings.
The Company has entered into various development agreements with
tenants which provide terms and specifications for the construction or
renovation of buildings the tenants have agreed to lease or equipment
financing the Company has agreed to provide. 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 $75,817,000, of which approximately $51,699,000 in land
and other costs had been incurred as of June 30, 1999. The buildings
currently under construction or renovation are expected to be
operational by December 1999. In connection with the purchase of each
Property, the Company, as lessor, entered into a long-term lease
agreement.
14. Subsequent Events:
On each of July 1, 1999 and August 1, 1999, the Company declared
distributions of $4,746,243, or $0.12708 per share of common stock,
payable in September 1999 to stockholders of record on July 1, 1999 and
August 1, 1999, respectively.
During the period July 1, 1999 through August 11, 1999, the Company
obtained additional advances under its Credit Facility and acquired 16
Properties (12 of which are under construction) for cash at a total
cost of approximately $14,900,000. In connection with the purchase of
each of the 16 Properties, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction are
expected to be operational by February 2000. In connection with the 12
Properties which are under construction, the Company has committed to
pay an additional $10,500,000 in construction and development costs.
In August 1999, the Company sold its Property in Edgewater, Colorado,
for $638,000 and received net sales proceeds of $626,083, resulting in
a loss of $283,533 for financial reporting purposes which the Company
recorded at June 30, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information, including, without limitation, the Year 2000
Readiness Disclosure, that are not historical facts may be 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. These statements generally
are characterized by the use of terms such as "believe", "expect" and "may."
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 real
estate conditions, availability of capital from borrowings under the Company's
credit facility, the availability of other debt and equity financing
alternatives, increases in interest rates under the Company's Credit Facility
and under any additional variable rate debt arrangements that the Company may
enter into the future, the ability of the Company to refinance amounts
outstanding under its Credit Facility at maturity on terms favorable to the
Company, the ability of the Company to locate suitable tenants for its
properties and borrowers for its mortgage loans, the ability of tenants and
borrowers to make payments under their respective leases, secured equipment
leases or mortgage loans and the ability of the Company to re-lease properties
that are currently vacant or that become vacant. Given these uncertainties,
readers are cautioned not to place undue reliance on such statements. The
Company undertakes no obligation to update these forward-looking statements to
reflect any future events or circumstances.
The Company
CNL American Properties Fund, Inc. is a Maryland corporation that was
organized on May 2, 1994. CNL APF GP Corp. and CNL APF LP Corp., organized in
Delaware in May 1998, and CFA Acquisition Corp., CFC Acquisition Corp. and CFS
Acquisition Corp., organized in Maryland in February 1999, are wholly owned
subsidiaries of CNL American Properties Fund, Inc. CNL APF Partners, LP is a
Delaware limited partnership formed in May 1998. CNL APF GP Corp. and CNL APF LP
Corp. are the general and limited partner, respectively, of CNL APF Partners,
LP. The term "Company" includes, unless the text otherwise requires, CNL
American Properties Fund, Inc., CNL APF GP Corp., CNL APF LP Corp., CFA
Acquisition Corp., CFC Acquisition Corp., CFS Acquisition Corp., CNL APF
Partners, LP, CNL/Corral South Joint Venture and CNL/Chevys Annapolis Joint
Venture. The Company was formed primarily for the purpose of acquiring, directly
or indirectly through joint ventures or co-tenancy arrangements restaurant
properties (the "Properties"), 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 Company also provides financing (the "Mortgage
Loans") for the purchase of buildings, generally by tenants that lease the
underlying land from the Company. In addition, the Company offers furniture,
fixtures and equipment financing through leases or loans (the "Secured Equipment
Leases") to operators of restaurant chains.
<PAGE>
Liquidity and Capital Resources
Common Share Offerings
The Company was formed in May 1994, at which time it received initial
capital contributions of $200,000 for 20,000 shares of common stock. Since
inception, the Company has completed three separate public offerings of shares
of common stock. The Company received the final proceeds of $210,736 from its
third public offering of common stock in January 1999, at which point the
Company had received aggregate subscription proceeds from its three offerings of
$747,464,420 (37,373,221 shares), including $5,572,261 (278,613 Shares) issued
through the Company's reinvestment plan. Net proceeds to the Company from its
three offerings and the initial capital contributions, after deduction of stock
issuance costs, totaled $670,351,200, all of which had been invested in
Properties or Mortgage Loans.
On May 27, 1999, the stockholders approved a one for two reverse split
of common stock that was effective on June 3, 1999 with the filing of the
amended Articles of Incorporation with the Maryland Department of Assessments
and Taxation. All share and per share amounts have been restated herein to
reflect the one for two reverse stock split.
Credit Facility
In March 1999, the Company obtained a new unsecured revolving credit
facility in an amount up to $200,000,000, (the "Credit Facility") with a group
of commercial banks. The Credit Facility is used to acquire and develop
Properties and to fund Mortgage Loans and Secured Equipment Leases. In
conjunction with obtaining the Credit Facility, the Company terminated and
repaid the outstanding balance of approximately $12,600,000 under the previous
line of credit. In June 1999, the Company and its lenders amended the Credit
Facility to increase the borrowing amount up to $300,000,000. The interest rate
on advances under the Credit Facility is determined according to (i) a tiered
rate structure up to a maximum rate of 200 basis points above LIBOR (based upon
the Company's overall leverage ratio) or (ii) the lenders' prime rate plus
0.25%, whichever the Company selects at the time of the advance. The Company
obtained advances of $151,437,245 under the Credit Facility during the six
months ended June 30, 1999 and had an outstanding balance of $149,000,000 as of
June 30, 1999. In connection with obtaining and amending the Credit Facility,
the Company incurred commitment fees, legal fees and closing costs of
$3,548,744. As of June 30, 1999, $20,000,000 of the amounts advanced were
subject to interest at a rate of eight percent per annum and the remaining
$129,000,000 incurred interest at a rate of 6.71% per annum. Interest incurred
on prime rate advances on the Credit Facility is payable monthly. LIBOR rate
advances have interest payment periods of one, two, three or six months, with
interest payable at the end of the selected period (except for six month loans,
on which interest is payable at the end of three and six months). The principal
balance on all advances, together with all unpaid interest, is due in full upon
termination of the facility on June 9, 2002. The terms of the agreement for the
Credit Facility include financial covenants that provide for the maintenance of
certain financial ratios. The Company was in compliance with all such covenants
as of June 30, 1999.
In June 1999, in connection with the amended Credit Facility, the
Company entered into a new swap agreement. The purpose of the interest rate swap
agreement is to reduce the impact of changes in interest rates on its floating
rate Credit Facility. The agreement effectively changes the Company's interest
rate exposure on a notional amount of approximately $75,000,000 of the
outstanding floating rate Credit Facility to a fixed rate of 6.17% per annum, as
of June 30, 1999. The Company is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement; however,
the Company does not anticipate nonperformance by the counterparty as they
maintain long-term credit ratings of "A" or better as rated by Moody's or
Standard & Poors.
The effective interest rate for the outstanding balance of $149,000,000
as of June 30, 1999 as a result of the impact of the interest rate swap in the
amount of $75,000,000 was 7.49% per annum.
Interest Rate Risk
During the quarter ended June 30, 1999, the Company amended the Credit
Facility and entered into a new interest rate swap agreement. The amendment
increased the borrowing base to $300,000,000. As of June 30, 1999, the Company
has $149,000,000 outstanding under its Line of Credit. The Company has exposure
to interest rate risk associated with the Credit Facility due to the variable
interest rate. The Company believes this risk has been mitigated with the
interest rate swap agreements to reduce the impact of changes in interest rates
on its floating rate long-term debt (see "Credit Facility").
Under interest rate swaps, the company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. The table represents the notional amounts and expected
interest rates that exist by contractual dates; the notional amount is used to
calculate the contractual payments to be exchanged under the contract. The
variable rates are estimated based on implied forward rates in the yield curve
at the reporting date.
<TABLE>
<CAPTION>
2000 2001 2002
----------------- ----------------- -----------------
<S> <C>
Notional Amount $75,000,000 $75,000,000 $75,000,000
Average Pay Rate 6.17% 6.17% 6.17%
Average Receive Rate 5.93% 6.32% 6.42%
</TABLE>
Property Acquisitions and Investments
During the six months ended June 30, 1999, the Company used the
remaining net offering proceeds from its public offering of common stock,
proceeds from its Credit Facility, the net sales proceeds from the sale of two
Properties and cash collected from the payoff of nine Secured Equipment Leases
to acquire 171 Properties, (including 51 Properties on which a restaurant was
being constructed or renovated as of June 30, 1999), to fund Mortgage Loans
relating to four Properties and to provide equipment financing. In connection
with the purchase of each Property, the Company, as lessor, entered into a
long-term lease agreement. The buildings under construction or renovation are
expected to be operational by December 1999.
<PAGE>
During the six months ended June 30, 1999, the Company incurred
$4,492,940 in acquisition fees, based on the amount of offering proceeds
received during the period and advances obtained from the Credit Facility, and
certain acquisition expenses payable to CNL Fund Advisors, Inc. (the "Advisor")
in connection with the acquisition of Properties, construction and renovation of
Properties and investment in Mortgage Loans.
As of June 30, 1999, the Company's assets included:
o 578 Properties, including three Properties owned through three joint
venture arrangements and 51 Properties which were under construction or
renovation;
o Mortgage Loans relating to the buildings on 44 Properties in which the
Company owns the underlying land, and buildings on seven additional
properties owned by the borrower;
o Secured Equipment Leases relating to 38 of the Company's Properties and
19 additional properties;
o Franchise loan certificates from a mortgage loan securitization.
During the period July 1, 1999 through August 11, 1999, the Company
used advances under its Credit Facility totaling approximately $14,900,000 to
acquire 16 Properties (12 were under construction or renovation as of August 11,
1999), to pay acquisition fees of $761,255 to the Advisor, and to reimburse the
Advisor for certain acquisition expenses. In connection with the purchase of
each of the 16 Properties, the Company, as lessor, entered into a long-term
lease agreement. The buildings under construction are expected to be operational
by February 2000.
The Company currently is negotiating to acquire additional Properties,
but as of August 11, 1999 had not acquired any such Properties.
Dispositions
During the second quarter of 1999, the Company sold its Boston Market
Property in Ellisville, Missouri and its Golden Corral Property in Brooklyn,
Ohio. The Company received net proceeds totaling $2,186,720, resulting in a
total loss of $201,843 for financial reporting purposes. The Company reinvested
the proceeds in additional Properties.
During the second quarter of 1999, the Company received proceeds from
the payoff of nine Secured Equipment Leases. The Company received net proceeds
totaling $1,487,187 which were approximately equal to the net investment in the
direct financing leases at the time of the payoff. As a result, no gain or loss
was recognized for financial reporting purposes. The Company used the net
proceeds relating to the payoff to invest in additional Properties and Secured
Equipment Leases.
Capital Commitments
In connection with the acquisition of the 51 Properties under
construction or renovation at June 30, 1999, the Company entered into
development agreements with tenants which provide terms and specifications for
the construction or renovation of buildings the tenants have agreed to lease or
equipment financing the Company has agreed to provide. 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 had agreed to pay as of June 30, 1999 were approximately
$75,817,000, of which approximately $51,699,000 had been incurred as of June 30,
1999. In addition, in connection with entering into development agreements with
tenants for the 12 Properties acquired during the period July 1, 1999 through
August 11, 1999, described above, which are to be constructed, the Company has
committed to pay an additional $10,500,000 in construction and development
costs.
The Company intends to use advances under its Credit Facility to pay
the development costs of these Properties.
Cash and Cash Equivalents
At June 30, 1999 and December 31, 1998, the Company had $20,770,723 and
$125,207,377, respectively, (including certificates of deposit in the amount of
$2,006,690 and $2,007,540, respectively) invested in short-term highly-liquid
investments such as demand deposits at commercial banks and money markets with
less than a 30-day maturity date. The decrease in the amount invested in
short-term investments is primarily attributable to the Company purchasing
Properties during the six months ended June 30, 1999.
Equipment and Other Notes Receivable
On June 30, 1999, the Company advanced approximately $20,100,000 to a
borrower for the purpose of purchasing and taking by assignment three existing
Notes from third parties with an outstanding principal balance of approximately
$14,600,000, as well as, advancing additional funds for approximately
$5,500,000, both of which were then consolidated with an existing $2,200,000
equipment loan for a total consolidation of $22,300,000 ("Consolidated Note").
The Consolidated Note is collateralized by leasehold mortgages, equipment and a
security interest in other miscellaneous collateral, and matures August 31,
1999. A portion of the Consolidated Note, $5,200,000, bears interest at a rate
of 10.5%, and the remaining portion, $17,100,000, bears interest at a rate of
11.53%.
Liquidity Requirements
The Company expects to meet its short-term liquidity requirements,
other than for acquisition and development of Properties and investment in
Mortgage Loans and Secured Equipment Leases, through cash flow provided by
operating activities. The Company believes that cash flow provided by operating
activities will be sufficient to fund normal recurring operating expenses,
regular debt service requirements and distributions to stockholders. To the
extent that the Company's cash flow provided by operating activities is not
sufficient to meet such short-term liquidity requirements as a result, for
example, of unforeseen expenses due to tenants defaulting under the terms of
their lease agreements, the Company will use borrowings under its Credit
Facility.
Due to the fact that the Company leases its Properties on a triple-net
basis, meaning that tenants are generally required to pay all repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that working capital reserves are necessary at this time. Management
believes that the Properties are adequately covered by insurance. In addition,
the Advisor has 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 a Property.
The Company expects to meet its other short-term liquidity
requirements, including Property acquisition and development and investment in
Mortgage Loans and Secured Equipment Leases, with additional advances under its
Credit Facility. In addition, if the Company's common stock is listed on the New
York Stock Exchange or another national securities exchange or over-the-counter
market, the Company may obtain secured financing.
The Company expects to meet its long-term liquidity requirements
through short or long-term, unsecured or secured debt financing or equity
financing. As of June 30, 1999, the Company's only long-term liquidity
requirement was the maturity of its Credit Facility in June 2002.
Distributions
During the six months ended June 30, 1999 and 1998, 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
$28,256,292 and $16,600,953, respectively. Based primarily on cash from
operations, the Company declared and paid distributions to its stockholders of
$28,476,150 and $15,992,240 during the six months ended June 30, 1999 and 1998,
respectively. In addition, on each of July 1, 1999 and August 1, 1999, the
Company declared distributions to its stockholders of $4,746,243, payable in
September 1999. For the six months ended June 30, 1999 and 1998, approximately
85 percent and 86 percent, respectively, of the distributions received by
stockholders were considered to be ordinary income and approximately 15 percent
and 14 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 August 11, 1999, 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.
Amounts Due To Related Parties
During the six months ended June 30, 1999 and 1998, the Advisor and its
affiliates incurred on behalf of the Company $124,031 and $2,190,143,
respectively, for certain offering expenses, $392,301 and $536,646,
respectively, for certain acquisition expenses, and $2,067,998 and $380,705,
respectively, for certain operating expenses. As of June 30, 1999 and 1998, the
Company owed the Advisor and its affiliates $1,444,444 and $1,395,030,
respectively, for such amounts, unpaid fees and administrative expenses
(including services for accounting; financial, tax and regulatory compliance and
reporting; lease and loan compliance; stockholder distributions and reporting;
due diligence and marketing; and investor relations). As of August 11, 1999, the
Company had reimbursed all such amounts.
Proposed Mergers
On March 11, 1999, the Company entered into agreements to acquire (i)
the Advisor, (ii) CNL Financial Corp. and CNL Financial Services, Inc.,
affiliates of the Advisor that provide mortgage loans and perform securitization
transactions and (iii) 18 CNL Income Funds, limited partnerships that are
affiliated with the Advisor and whose properties are substantially the same type
as the Company's (the "CNL Income Funds"). In connection therewith, the Company
agreed to issue 3.8 million, 2.35 million and up to 30.5 million shares of
common stock, respectively, after restatement for the one for two reverse stock
split.
Subsequent to entering into the merger agreements, the general partners
of the CNL Income Funds received a number of comments from broker-dealers who
sold units of CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. ("CNL
Income Fund XVII and XVIII") concerning the loss of passive income treatment in
the event that these Income Funds merged with APF. On June 3, 1999, the general
partners, on behalf of CNL Income Funds XVII and XVIII, and the Company agreed
that it would be in the best interests of CNL Income Funds XVII and XVIII and
the Company that the Company not attempt to acquire CNL Income Funds XVII and
XVIII in the acquisition. Representatives of the Company stated that they would,
depending on market conditions, seek to acquire CNL Income Funds XVII and XVIII
after the Company was listed on the New York Stock Exchange. The representatives
further noted that they would be willing to structure any future acquisition in
a manner so that the limited partners could retain passive income treatment most
likely by offering the limited partners an exchange offer whereby limited
partners would exchange their units of limited partnership interest for the
Company's common stock. Therefore, in June, 1999, the Company entered into
termination agreements with CNL Income Funds XVII and XVIII. The Company's Board
of Directors accordingly reduced its offer to acquire the 16 CNL Income Funds to
an aggregate of 27.3 million shares of common stock. The acquisition of each of
the 16 CNL Income Funds is contingent upon certain conditions, including
approval by the Company's stockholders to increase the number of authorized
shares of common stock and approval by a majority of the limited partners of
such Income Fund.
On May 11, 1999, four limited partners in several CNL Income Funds
served a lawsuit against the general partners of the CNL Income Funds and the
Company in connection with the proposed merger with the CNL Income Funds. On
July 8, 1999, the plaintiffs amended the complaint to add three additional
limited partners as plaintiffs. Additionally, on June 22, 1999 a limited partner
in certain of the CNL Income Funds served a lawsuit against the Company, CNL
Fund Advisors, Inc., certain of its affiliates and the CNL Income Funds in
connection with the proposed merger. The Company, the general partners of the
CNL Income Funds and CNL Fund Advisors, Inc. believe that the lawsuits are
without merit and intend to defend vigorously against the claims. See Part
II-Item 1. Legal Proceedings.
Results of Operations
Revenues
The Company earned $27,900,894 in rental income from operating leases
and earned income from direct financing leases from 578 Properties and 57
Secured Equipment Leases structured as leases during the six months ended June
30, 1999, and $13,807,621 from 310 Properties and 28 Secured Equipment Leases
structured as leases during the six months ended June 30, 1998 ($15,716,886 and
$7,128,923 of which was earned during the quarters ended June 30, 1999 and 1998,
respectively). The increase during the quarter and six months ended June 30,
1999, as compared to the quarter and six months ended June 30, 1998, was
attributable to the Company investing in additional Properties and Secured
Equipment Leases. The increase in rental and earned income was partially offset
by the fact that the leases of 13 Boston Market Properties were rejected
subsequent to June 30, 1998, in connection with the tenants filing for
bankruptcy, as described below. During the six months ended June 30, 1999, the
Company re-leased four of these Properties to new tenants, and in April 1999,
sold one of these Properties, as described above in "Liquidity and Capital
Resources-Dispositions." The Company is actively marketing the remaining
Properties with rejected leases to existing and prospective clients and local
and regional restaurant operators.
In October 1998, Boston Chicken, Inc. and its affiliates, which lease
27 Boston Market Properties from the Company, filed a voluntary petition for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Two
additional Boston Market operators, which lease three Boston Market Properties
from the Company, also filed voluntary petitions for bankruptcy protection. As a
result of these bankruptcy filings, the tenants which have the legal right to
either reject or affirm one or more of their leases with the Company. As of
December 31, 1998, the tenants had closed 13 Properties, had rejected 12 of the
related leases and had continued making rental payments on one Property that had
been closed but the lease of which had not been rejected. The rejected leases
accounted for approximately three percent of the Company's rental, earned and
interest income for the year ended December 31, 1998. During the six months
ended June 30, 1999, the Company re-leased four of the Properties to new
tenants. In each of April and August 1999, the Company sold one of the
Properties to a third party, as described above in "Liquidity and Capital
Resources-Dispositions", and reinvested the net sales proceeds in additional
Properties. In April 1999, one of the Boston Market tenants who had filed for
bankruptcy during 1998, rejected the lease of an additional Property. As of
August 11, 1999, of the 28 Properties remaining in the Company's portfolio
relating to these tenants (excluding the two Properties sold in 1999, described
above), the Company had re-leased four Properties to new tenants, as described
above, the Company had ceased receiving rental payments for seven Properties,
the leases of which had been rejected and which remained vacant, and the Company
continued to receive rental payments for 17 Properties (including the Property
that was closed in October 1998 but the lease of which has not been rejected).
While the tenants have not rejected or affirmed the remaining 17 leases, there
can be no assurance that some or all of these leases will not be rejected in the
future. The lost revenues that would result from the seven vacant Properties
remaining in the portfolio whose leases were rejected and in the event the
remaining 17 leases are rejected could have an adverse effect on the liquidity
and results of operations of the Company, if the Company is unable to re-lease
the Properties in a timely manner. Currently, the Company is actively marketing
the seven Properties with rejected leases to existing and prospective clients
and local and regional restaurant operators.
The Company also earned $2,040,720 in interest income from Mortgage
Loans relating to 51 Properties and 19 Secured Equipment Leases structured as
loans during the six months ended June 30, 1999, and $1,506,140 from Mortgage
Loans relating to 46 Properties and three Secured Equipment Leases structured as
loans during the six months ended June 30, 1998 ($1,186,184 and $748,136 of
which was earned during the quarters ended June 30, 1999 and 1998,
respectively). The increase in interest income from Mortgage Loans and Secured
Equipment Leases during the quarter and six months ended June 30, 1999, as
compared to the quarter and six months ended June 30, 1998, was attributable to
the Company investing in additional loans collateralized by properties and
equipment subsequent to June 30, 1998.
During the six months ended June 30, 1999 and 1998, the Company earned
$2,150,660 and $2,293,590, respectively, in investment and interest income from
investments in franchise loan certificates, money market accounts or other
short-term, highly liquid investments ($793,313 and $1,412,830 of which was
earned during the quarters ended June 30, 1999 and 1998, respectively). The
decrease in investment and interest income during the quarter and six months
ended June 30, 1999, as compared to the quarter and six months ended June 30,
1998, was primarily attributable to lower cash balances maintained by the
Company during the quarter and six months ended June 30, 1999 due to the
acquisition of Properties during 1999.
Because the Company expects to continue to acquire Properties and
invest in Mortgage Loans and Secured Equipment Leases, and because certain
Properties were under construction as of June 30, 1999, revenues for the quarter
and six months ended June 30, 1999 represent only a portion of revenues which
the Company is expected to earn in future periods.
Significant Tenant
During the six months ended June 30, 1999, one of the Company's
lessees, S & A Properties Corp., contributed more than ten percent of the
Company's total rental, earned, investment and interest income relating to its
Properties, Mortgage Loans, Secured Equipment Leases and Certificates. S & A
Properties Corp. is the lessee under leases relating to 38 Properties. Because
the Company has not completed its investment in Properties, Secured Equipment
Leases and Mortgage Loans, it is not possible to determine which lessees or
borrowers will contribute more than ten percent of the Company's rental, earned,
investment and interest income during the remainder of 1999 and in subsequent
years. In the event that certain lessees or borrowers contribute more than ten
percent of the Company's rental, earned, investment and interest income in
future years, any failure of such lessees or borrowers could materially affect
the Company's results of operations.
Expenses
Operating expenses, including depreciation and amortization expense,
were $8,585,923 and $3,598,225 for the six months ended June 30, 1999 and 1998,
respectively ($4,875,975 and $1,798,218 of which were incurred during the
quarters ended June 30, 1999 and 1998). Total operating expenses increased
primarily as a result of the Company investing in additional Properties,
Mortgage Loans and Secured Equipment Leases subsequent to June 30, 1998. Asset
management fees and depreciation and amortization expense are expected to
increase as the Company invests in additional Properties and Mortgage Loans.
The increase in operating expenses for the quarter and six months ended
June 30, 1999 was also partially due to the fact that the Company incurred
$357,079 and $483,005, in transaction costs during the quarter and six months
ended June 30, 1999, respectively, related to the proposed mergers as described
above in "Liquidity and Capital Resources-Proposed Mergers."
Provisions for Losses on Buildings
During the six months ended June 30, 1999, the Company recorded
provisions for losses on buildings totaling $540,522 for financial reporting
purposes relating to one Shoney's Property, one Denny's Property and three
Boston Market Properties. The tenants of these Properties experienced financial
difficulties and ceased payment of rents under the terms of their lease
agreements. The allowances represent the difference between the carrying value
of the Properties at June 30, 1999 and the estimated net realizable value for
these Properties.
<PAGE>
Summary of New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company).
FAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Management of the Company anticipates that due to
its limited use of derivatives, the adoption of FAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999, the Company
did not have any information or non-information technology systems. Affiliates
of the Advisor provide all services requiring the use of information and
non-information technology systems pursuant to a management agreement with the
Company. The information technology system of the affiliates of the Advisor
consists of a network of personal computers and servers built using hardware and
software from mainstream suppliers. The non-information technology systems of
the affiliates of the Advisor are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the Advisor have no internally
generated programmed software coding to correct, because substantially all of
the software utilized by the Advisor and its affiliates is purchased or licensed
from external providers. The maintenance of non-information technology systems
at the Company's Properties is the responsibility of the tenants of the
Properties in accordance with the terms of the Company's leases.
In early 1998, the Advisor and affiliates formed a Year 2000 committee
(the "Y2K Team") for the purpose of identifying, understanding and addressing
the various issues associated with the Year 2000 problem. The Y2K Team consists
of members from the Advisor and its affiliates, including representatives from
senior management, information systems, telecommunications, legal, office
management, accounting and property management. The Y2K Team's initial step in
assessing the Company's Year 2000 readiness consists of identifying any systems
that are date sensitive and, accordingly, could have potential Year 2000
problems. The Y2K Team is in the process of conducting inspections, interviews
and tests to identify which of the Company's systems could have a potential Year
2000 problem.
The information system of the Advisor and its affiliates is comprised
of hardware and software applications from mainstream suppliers. Accordingly,
the Y2K Team is in the process of contacting the respective vendors and
manufacturers to verify the Year 2000 compliance of their products. In addition,
the Y2K Team has requested and is evaluating documentation from other companies
with which the Company has a material third party relationship, including the
Company's tenants, vendors, financial institutions and the Company's transfer
agent. The Company depends on its tenants for rents and cash flows, its
financial institutions for availability of cash and financing and its transfer
agent to maintain and track investor information. The Y2K Team has also
requested and is evaluating documentation from the non-information technology
systems providers of the Advisor and its affiliates. Although the Advisor
continues to receive positive responses from the companies with which the
Company has third party relationships regarding their Year 2000 compliance, the
Advisor cannot be assured that the tenants, financial institutions, transfer
agent, other vendors and system providers have adequately considered the impact
of the Year 2000. The Advisor is not able to measure the effect on the
operations of the Company of any third party's failure to adequately address the
impact of the Year 2000.
The Advisor and its affiliates have identified and have implemented
upgrades for certain hardware equipment. In addition, the Advisor and its
affiliates have identified certain software applications which will require
upgrades to become Year 2000 compliant. The Advisor expects all of these
upgrades as well as any other necessary remedial measures on the information
technology systems used in the business activities and operations of the Company
to be completed by September 30, 1999, although, the Advisor cannot be assured
that the upgrade solutions provided by the vendors have addressed all possible
Year 2000 issues. The Advisor does not expect the aggregate cost of the Year
2000 remedial measures to be material to the results of operations of the
Company.
The Advisor and affiliates have received certification from the
Company's transfer agent of its Year 2000 compliance. Due to the material
relationship of the Company with its transfer agent, the Y2K Team is evaluating
the Year 2000 compliance of the systems of the transfer agent and expects to
have the evaluation completed by September 30, 1999. Despite the positive
response from the transfer agent and the evaluation of the transfer agents
system by the Y2K Team, the Advisor cannot be assured that the transfer agent
has addressed all possible Year 2000 issues. In the event that the systems of
the transfer agent are not Year 2000 compliant, the Advisor would have to
allocate resources to internally perform the functions of the transfer agent.
The Advisor does not anticipate that the additional cost of these resources
would have a material impact on the Company.
Based upon the progress the Advisor and affiliates have made in
addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the Advisor does not foresee significant risks associated
with Year 2000 compliance at this time. The Advisor plans to address all
significant Year 2000 issues prior to the Company being affected by them;
therefore, it has not developed a comprehensive contingency plan. However, if
the Advisor identifies significant risks related to Year 2000 compliance or if
its progress deviates from the anticipated timeline, the Advisor will develop
contingency plans as deemed necessary at that time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding the Company's market risk at December 31, 1998 is
included in its Annual Report on Form 10-K for the year ended December 31, 1998.
There have been no material changes in the Company's market risk relating to
fixed rate Mortgage Loans and equipment financing to borrowers, as well as,
investment in Certificates with fixed and adjustable rates from December 31,
1998 through June 30, 1999. Information regarding the Company's market risk
relating to changes in interest rates are herein by reference in Item 2.
"Liquidity and Capital Resources-Interest Rate Risk."
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income
Funds served a derivative and purported class action lawsuit
filed April 22, 1999 against the general partners and APF in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the general partners breached
their fiduciary duties and violated provisions of certain of
the CNL Income Fund partnership agreements in connection with
the proposed merger with the Income Funds. The plaintiffs are
seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in
addition to naming three additional plaintiffs, includes
allegations of aiding and abetting and conspiring to breach
fiduciary duties, negligence and breach of duty of good faith
against certain of the defendants and seeks additional
equitable relief. As amended, the caption of the case is Jon
Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen M. Hewitt,
Bernard J. Schulte, Edward M. and Margaret Berol Trust, and
Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL
Realty Corporation, and CNL American Properties Fund, Inc.,
Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income
Funds served a purported class action lawsuit filed April 29,
1999 against the general partners and APF, Ira Gaines,
individually and on behalf of a class of persons similarly
situated, v. CNL American Properties Fund, Inc., James M.
Seneff, Jr., Robert A. Bourne, CNL Realty Corporation, CNL
Fund Advisors, Inc., CNL Financial Corporation a/k/a CNL
Financial Corp., CNL Financial Services, Inc. and CNL Group,
Inc., Case No. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF
aided and abetted their breach of fiduciary duties in
connection with the proposed merger with the Income Funds. The
plaintiff is seeking unspecified damages and equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The regular annual meeting of stockholders of the
Company was held in Orlando, Florida on May 27, 1999
for the purpose of electing the board of directors
and voting on the proposals described below.
(b) Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated
thereunder, and there was no solicitation in
opposition to management's solicitations. All of
management's nominees for director were elected.
(c) Three proposals were submitted to a vote of
stockholders as follows:
(1) The stockholders approved the election of
the following persons as directors of the
Company:
<TABLE>
<CAPTION>
Name For Withheld
<S> <C>
Robert A. Bourne 47,065,019 970,456
G. Richard Hostetter, Esq. 47,170,035 865,440
Richard C. Huseman 47,146,889 888,586
J. Joseph Kruse 47,168,897 866,578
James M. Seneff, Jr. 47,037,991 997,484
</TABLE>
(2) The stockholders approved, with 43,445,831
affirmative votes, 2,475,568 negative votes,
and 2,114,076 abstentions, the proposal for
a one for two reverse stock split of the
Company's common stock, par value $.01 per
share, whereby each outstanding share of
common stock was divided by two. As of the
record date, the number of issued and
outstanding shares of the Company's common
stock was 79,696,927. As a result of the
reverse stock split, the aggregate number of
shares of the Company's common stock issued
and outstanding was 37,348,464 and
25,140,999 shares were authorized and
unissued.
(3) The stockholders approved, with 41,986,179
affirmative votes, 3,388,246 negative votes,
and 2,661,050 abstentions, the proposal to
adopt the 1999 Performance Incentive Plan
authorizing the issuance of up to 4,500,000
shares of the Company's common stock upon
the exercise of stock options, stock
appreciation rights and the award of
restricted stock; provided, that the
aggregate number of shares of common stock
issued under the Plan shall increase
automatically to 9,000,000 and 12,000,000
shares when the Company has issued and
outstanding 150,000,000 shares and
200,000,000 shares, respectively, of common
stock. The Plan became effective February
23, 1999 and terminates on February 23,
2009.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund,
Ltd., constituting a part of Amendment No. 1
to the Registrant's Registration Statement
on Form S-4, File No. 333-74329 (the "Form
S-4"), and incorporated herein by
reference.)
2.2 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund II, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
II, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.3 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund III,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
III, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.4 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund IV, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
IV, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.5 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund V, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund V,
Ltd., constituting a part of Amendment No. 1
to the Form S-4 and incorporated herein by
reference.)
2.6 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VI, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
VI, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.7 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VII,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
VII, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.8 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund VIII,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
VIII, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.9 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund IX, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
IX, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.10 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund X, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund X,
Ltd., constituting a part of Amendment No. 1
to the Form S-4 and incorporated herein by
reference.)
2.11 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XI, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XI, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.12 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XII,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XII, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.13 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XIII,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XIII, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.14 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XIV,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XIV, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.15 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XV, Ltd.,
dated March 11, 1999 and as amended on June
4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XV, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.16 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVI,
Ltd., dated March 11, 1999 and as amended on
June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for CNL Income Fund
XVI, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated
herein by reference.)
2.17 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVII,
Ltd., dated March 11, 1999 (Filed as
Appendix B to the Prospectus Supplement for
CNL Income Fund XVII, Ltd., constituting a
part of the Form S-4 and incorporated herein
by reference.)
2.18 Agreement and Plan of Merger by and between
the Registrant and CNL Income Fund XVIII,
Ltd., dated March 11, 1999 (Filed as
Appendix B to the Prospectus Supplement for
CNL Income Fund XVIII, Ltd., constituting a
part of the Form S-4 and incorporated herein
by reference.)
2.19 Agreement and Plan of Merger, by and among
the Registrant, CFA Acquisition Corp., CNL
Fund Advisors, Inc. and CNL Group, Inc.,
dated March 11, 1999 (Filed as Exhibit 10.38
to the Form S-4 and incorporated herein by
reference.)
2.20 Agreement and Plan of Merger, by and among
the Registrant, CFC Acquisition Corp., CFS
Acquisition Corp., CNL Financial Corp., CNL
Financial Services, Inc., CNL Group, Inc.,
Five Arrows Realty Securities L.L.C., Robert
A. Bourne, Curtis B. McWilliams and Brian
Fluck, dated March 11, 1999 (Filed as
Exhibit 10.39 to the Form S-4 and
incorporated herein by reference.)
<PAGE>
3.1 CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation, as
amended (Filed herewith.)
3.2 CNL American Properties Fund, Inc. Amended
and Restated Bylaws (Included as Exhibit 3.2
to Registration Statement No. 333-37657 on
Form S-11 and incorporated herein by
reference.)
4.1 Form of Stock Certificate (Included as
Exhibit 4.5 to Registration Statement No.
33-78790 on Form S-11 and incorporated
herein by reference.)
10.1 Advisory Agreement, dated as of April 19,
1999, between CNL American Properties Fund,
Inc. and CNL Fund Advisors, Inc. (Filed
herewith.)
10.2 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, dated
as of January 27, 1997 between CNL American
Properties Fund, Inc. and Steven D.
Shackelford, and dated as of February 18,
1998, between CNL American Properties Fund,
Inc. and Curtis B. McWilliams (Included as
Exhibit 10.9 to Registration Statement No.
333-15411 and incorporated herein by
reference.)
10.3 Agreement of Limited Partnership of CNL APF
Partners, LP (Included as Exhibit 10.4 to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference.)
10.4 Amended and Restated Credit Agreement by and
among CNL APF Partners, LP, Registrant,
First Union National Bank, First Union
Capital Markets Group, Banc of America
Securities LLC, NationsBank, N.A., The Chase
Manhattan Bank and other financial
institutions, dated June 9, 1999 (Included
as Exhibit 10.51 to Amendment No. 1 to the
Form S-4 and incorporated herein by
reference.)
10.5 1999 Performance Incentive Plan (Included as
Exhibit 10.1 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference.)
10.6 Registration Rights Agreement by and among
the Registrant, Robert A. Bourne, Curtis B.
McWilliams, John T. Walker, Howard Singer,
Steven D. Shackelford and CNL Group, Inc.,
dated as of March 11, 1999 (Included as
Exhibit 10.40 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference.)
10.7 Registration Rights Agreement by and among
the Registrant, Five Arrows Realty
Securities L.L.C., James M. Seneff, Jr.,
Robert A. Bourne, Curtis B. McWilliams and
CNL Group, Inc., dated as of March 11, 1999
(Included as Exhibit 10.41 to Amendment No.
1 to the Form S-4 and incorporated herein by
reference.)
10.8 Termination Agreement by and between the
Registrant and CNL Income Fund XVII, Ltd.,
dated June 4, 1999 (Included as Exhibit
10.54 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.9 Termination Agreement by and between the
Registrant and CNL Income Fund XVIII, Ltd.,
dated June 4, 1999 (Included as Exhibit
10.55 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June
30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of August, 1999
CNL AMERICAN PROPERTIES FUND, INC.
By: /s/ James M. Seneff, Jr.
------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Steven D. Shackelford
-------------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund, Ltd., dated March 11,
1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund, Ltd., constituting a part of Amendment
No. 1 to the Registrant's Registration Statement on
Form S-4, File No. 333-74329 (the "Form S-4"), and
incorporated herein by reference.)
2.2 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund II, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund II, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.3 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund III, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund III, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.4 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund IV, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund IV, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.5 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund V, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund V, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated herein by
reference.)
2.6 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VI, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund VI, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.7 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VII, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund VII, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.8 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund VIII, Ltd., dated
March 11, 1999 and as amended on June 4, 1999 (Filed
as Appendix B to the Prospectus Supplement for CNL
Income Fund VIII, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.9 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund IX, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund IX, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.10 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund X, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund X, Ltd., constituting a part of Amendment
No. 1 to the Form S-4 and incorporated herein by
reference.)
2.11 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XI, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund XI, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.12 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XII, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund XII, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.13 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XIII, Ltd., dated
March 11, 1999 and as amended on June 4, 1999 (Filed
as Appendix B to the Prospectus Supplement for CNL
Income Fund XIII, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.14 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XIV, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund XIV, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.15 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XV, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund XV, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.16 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVI, Ltd., dated March
11, 1999 and as amended on June 4, 1999 (Filed as
Appendix B to the Prospectus Supplement for CNL
Income Fund XVI, Ltd., constituting a part of
Amendment No. 1 to the Form S-4 and incorporated
herein by reference.)
2.17 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVII, Ltd., dated
March 11, 1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XVII, Ltd.,
constituting a part of the Form S-4 and incorporated
herein by reference.)
2.18 Agreement and Plan of Merger by and between the
Registrant and CNL Income Fund XVIII, Ltd., dated
March 11, 1999 (Filed as Appendix B to the Prospectus
Supplement for CNL Income Fund XVIII, Ltd.,
constituting a part of the Form S-4 and incorporated
herein by reference.)
2.19 Agreement and Plan of Merger, by and among the
Registrant, CFA Acquisition Corp., CNL Fund Advisors,
Inc. and CNL Group, Inc., dated March 11, 1999 (Filed
as Exhibit 10.38 to the Form S-4 and incorporated
herein by reference.)
2.20 Agreement and Plan of Merger, by and among the
Registrant, CFC Acquisition Corp., CFS Acquisition
Corp., CNL Financial Corp., CNL Financial Services,
Inc., CNL Group, Inc., Five Arrows Realty Securities
L.L.C., Robert A. Bourne, Curtis B. McWilliams and
Brian Fluck, dated March 11, 1999 (Filed as Exhibit
10.39 to the Form S-4 and incorporated herein by
reference.)
3.1 CNL American Properties Fund, Inc. Amended and
Restated Articles of Incorporation, as amended (Filed
herewith.)
3.2 CNL American Properties Fund, Inc. Amended and
Restated Bylaws (Included as Exhibit 3.2 to
Registration Statement No. 333-37657 on Form S-11 and
incorporated herein by reference.)
4.1 Form of Stock Certificate (Included as Exhibit 4.5 to
Registration Statement No. 33-78790 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of April 19, 1999,
between CNL American Properties Fund, Inc. and CNL
Fund Advisors, Inc. (Filed herewith.)
10.2 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, dated as of January 27, 1997
between CNL American Properties Fund, Inc. and Steven
D. Shackelford, and dated as of February 18, 1998,
between CNL American Properties Fund, Inc. and Curtis
B. McWilliams (Included as Exhibit 10.9 to
Registration Statement No. 333-15411 and incorporated
herein by reference.)
10.3 Agreement of Limited Partnership of CNL APF Partners,
LP (Included as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference.)
10.4 Amended and Restated Credit Agreement by and among
CNL APF Partners, LP, Registrant, First Union
National Bank, First Union Capital Markets Group,
Banc of America Securities LLC, NationsBank, N.A.,
The Chase Manhattan Bank and other financial
institutions, dated June 9, 1999 (Included as Exhibit
10.51 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.10 1999 Performance Incentive Plan (Included as Exhibit
10.1 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference.)
10.11 Registration Rights Agreement by and among the
Registrant, Robert A. Bourne, Curtis B. McWilliams,
John T. Walker, Howard Singer, Steven D. Shackelford
and CNL Group, Inc., dated as of March 11, 1999
(Included as Exhibit 10.40 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
10.12 Registration Rights Agreement by and among the
Registrant, Five Arrows Realty Securities L.L.C.,
James M. Seneff, Jr., Robert A. Bourne, Curtis B.
McWilliams and CNL Group, Inc., dated as of March 11,
1999 (Included as Exhibit 10.41 to Amendment No. 1 to
the Form S-4 and incorporated herein by reference.)
10.13 Termination Agreement by and between the Registrant
and CNL Income Fund XVII, Ltd., dated June 4, 1999
(Included as Exhibit 10.54 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
10.14 Termination Agreement by and between the Registrant
and CNL Income Fund XVIII, Ltd., dated June 4, 1999
(Included as Exhibit 10.55 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL American Properties Fund, Inc. at June 30, 1999, and its statement
of income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL American Properties Fund, Inc. for the six
months ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,770,723<F2>
<SECURITIES> 16,197,812
<RECEIVABLES> 1,844,426
<ALLOWANCES> 1,194,454
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 579,451,472
<DEPRECIATION> 9,884,469
<TOTAL-ASSETS> 822,225,342
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 373,484
<OTHER-SE> 654,828,342
<TOTAL-LIABILITY-AND-EQUITY> 822,225,342
<SALES> 0
<TOTAL-REVENUES> 32,150,355
<CGS> 0
<TOTAL-COSTS> 8,585,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,853,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,853,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,853,308
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.61
<FN>
<F1>Due to the nature of its industry, CNL American Properties Fund, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
<F2>Includes $2,006,690 in certificates of deposit.
</FN>
</TABLE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
CNL AMERICAN PROPERTIES FUND, INC.
CNL American Properties Fund, Inc., a Maryland corporation having its
principal office at 32 South Street, Baltimore, Maryland 21202 (hereinafter, the
"Company"), hereby certifies to the Department of Assessments and Taxation of
the State of Maryland, that:
FIRST: The Company desires to amend and restate its articles of
incorporation as currently in effect.
SECOND: The provisions of the articles of incorporation which are now
in effect and as amended hereby, dated as of March 29, 1995 in accordance with
the Maryland General Corporation Law (the "MGCL"), are as follows.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CNL AMERICAN PROPERTIES FUND, INC.
* * * * * * * * * *
ARTICLE I
THE COMPANY; DEFINITIONS
Section 1.1 Name. The name of the corporation (the "Company") is:
CNL American Properties Fund, Inc.
So far as may be practicable, the business of the Company shall be
conducted and transacted under that name, which name (and the word "Company"
wherever used in these Articles of Amendment and Restatement of CNL American
Properties Fund, Inc. (these "Articles of Incorporation"), except where the
context otherwise requires) shall refer to the Directors collectively but not
individually or personally and shall not refer to the Stockholders or to any
officers, employees or agents of the Company or of such Directors.
<PAGE>
Under circumstances in which the Directors determine that the use of
the name "CNL American Properties Fund, Inc." is not practicable, they may use
any other designation or name for the Company.
SECTION 1.2 Resident Agent. The name and address of the resident agent
for service of process of the Company in the State of Maryland is The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The
Company may have such principal office within the State of Maryland as the
Directors may from time to time determine. The Company may also have such other
offices or places of business within or without the State of Maryland as the
Directors may from time to time determine.
SECTION 1.3 Nature of Company. The Company is a Maryland corporation
within the meaning of the MGCL.
SECTION 1.4 Purposes. The purposes for which the Company is formed are
to conduct any business for which corporations may be organized under the laws
of the State of Maryland including, but not limited to, the following: (i) to
acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease,
transfer, encumber, convey, exchange and otherwise dispose of or deal with real
and personal property; (ii) to engage in the business of offering furniture,
fixture, and equipment financing to operators of Restaurant Chains; and (iii) to
enter into any partnership, joint venture or other similar arrangement to engage
in any of the foregoing.
SECTION 1.5 Definitions. As used in these Articles of Incorporation,
the following terms shall have the following meanings unless the context
otherwise requires (certain other terms used in Article VII hereof are defined
in Sections 7.2, 7.3, 7.6, and 7.7 hereof):
"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, whether or not acquired, including,
without limitation, legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance.
"Acquisition Fee" 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 and the selection or acquisition of any Property, including,
without limitation, real estate commissions, acquisition fees, finder's fees,
selection fees, nonrecurring management fees, consulting fees, loan fees,
points, or any other fees or commissions of a similar nature.
<PAGE>
"Advisor" or "Advisors" means the Person or Persons, if any, appointed,
employed or contracted with by the Company pursuant to Section 4.1 hereof and
responsible for directing or performing the day-to-day business affairs of the
Company, including any Person to whom the Advisor subcontracts substantially all
of such functions.
"Advisory Agreement" means the agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company.
"Affiliate" or "Affiliated" means, as to any individual, corporation,
partnership, trust or other association (other than the Excess Shares Trust),
(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 or
controlling 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.
"Asset Management Fee" shall mean the fee payable to the Advisor for
specified 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.
"Bylaws" means the bylaws of the Company, as the same are in effect
from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.
"Company Property" means any and all property, real, personal or
otherwise, tangible or intangible, including Secured Equipment Leases, which is
transferred or conveyed to the Company (including all rents, income, profits and
gains therefrom), which is owned or held by, or for the account of, the Company.
<PAGE>
"Competitive Real Estate Commission" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property. The
total of all real estate commissions paid by the Company to all Persons
(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 (6%) of the gross sales price of the Property or Properties.
"Directors," "Board of Directors" or "Board" means, collectively, the
individuals named in Section 2.2 of these Articles of Incorporation so long as
they continue in office and all other individuals who have been duly elected and
qualify as Directors of the Company hereunder.
"Distributions" means any distributions of money or other property,
pursuant to Section 7.2(iv) hereof, by the Company to owners of Shares,
including distributions that may constitute a return of capital for federal
income tax purposes. The Company will make no distributions other than
distributions of money or readily marketable securities unless the requirements
of Section 7.2(iv) hereof are satisfied.
"Equipment" shall mean the furniture, fixtures and equipment used at
Restaurant Chains.
"Equity Shares" means transferable shares of beneficial interest of the
Company of any class or series, including Common Shares or Preferred Shares.
"Gross Proceeds" means 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.
Independent Director" means a Director who is not, and within the last
two (2) 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) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) 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. A business or professional relationship is
considered material if the gross revenue derived by the Director from the
Advisor and Affiliates exceeds five percent (5%) of either the Director's annual
gross revenue during either of the last two (2) years or the Director's net
worth on a fair market value basis. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, 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.
<PAGE>
"Independent Expert" means 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.
"Initial Public Offering" means the offering and sale of Common Shares
of the Company pursuant to the Company's first effective registration statement
covering such Common Shares filed under the Securities Act of 1933, as amended.
"Invested Capital" means the amount calculated by multiplying the total
number of Shares purchased by Stockholders by the issue price, reduced by the
portion of any Distribution that is attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase Shares pursuant to the Company's
share redemption plan.
"Joint Ventures" means those joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"Leverage" means the aggregate amount of indebtedness of the Company
for money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"Listing" means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
"Loan" means a loan, the maximum principal amount of which shall not
exceed 10% of Gross Proceeds.
"Managing Dealer" means 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.
"MGCL" means the Maryland General Corporation Law as contained in the
Corporations and Associations Article of the Annotated Code of Maryland.
"Mortgages" means mortgages, deeds of trust or other security interests
on or applicable to Real Property.
"NASAA REIT Guidelines" means the guidelines for Real Estate Investment
Trusts published by the North American Securities Administrators Association.
<PAGE>
"Net Assets" means 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 shall exclude the gain from the sale of the
Company's assets.
"Net Sales Proceeds" means 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 one hundred eighty (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 Property consisting of a building only, any amounts that the
Company determines, in its discretion, to be economically equivalent to the
proceeds of a Sale. Net Sales Proceeds shall not include any reserves
established by the Company in its sole discretion.
"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
Organizational and 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 ten percent (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 resale
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
<PAGE>
foreclosure, insurance premiums, legal services, maintenance, repair, and
improvement of property).
"Organizational and Offering Expenses" means 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 formation, 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 Organizational and Offering Expenses paid by the Company in
connection with formation of the Company, 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 such offering.
"Performance Fee" means 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.
"Person" means an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or any government or any agency or political subdivision
thereof, and also includes 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) an underwriter that participates in a public offering of Equity
Shares for a period of sixty (60) days following the initial purchase by such
underwriter of such Equity Shares in such public offering, or (ii) CNL Fund
Advisors, Inc., during the period ending December 31, 1995, provided that the
foregoing exclusions shall apply only if the ownership of such Equity Shares by
an underwriter or CNL Fund Advisors, Inc. 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.
"Property" or "Properties" means (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.
"Prospectus" means the same as that term is defined in Section 2(10) of
the Securities Act of 1933, including a preliminary prospectus, an offering
circular as described in Rule 256 of the General Rules and Regulations under the
Securities Act of 1933 or, in the case of an intrastate
<PAGE>
offering, any document by whatever name known, utilized for the purpose of
offering and selling securities to the public.
"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.
"Real Property" or "Real Estate" means land, rights in land (including
leasehold interests), and any buildings, structures, improvements, furnishings,
fixtures and equipment located on or used in connection with land and rights or
interests in land.
"REIT" means a "real estate investment trust" as defined pursuant to
Sections 856 through 860 of the Code.
"REIT Provisions of the Code" means Sections 856 through 860 of the
Code and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.
"Restaurant Chains" shall mean the national and regional restaurant
chains, primarily fast-food, family-style, 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 or (ii) 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 included for quotation on the
National Market System of the National Association of Securities Dealers
Automated Quotation 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" or "Sales" (i) means 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
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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 Secured Equipment Lease or portion
thereof, including any event with respect to any 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), or (i)(C) above in which the proceeds of such transaction
or series of transactions are reinvested in one or more Properties or Secured
Equipment Leases within one hundred eighty (180) days thereafter.
"Secured Equipment Leases" means the furniture, fixtures and equipment
financing made available by the Company to operators of Restaurant Chains
pursuant to which the Company will finance, through direct financing leases, the
Equipment.
"Secured Equipment Lease Servicing Fee" means the fee payable to the
Advisor by the Company out of the proceeds of the Loan for negotiating Secured
Equipment Leases and supervising the Secured Equipment Lease equal to 2% of the
purchase price of the Equipment subject to each Secured Equipment Lease and paid
upon entering into such lease.
"Securities" means Equity Shares, Excess Shares, any other stock,
shares or other evidences of equity or beneficial or other interests, voting
trust certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"Selling Commissions" shall mean any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Shares, including, without limitation, commissions payable to CNL
Securities Corp.
"Shares" means up to 16,500,000 Shares of common stock of the Company
to be sold in the Initial Public Offering.
"Soliciting Dealers" means 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.
"Soliciting Dealer Servicing Fee" means an annual fee of .20% of
Invested Capital on December 31 of each year following the year in which the
offering of the Shares terminates,
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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.
"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.
"Stock Option Plan" means a plan that provides for the matters set
forth in Rule 260.140.41 of Section 25140 of the Corporations Code of
California, as in effect as of the date of these Articles of Incorporation.
"Stockholders' 8% Return," as of each date, means an aggregate amount
equal to an eight percent (8%) cumulative, noncompounded, annual return on
Invested Capital.
"Stockholders" means the registered holders of the Company's Equity
Shares.
"Subordinated Incentive Fee" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.
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"Successor" means any successor in interest of the Company.
"Termination Date" means the date of termination of the Advisory
Agreement.
"Unimproved Real Property" means 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.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 Number. The number of Directors initially shall be five
(5), which number may be increased or decreased from time to time by resolution
of the Directors then in office or by a majority vote of the Stockholders
entitled to vote: provided, however, that the total number of Directors shall be
not fewer than three (3) and not more than fifteen (15), subject to the Bylaws
and to any express rights of any holders of any series of Preferred Shares to
elect additional directors under specified circumstances. A majority of the
Board of Directors will be Independent Directors. Independent Directors shall
nominate replacements for vacancies among the Independent Directors. No
reduction in the number of Directors shall cause the removal of any Director
from office prior to the expiration of his term. Any vacancy created by an
increase in the number of Directors will be filled, at any regular meeting or at
any special meeting of the Directors called for that purpose, by a majority of
the Directors. Any other vacancy will be filled at any annual meeting or at any
special meeting of the Stockholders called for that purpose, by a majority of
the Common Shares outstanding and entitled to vote. For the purposes of voting
for directors, each Share of stock may be voted for as many individuals as there
are directors to be elected and for whose election the Share is entitled to be
voted, or as may otherwise be required by the MGCL or other applicable law as in
effect from time to time.
SECTION 2.2 Experience. A Director shall have had at least three (3)
years of relevant experience demonstrating the knowledge and experience required
to successfully acquire and manage the type of assets being acquired by the
Company. At least one of the Independent Directors shall have three (3) years of
relevant real estate experience.
SECTION 2.3 Committees. Subject to the MGCL, the Directors may
establish such committees as they deem appropriate, in their discretion,
provided that the majority of the members of each committee are Independent
Directors.
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SECTION 2.4 Initial Board; Term. The initial Directors are James M.
Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J. Joseph Kruse and Richard
C. Huseman. Each Director shall hold office for one (1) year, until the next
annual meeting of Stockholders and until his successor shall have been duly
elected and shall have qualified. Directors may be elected to an unlimited
number of successive terms.
The names and address of the initial Directors are as follows:
Name Address
James M. Seneff, Jr. 400 E. South Street
Orlando, Florida 32801
Robert A. Bourne 400 E. South Street
Orlando, Florida 32801
G. Richard Hostetter 400 E. South Street
Orlando, Florida 32801
J. Joseph Kruse 400 E. South Street
Orlando, Florida 32801
Richard C. Huseman 400 E. South Street
Orlando, Florida 32801
SECTION 2.5 Fiduciary Obligations. The Directors serve in a fiduciary
capacity to the Company and have a fiduciary duty to the Stockholders of the
Company, including a specific fiduciary duty to supervise the relationship of
the Company with the Advisor.
SECTION 2.6 Approval by Independent Directors. A majority of
Independent Directors must approve all matters to which Sections 2.1, 3.2(vii)
and (xii), 3.3, 4.1, 4.2, 4.6, 4.7, 4.8, 4.10, 4.13, 5.2, 5.4(xiii) and (xx),
6.3, 6.4, 8.1, 8.2, 9.2 and 9.4 herein apply.
SECTION 2.7 Resignation, Removal or Death. Any Director may resign by
written notice to the Board of Directors, effective upon execution and delivery
to the Company of such written notice or upon any future date specified in the
notice. A Director may be removed from office with or without cause only at a
meeting of the Stockholders called for that purpose, by the affirmative vote of
the holders of not less than a majority of the Common Shares then outstanding
and entitled to vote in the election of the Directors, subject to the rights of
any Preferred Shares to vote for such Directors. The notice of such meeting
shall indicate that the purpose, or one of the purposes, of such meeting is to
determine if a Director should be removed. Upon the resignation or removal of
any Director, or his otherwise ceasing to be a Director, he shall
<PAGE>
automatically cease to have any such right, title or interest in and to the
Company Property and shall execute and deliver such documents as the remaining
Directors require for the conveyance of any Company Property held in his name,
and shall account to the remaining Directors as they require for all property
which he holds as Director. Upon the incapacity or death of any Director, his
legal representative shall perform the acts described in the foregoing sentence.
SECTION 2.8 Business Combination Statute. Notwithstanding any other
provision of these Articles of Incorporation or any contrary provision of law,
the Maryland Business Combination Statute, found in Title 3, subtitle 6 of the
MGCL, as amended from time to time, or any successor statute thereto, shall not
apply to any "business combination" (as defined in Section 3-601(e) of the MGCL,
as amended from time to time, or any successor statute thereto) of the Company
and any Person.
SECTION 2.9 Control Share Acquisition Statute. Notwithstanding any
other provision of these Articles of Incorporation or any contrary provision of
law, the Maryland Control Share Acquisition Statute, found in Title 3, subtitle
7 of the MGCL, as amended from time to time, or any successor statute thereto
shall not apply to any acquisition of Securities of the Company by any Person.
ARTICLE III
POWERS OF DIRECTORS
SECTION 3.1 General. Subject to the express limitations herein or in
the Bylaws and to the general standard of care required of directors under the
MGCL and other applicable law, (i) the business and affairs of the Company shall
be managed under the direction of the Board of Directors and (ii) the Directors
shall have full, exclusive and absolute power, control and authority over the
Company Property and over the business of the Company as if they, in their own
right, were the sole owners thereof, except as otherwise limited by these
Articles of Incorporation. The Directors have established the written policies
on investments and borrowing set forth in this Article III and Article V hereof
and shall monitor the administrative procedures, investment operations, Secured
Equipment Lease program and performance of the Company and the Advisor to assure
that such policies are carried out. The Directors may take any actions that, in
their sole judgment and discretion, are necessary or desirable to conduct the
business of the Company. A majority of the Board of Directors, including a
majority of Independent Directors, hereby ratify these Articles of
Incorporation, which shall be construed with a presumption in favor of the grant
of power and authority to the Directors. Any construction of these Articles of
Incorporation or determination made in good faith by the Directors concerning
their powers and authority hereunder shall be conclusive. The enumeration and
definition of particular powers of the Directors included in this Article III
shall in no way be limited or restricted by reference to or inference from the
terms of this or any other provision of these Articles of Incorporation or
<PAGE>
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Directors under the general laws of the State of
Maryland as now or hereafter in force.
SECTION 3.2 Specific Powers and Authority. Subject only to the express
limitations herein, and in addition to all other powers and authority conferred
by these Articles of Incorporation or by law, the Directors, without any vote,
action or consent by the Stockholders, shall have and may exercise, at any time
or times, in the name of the Company or on its behalf the following powers and
authorities:
(i) Investments. Subject to Article V and Section 9.5 hereof,
to invest in, purchase or otherwise acquire and to hold real, personal or mixed,
tangible or intangible, property of any kind wherever located, or rights or
interests therein or in connection therewith, all without regard to whether such
property, interests or rights are authorized by law for the investment of funds
held by trustees or other fiduciaries, or whether obligations the Company
acquires have a term greater or lesser than the term of office of the Directors
or the possible termination of the Company, for such consideration as the
Directors may deem proper (including cash, property of any kind or Securities of
the Company); provided, however, that the Directors shall take such actions as
they deem necessary and desirable to comply with any requirements of the MGCL
relating to the types of assets held by the Company.
(ii) REIT Qualification. The Board of Directors shall use its
best efforts to cause the Company and its Stockholders to qualify for U.S.
federal income tax treatment in accordance with the provisions of the Code
applicable to REITs (as those terms are defined in Section 1.5 hereof). In
furtherance of the foregoing, the Board of Directors shall use its best efforts
to take such actions as are necessary, and may take such actions as it deems
desirable (in its sole discretion) to preserve the status of the Company as a
REIT; provided, however, that in the event that the Board of Directors
determines, by vote of at least two-thirds (2/3) of the Directors, that it no
longer is in the best interests of the Company to qualify as a REIT, the Board
of Directors shall take such actions as are required by the Code, the MGCL and
other applicable law, to cause the matter of termination of qualification as a
REIT to be submitted to a vote of the Stockholders of the Company pursuant to
Section 8.2.
(iii) Sale, Disposition and Use of Property. Subject to
Article V and Sections 9.5 and 10.3 hereof, the Board of Directors shall have
the authority to sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, grant security interests in, encumber, negotiate, dedicate, grant
easements in and options with respect to, convey, transfer (including transfers
to entities wholly or partially owned by the Company or the Directors) or
otherwise dispose of any or all of the Company Property by deeds (including
deeds in lieu of foreclosure with or without consideration), trust deeds,
assignments, bills of sale, transfers, leases, mortgages, financing statements,
security agreements and other instruments for any of such purposes executed and
delivered for and on behalf of the Company or the Directors by one or more of
the Directors or by a duly authorized officer, employee, agent or nominee of the
Company, on such terms as they
<PAGE>
deem appropriate; to give consents and make contracts relating to the Company
Property and its use or other property or matters; to develop, improve, manage,
use, alter or otherwise deal with the Company Property; and to rent, lease or
hire from others property of any kind; provided, however, that the Company may
not use or apply land for any purposes not permitted by applicable law.
(iv) Financings. To borrow or, in any other manner, raise
money for the purposes and on the terms they determine, which terms may (i)
include evidencing the same by issuance of Securities of the Company and (ii)
may have such provisions as the Directors determine; to reacquire such
Securities of the Excess Shares Trust; to enter into other contracts or
obligations on behalf of the Excess Shares Trust; to guarantee, indemnify or act
as surety with respect to payment or performance of obligations of any Person;
to mortgage, pledge, assign, grant security interests in or otherwise encumber
the Company Property to secure any such Securities of the Company, contracts or
obligations (including guarantees, indemnifications and suretyships); and to
renew, modify, release, compromise, extend, consolidate or cancel, in whole or
in part, any obligation to or of the Company or participate in any
reorganization of obligors to the Company; provided, however, that the Company's
Leverage may not exceed 300% of Net Assets.
(v) Lending. Subject to the provisions of Section 9.5 hereof,
to lend money or other Company Property on such terms, for such purposes and to
such Persons as they may determine.
(vi) Secured Equipment Leases. To engage in the business of
offering furniture, fixture, and equipment financing to the operators of
Restaurant Chains, provided, however, that the Company shall use its best
efforts to ensure that the total value of Secured Equipment Leases, in the
aggregate 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 the
Company's total assets.
(vii) Issuance of Securities. Subject to the provisions of
Article VII hereof, to create and authorize and direct the issuance (on either a
pro rata or a non-pro rata basis) by the Company, in shares, units or amounts of
one or more types, series or classes, of Securities of the Company, which may
have such voting rights, dividend or interest rates, preferences,
subordinations, conversion or redemption prices or rights; maturity dates,
distribution, exchange, or liquidation rights or other rights as the Directors
may determine, without vote of or other action by the Stockholders, to such
Persons for such consideration, at such time or times and in such manner and on
such terms as the Directors determine, to list any of the Securities of the
Company on any securities exchange; and to purchase or otherwise acquire, hold,
cancel, reissue, sell and transfer any Securities of the Company.
(viii) Expenses and Taxes. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying out the purposes of these
<PAGE>
Articles of Incorporation and conducting business of the Company, including
compensation or fees to Directors, officers, employees and agents of the
Company, and to Persons contracting with the Company, and any taxes, levies,
charges and assessments of any kind imposed upon or chargeable against the
Company, the Company Property or the Directors in connection therewith; and to
prepare and file any tax returns, reports or other documents and take any other
appropriate action relating to the payment of any such charges, expenses or
liabilities.
(ix) Collection and Enforcement. To collect, sue for and
receive money or other property due to the Company; to consent to extensions of
the time for payment, or to the renewal, of any Securities or obligations; to
engage or to intervene in, prosecute, defend, compound, enforce, compromise,
release, abandon or adjust any actions, suits, proceedings, disputes, claims,
demands, security interests or things relating to the Company, the Company
Property or the Company's affairs; to exercise any rights and enter into any
agreements and take any other action necessary or desirable in connection with
the foregoing.
(x) Deposits. To deposit funds or Securities constituting part
of the Company Property in banks, trust companies, savings and loan
associations, financial institutions and other depositories, whether or not such
deposits will draw interest, subject to withdrawal on such terms and in such
manner as the Directors determine.
(xi) Allocation; Accounts. To determine whether moneys,
profits or other assets of the Company shall be charged or credited to, or
allocated between, income and capital, including whether or not to amortize any
premium or discount and to determine in what manner any expenses or
disbursements are to be borne as between income and capital (regardless of how
such items would normally or otherwise be charged to or allocated between income
and capital without such determination); to treat any dividend or other
distribution on any investment as, or apportion it between, income and capital;
in their discretion to provide reserves for depreciation, amortization,
obsolescence or other purposes in respect of any Company Property in such
amounts and by such methods as they determine; to determine what constitutes net
earnings, profits or surplus; to determine the method or form in which the
accounts and records of the Company shall be maintained; and to allocate to the
Stockholders' equity account less than all of the consideration paid for
Securities and to allocate the balance to paid-in capital or capital surplus.
(xii) Valuation of Property. To determine the value of all or
any part of the Company Property and of any services, Securities, property or
other consideration to be furnished to or acquired by the Company, and to
revalue all or any part of the Company Property, all in accordance with such
appraisals or other information as are reasonable, in their sole judgment.
(xiii) Ownership and Voting Powers. To exercise all of the
rights, powers, options and privileges pertaining to the ownership of any
Mortgages, Securities, Real Estate, Secured Equipment Leases and other Company
Property to the same extent that an individual
<PAGE>
owner might, including without limitation to vote or give any consent, request
or notice or waive any notice, either in person or by proxy or power of
attorney, which proxies and powers of attorney may be for any general or special
meetings or action, and may include the exercise of discretionary powers.
(xiv) Officers, Etc.; Delegation of Powers. To elect, appoint
or employ such officers for the Company and such committees of the Board of
Directors with such powers and duties as the Directors may determine, the
Company's Bylaws provide or the MGCL requires; to engage, employ or contract
with and pay compensation to any Person (including subject to Section 9.5
hereof, any Director and Person who is an Affiliate of any Director) as agent,
representative, Advisor, member of an advisory board, employee or independent
contractor (including advisors, consultants, transfer agents, registrars,
underwriters, accountants, attorneys-at-law, real estate agents, property and
other managers, appraisers, brokers, architects, engineers, construction
managers, general contractors or otherwise) in one or more capacities, to
perform such services on such terms as the Directors may determine; to delegate
to one or more Directors, officers or other Persons engaged or employed as
aforesaid or to committees of Directors or to the Advisor, the performance of
acts or other things (including granting of consents), the making of decisions
and the execution of such deeds, contracts, leases or other instruments, either
in the names of the Company, the Directors or as their attorneys or otherwise,
as the Directors may determine; and to establish such committees as they deem
appropriate.
(xv) Associations. Subject to Section 9.5 hereof, to cause the
Company to enter into joint ventures, general or limited partnerships,
participation or agency arrangements or any other lawful combinations,
relationships or associations of any kind.
(xvi) Reorganizations, Etc. Subject to Sections 10.2 and 10.3
hereof, to cause to be organized or assist in organizing any Person under the
laws of any jurisdiction to acquire all or any part of the Company Property,
carry on any business in which the Company shall have an interest or otherwise
exercise the powers the Directors deem necessary, useful or desirable to carry
on the business of the Company or to carry out the provisions of these Articles
of Incorporation, to merge or consolidate the Company with any Person; to sell,
rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any
part of the Company Property to or with any Person in exchange for Securities of
such Person or otherwise; and to lend money to, subscribe for and purchase the
Securities of, and enter into any contracts with, any Person in which the
Company holds, or is about to acquire, Securities or any other interests.
(xvii) Insurance. To purchase and pay for out of Company
Property insurance policies insuring the Stockholders, Company and the Company
Property against any and all risks, and insuring the Directors, Advisors and
Affiliates of the Company individually (each an "Insured") against all claims
and liabilities of every nature arising by reason of holding or having held any
such status, office or position or by reason of any action alleged to have been
taken or omitted by the Insured in such capacity, whether or not the Company
would have the power to indemnify against such claim or liability, provided that
such insurance be limited to the indemnification permitted by Section 9.2 hereof
in regard to any liability or loss resulting from
<PAGE>
negligence, gross negligence, misconduct, willful misconduct or an alleged
violation of federal or state securities laws. Nothing contained herein shall
preclude the Company from purchasing and paying for such types of insurance,
including extended coverage liability and casualty and workers' compensation, as
would be customary for any Person owning comparable assets and engaged in a
similar business, or from naming the Insured as an additional insured party
thereunder, provided that such addition does not add to the premiums payable by
the Company. The Board of Directors' power to purchase and pay for such
insurance policies shall be limited to policies that comply with all applicable
state laws and the NASAA REIT Guidelines.
(xviii) Executive Compensation, Pension and Other Plans. To
adopt and implement executive compensation, pension, profit sharing, share
option, share bonus, share purchase, share appreciation rights, restricted
share, savings, thrift, retirement, incentive or benefit plans, trusts or
provisions, applicable to any or all Directors, officers, employees or agents of
the Company, or to other Persons who have benefited the Company, all on such
terms and for such purposes as the Directors may determine or the Bylaws
provide.
(xix) Distributions. To declare and pay dividends or other
Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.
(xx) Charitable Contributions. To make donations for the
public welfare or for community, charitable, religious, educational, scientific,
civic or similar purposes, regardless of any direct benefit to the Company.
(xxi) Discontinue Operations; Bankruptcy. To discontinue the
operations of the Company (subject to Section 10.2 hereof); to petition or apply
for relief under any provision of federal or state bankruptcy, insolvency or
reorganization laws or similar laws for the relief of debtors; to permit any
Company Property to be foreclosed upon without raising any legal or equitable
defenses that may be available to the Company or the Directors or otherwise
defending or responding to such foreclosure; to confess judgment against the
Excess Shares Trust (as hereinafter defined); or to take such other action with
respect to indebtedness or other obligations of the Directors, the Company
Property or the Company as the Directors, in such capacity, and in their
discretion may determine.
(xxii) Termination of Status. To terminate the status of the
Company as a real estate investment trust under the REIT Provisions of the Code;
provided, however, that the Board of Directors shall take no action to terminate
the Company's status as a real estate investment trust under the REIT Provisions
of the Code until such time as (i) the Board of Directors adopts a resolution
recommending that the Company terminate its status as a real estate investment
trust under the REIT Provisions of the Code, (ii) the Board of Directors
presents the resolution at an annual or special meeting of the Stockholders and
(iii) such resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as defined in Section 7.2(ii) hereof).
<PAGE>
(xxiii) Fiscal Year. Subject to the Code, to adopt, and from
time to time change, a fiscal year for the Company.
(xxiv) Seal. To adopt and use a seal, but the use of a seal
shall not be required for the execution of instruments or obligations of the
Company.
(xxv) Bylaws. To adopt, implement and from time to time alter,
amend or repeal the Bylaws of the Company relating to the business and
organization of the Company, provided that such amendments are not inconsistent
with the provisions of these Articles of Incorporation, and further provided
that the Directors may not amend the Bylaws, without the affirmative vote of a
majority of the Equity Shares, to the extent that such amendments adversely
affect the rights, preferences and privileges of Stockholders.
(xxvi) Listing Shares. To cause the Listing of the Shares at
any time after completion of the Initial Public Offering but in no event shall
such Listing occur more than ten (10) years after completion of the offering.
(xxvii) Further Powers. To do all other acts and things and
execute and deliver all instruments incident to the foregoing powers, and to
exercise all powers which they deem necessary, useful or desirable to carry on
the business of the Company or to carry out the provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.
SECTION 3.3 Determination of Best Interest of Company. In determining
what is in the best interest of the Company, a Director shall consider the
interests of the Stockholders of the Company and, in his or her sole and
absolute discretion, may consider (i) the interests of the Company's employees,
suppliers, creditors and customers, (ii) the economy of the nation, (iii)
community and societal interests, and (iv) the long-term as well as short-term
interests of the Company and its Stockholders, including the possibility that
these interests may be best served by the continued independence of the Company.
ARTICLE IV
ADVISOR
SECTION 4.1 Appointment and Initial Investment of Advisor. The
Directors are responsible for setting the general policies of the Company and
for the general supervision of its business conducted by officers, agents,
employees, advisors or independent contractors of the Company. However, the
Directors are not required personally to conduct the business of the Company,
and they may (but need not) appoint, employ or contract with any Person
(including a
<PAGE>
Person Affiliated with any Director) as an Advisor and may grant or delegate
such authority to the Advisor as the Directors may, in their sole discretion,
deem necessary or desirable. The term of retention of any Advisor shall not
exceed one (1) year, although there is no limit to the number of times that a
particular Advisor may be retained. The Advisor is the holder of 20,000 Shares,
representing an initial investment of $200,000.
SECTION 4.2 Supervision of Advisor. The Directors shall evaluate the
performance of the Advisor before entering into or renewing an advisory contract
and the criteria used in such evaluation shall be reflected in the minutes of
meetings of the Board. The Directors may exercise broad discretion in allowing
the Advisor to administer and regulate the operations of the Company (including
the Secured Equipment Lease program), to act as agent for the Company to execute
documents on behalf of the Company and to make executive decisions which conform
to general policies and principles established by the Directors.
The Directors are responsible for monitoring the administrative
procedures, investment operations, Secured Equipment Lease program and
performance of the Company and the Advisor to assure that such procedures,
operations and programs are in the best interests of the Stockholders and are
fulfilled.
The Board of Directors is also responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the expenses incurred are in the best interests of the
Stockholders. 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 the performance of the Advisor and determining
that compensation to be paid to the Advisor is reasonable in relation to the
nature and quality of services to be performed and the investment performance of
the Company and that the provisions of the Advisory Agreement are being carried
out. Specifically, the Board of Directors will consider factors such as the Net
Assets and Net Income of the Company, the amount of the fee paid to the Advisor
in relation to the size, composition and performance of the Company's portfolio,
the success of the Advisor in generating opportunities that meet the investment
objectives of the Company, rates charged to other REITs and to investors other
than REITs by advisors performing the same or 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. The Directors also shall determine whether any
successor Advisor possesses sufficient qualifications to perform the advisory
function for the Company and whether the compensation provided for in its
contract with the Company is justified.
SECTION 4.3 Fiduciary Obligations. The Advisor has a fiduciary
responsibility to the Company and to the Stockholders.
<PAGE>
SECTION 4.4 Affiliation and Functions. The Directors, by resolution or
in the Bylaws, may provide guidelines, provisions, or requirements concerning
the affiliation and functions of the Advisor.
SECTION 4.5 Termination. Either a majority of the Independent Directors
or the Advisor may terminate the advisory contract on sixty (60) days' written
notice without cause or penalty, and, in such event, the Advisor will cooperate
with the Company and the Directors in making an orderly transition of the
advisory function.
SECTION 4.6 Real Estate Commission on Resale of Property. The Company
shall pay the Advisor a deferred, subordinated real estate disposition fee upon
Sale of one or more Properties, in an amount equal to the lesser of (i) one-half
(1/2) of a Competitive Real Estate Commission, or (ii) three percent (3% ) of
the sales price of such Property or Properties. Payment of such fee shall be
made only if the Advisor provides a substantial amount of services in connection
with the Sale of a Property or Properties and shall be subordinated to receipt
by the Stockholders of Distributions equal to the sum of (i) their aggregate
Stockholders' 8% Return and (ii) their aggregate Invested Capital. If, at the
time of a Sale, payment of such disposition fee is deferred because the
subordination conditions have not been satisfied, then the disposition fee shall
be paid at such later time as the subordination 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.
SECTION 4.7 Subordinated Share of Net Sales Proceeds. The Company shall
pay the Advisor a deferred, subordinated share from a Sale or Sales of a
Property or Secured Equipment Lease, whether or not in liquidation of the
Company, equal to 10% of Net Sales Proceeds remaining after receipt by the
Stockholders of Distributions equal to the sum of (i) the Stockholders' 8%
Return and (ii) 100% of Invested Capital. Following Listing, no share of Net
Sales Proceeds will be paid to the Advisor.
SECTION 4.8 Incentive Fees.
(i) At such time, if any, as Listing occurs, the Advisor shall
be paid the Subordinated Incentive Fee in an amount equal to ten percent (10% )
of the amount by which (i) the market value of the Company (as defined below)
plus the total Distributions paid to Stockholders from the Company's inception
until the date of Listing exceeds (ii) the sum of (A) one hundred percent (100%
) of Invested Capital and (B) the total Distributions required to be paid to the
Stockholders in order to pay the Stockholders' 8% Return from inception through
the date the market value is determined. For purposes of calculating the
Subordinated Incentive Fee, the
<PAGE>
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 thirty (30) days during
which the Shares are traded with such period beginning one hundred eighty (180)
days after Listing. In the case of multiple Advisors, Advisors and any Affiliate
shall be allowed incentive fees provided such fees are distributed by a
proportional method reasonably designed to reflect the value added to Company
assets by each respective Advisor or any Affiliate. 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 a Sale or Sales of a
Property or Secured Equipment Lease.
(ii) In no event shall the Company pay a single Advisor both
the Subordinated Incentive Fee and the deferred subordinated share of Net Sales
Proceeds.
(iii) In the event that the Company becomes a perpetual life
entity (which will occur) if the Shares become listed on a national securities
exchange or over-the-counter market, 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 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.
SECTION 4.9 Performance Fee. Upon termination of the Advisory
Agreement, the Advisor shall be entitled to receive a 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
ten percent (10% ) of the amount, if any, by which (i) the appraised value of
the Properties and Secured Equipment Leases on the Termination Date, less the
amount of all indebtedness secured by Properties and Secured Equipment Leases,
plus the total Distributions paid to Stockholders from the Company's inception
through the Termination Date, exceeds (ii) Invested Capital plus an amount equal
to the Stockholders' 8%
<PAGE>
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 thirty (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 twelve (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 Properties shall be an amount which provides
compensation to the terminated Advisor only for that portion of the holding
period for the respective Properties during which such terminated Advisor
provided services to the Company. Upon Listing, 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.
SECTION 4.10 Acquisition Fee and Acquisition Expenses. The Company
shall pay the Advisor a fee in the amount of 4.5% of Gross Proceeds from the
sale of Shares as Acquisition Fees. The 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. The
Company shall reimburse the Advisor for Acquisition Expenses incurred in
connection with the initial selection and acquisition of Properties, provided
that reimbursement shall be limited to the actual cost of goods and services
used by the Company and obtained from entities not affiliated with the Advisor,
or the lesser of the actual cost or 90% of the competitive rate charged by
unaffiliated persons providing similar goods and services in the same geographic
location for goods or services provided by the Advisor or its Affiliates. The
total of all Acquisition Fees and Acquisition Expenses shall be reasonable and
shall not exceed an amount equal to six percent (6%) of the contract price of a
Property, or in the case of a mortgage loan, six percent (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.
<PAGE>
SECTION 4.11 Asset Management Fee. The Company shall pay the Advisor a
monthly Asset Management Fee in an amount equal to one-twelfth of .60% of the
Company's Real Estate Asset Value as of the end of the preceding month.
Specifically, Real Estate Asset Value equals the amount invested in the
Properties wholly owned by the Company, determined on the basis of cost, plus,
in the case of Properties owned by any Joint Venture or 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 Acquisition Expenses. The
Asset 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 Asset Management Fee not taken as to any fiscal year shall be
deferred without interest and may not be taken in such other fiscal year as the
Advisor shall determine.
SECTION 4.12 Secured Equipment Lease Servicing Fee. The Company shall
pay the Advisor a fee out of the proceeds of the Loan 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.
SECTION 4.13 Reimbursement for Operating Expenses. 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.
ARTICLE V
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 5.1 Investment Objectives. The Company's primary investment
objectives are to preserve, protect, and enhance the Company's assets; while (i)
making Distributions commencing in the initial year of Company operations; (ii)
obtaining fixed income through the
<PAGE>
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 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 within five (5)
to ten (10) years after commencement of the offering, either in whole or in
part, through (a) Listing, or, (b) the commencement of orderly Sales of the
Company's Properties and Secured Equipment Leases, (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. Subject to Section 3.2(v)
hereof and to the restrictions set forth herein, the Directors will use their
best efforts to conduct the affairs of the Company in such a manner as to
continue to qualify the Company for the tax treatment provided in the REIT
Provisions of the Code; provided, however, no Director, officer, employee or
agent of the Company shall be liable for any act or omission resulting in the
loss of tax benefits under the Code, except to the extent provided in Section
9.2 hereof.
SECTION 5.2 Review of Objectives. The Independent Directors shall
review the investment policies of the Company with sufficient frequency and at
least annually to determine that the policies being followed by the Company at
any time are in the best interests of its Stockholders. Each such determination
and the basis therefor shall be set forth in the minutes of the meetings of the
Board of Directors.
SECTION 5.3 Certain Permitted Investments.
(i) The Company may invest in Properties related to the
fast-food, family-style and casual dining segments of the restaurant industry,
in various locations across the United States.
(ii) The Company may invest in Joint Ventures with the
Advisor, one or more Directors or any Affiliate, if a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the
transaction, approve such investment as being fair and reasonable to the Company
and on substantially the same terms and conditions as those received by the
other joint venturers.
(iii) The Company may invest in equity securities if a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction approve such investment as being fair,
competitive and commercially reasonable.
(iv) The Company may offer Secured Equipment Leases to
operators of Restaurant Chains provided that a majority of Directors (including
a majority of Independent Directors) approve the Secured Equipment Leases as
being fair, competitive and commercially reasonable.
<PAGE>
SECTION 5.4 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 following shall apply to the
Company's investments:
(i) 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 or Real Estate under construction, under contract for
development or planned for development within one year.
(ii) 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.
(iii) 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 a majority of Independent Directors so determine, and in all
cases in which the mortgage loan involves the Advisor, Directors, or Affiliates,
such appraisal of the underlying property must be obtained from an Independent
Expert. Such appraisal shall be maintained in the Company's records for at least
five (5) 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.
(iv) The Company shall not make or invest in mortgage loans,
including construction loans, on any one (1) 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 eighty-five percent (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 five percent (5%) per annum of the principal
balance of the loan.
(v) The Company shall not make or invest in any mortgage loans
that are subordinate to any mortgage, other indebtedness or equity interest of
the Advisor, the Director or their Affiliates. In addition, the Company shall
not invest in any security of any entity holding investments or engaging in
activities prohibited by these Articles of Incorporation.
(vi) The Company shall 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
<PAGE>
qualified as a REIT. Investments in entities affiliated with the Advisor, a
Director, the Company or their Affiliates are subject to restrictions on Joint
Venture investments.
(vii) The Company shall not issue (A) equity securities
redeemable solely at the option of the holder (except that Stockholders may
offer their Common Shares to the Company pursuant to that certain redemption
plan adopted or to be adopted by the Board of Directors on terms outlined in the
section relating to Common Shares entitled "Redemption of Shares" in the
Company's Prospectus relating to the Initial Public Offering); (B) debt
securities unless the historical debt service coverage (in the most recently
completed fiscal year) as adjusted for known charges is sufficient to properly
service that higher level of debt; (C) Equity Shares on a deferred payment basis
or under similar arrangements; (D) non-voting or assessable securities; (E)
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, employees of the Company or the Advisor.
Options may not be issued to the Advisor, Director 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.
(viii) The Company shall not invest in real estate contracts
of sale unless such contracts of sale are in recordable form and appropriately
recorded in the chain of title.
(ix) 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 their Affiliates, such
fair market value shall be determined by a qualified independent real estate
appraiser selected by the Independent Directors.
(x) The Company shall not engage in underwriting or the agency
distribution of securities issued by others or in trading, as compared to
investment activities.
(xi) The Company shall not invest in any foreign currency or
bullion or engage in short sales.
(xii) The Company shall not issue senior securities except
notes to banks and other lenders and Preferred Shares.
(xiii) The aggregate Leverage of the Company shall be
reasonable in relation to the Net Assets of the Company and shall be reviewed by
the Directors at least quarterly. The maximum amount of such Leverage in
relation to the Net Assets shall, in the absence of a
<PAGE>
satisfactory showing that a higher level of borrowing is appropriate, not exceed
three hundred percent (300%). Any excess in Leverage over such three hundred
percent (300%) level shall be approved by at least a majority of the Independent
Directors and disclosed to Stockholders in the next quarterly report of the
Company, along with the justification for such excess.
(xiv) The Company may borrow money from the Advisor, Director
or any Affiliate thereof, upon a finding by a majority of Directors (including a
majority of Independent Directors) not otherwise interested in the transaction
that such transaction is fair, competitive and commercially reasonable and no
less favorable to the Company than loans between unaffiliated parties under the
same circumstances; provided, however, that the Advisor and its Affiliates shall
not make loans to the Company, or to Joint Ventures in which the Company is a
co-venturer, for the purchase of Properties. Notwithstanding the foregoing, the
Advisor and 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
subsection (xix) below.
(xv) The Company shall not make loans to the Advisor or its
Affiliates.
(xvi) The Company shall not operate so as to be classified as
an "investment company" under the Investment Company Act of 1940, as amended.
(xvii) The Company will not make any investment that the
Company believes will be inconsistent with its objectives of qualifying and
remaining qualified as a REIT.
The foregoing objectives may not be modified or eliminated without the
approval of Stockholders owning a majority of the outstanding Equity Shares.
ARTICLE VI
CONFLICTS OF INTEREST
SECTION 6.1 Sales and Leases to Company. The Company may purchase a
Property or Properties from the Advisor, Director, or any Affiliate upon a
finding by a majority of Directors (including a majority of Independent
Directors) not otherwise interested in the transaction that such transaction is
fair and reasonable to the Company and at a price to the Company no greater than
the cost of the asset to such Advisor, Director or Affiliate, or, if the price
to the Company is in excess of such cost, that substantial justification for
such excess exists and such excess is reasonable. In no event shall the cost of
such asset to the Company exceed its current appraised value.
<PAGE>
SECTION 6.2 Sales and Leases to the Advisor, Directors or Affiliates.
An Advisor, Director or Affiliate may acquire or lease assets from the Company
if a majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction determine that the transaction is fair
and reasonable to the Company.
SECTION 6.3 Multiple Programs.
(i) Until completion of the Initial Public Offering of Shares
by the Company, 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 (a) invest, on a
cash and/or leveraged basis, in a diversified portfolio of 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 (b)
offer Secured Equipment Leases. The Advisor and its Affiliates also will not
purchase Property or offer Secured Equipment Leases for any such subsequently
formed public program until substantially all (generally, eighty percent (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 facilities,
including furniture, fixtures, and equipment, and incurring related costs for
public and private investor programs, which have investment objectives that are
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 investor programs organized to
purchase and lease fast-food, family-style, and casual dining restaurants on a
"triple-net" basis.
(ii) 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 longer
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 subparagraph (i) 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 Board of Directors and the Advisor 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
<PAGE>
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, 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.
SECTION 6.4 Other Transactions.
(i) 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 these
Articles of Incorporation or if a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions 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.
(ii) 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
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.
ARTICLE VII
SHARES
SECTION 7.1 Authorized Shares. The beneficial interest in the Company
shall be divided into Equity Shares. The total number of Equity Shares which the
Company is authorized to issue is forty-six million (46,000,000) shares of
beneficial interest, consisting of twenty million (20,000,000) Common Shares (as
defined and described in Section 7.2(ii) hereof), three million (3,000,000)
Preferred Shares (as defined in Section 7.3 hereof) and twenty-three million
(23,000,000) Excess Shares (as defined in Section 7.7 hereof). All Shares shall
be fully paid and nonassessable when issued. Shares may be issued for such
consideration as the Directors determine or, if issued as a result of a Share
dividend or Share split, without any consideration.
<PAGE>
SECTION 7.2 Common Shares.
(i) Common Shares Subject to Terms of Preferred Shares. The
Common Shares shall be subject to the express terms of any series of Preferred
Shares.
(ii) Description. Common Shares (herein so called) shall have
a par value of $.01 per share and shall entitle the holders to one (1) vote per
share on all matters upon which Stockholders are entitled to vote pursuant to
Section 8.2 hereof, and shares of a particular class of issued Common Shares
shall have equal dividend, distribution, liquidation and other rights, and shall
have no preference, cumulative, preemptive, appraisal, conversion or exchange
rights. The Directors may classify or reclassify any unissued Common Shares by
setting or changing the number, designation, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of any such Common Shares and, in such
event, the Company shall file for record with the State Department of
Assessments and Taxation of the State of Maryland amended articles in substance
and form as prescribed by Title 2 of the MGCL.
(iii) Distribution Rights. The holders of Common Shares shall
be entitled to receive such Distributions as may be declared by the Board of
Directors of the Company out of funds legally available therefor.
(iv) Dividend or Distribution Rights. The Directors from time
to time may declare and pay to Stockholders such dividends or Distributions in
cash or other property as the Directors in their discretion shall determine. The
Directors shall endeavor to declare and pay such dividends and Distributions as
shall be necessary for the Company to qualify as a real estate investment trust
under the REIT Provisions of the Code; provided, however, Stockholders shall
have no right to any dividend or Distribution unless and until declared by the
Directors. The exercise of the powers and rights of the Directors pursuant to
this section shall be subject to the provisions of any class or series of Equity
Shares at the time outstanding. The receipt by any Person in whose name any
Equity Shares are registered on the records of the Company or by his duly
authorized agent shall be a sufficient discharge for all dividends or
Distributions payable or deliverable in respect of such Equity Shares and from
all liability to see to the application thereof. 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 these 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.
(v) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets of the Company, the aggregate assets available for distribution to
holders of the Common Shares (including holders of
<PAGE>
Excess Shares resulting from the exchange of Common Shares pursuant to Section
7.6(iii) hereof) shall be determined in accordance with applicable law. Except
as provided below as a consequence of the limitations on distributions to
holders of Excess Shares, each holder of Common Shares shall be entitled to
receive, ratably with (i) each other holder of Common Shares and (ii) each
holder of Excess Shares resulting from the exchange of Common Shares, that
portion of such aggregate assets available for distribution as the number of the
outstanding Common Shares held by such holder bears to the total number of
outstanding Common Shares and Excess Shares resulting from the exchange of
Common Shares then outstanding. Anything herein to the contrary notwithstanding,
in no event shall the amount payable to a holder of Excess Shares exceed (i) the
price per share such holder paid for the Common Shares in the purported Transfer
or Acquisition (as those terms are defined in Section 7.6(i)) or change in
capital structure or other transaction or event that resulted in the Excess
Shares or (ii) if the holder did not give full value for such Excess Shares (as
through a gift, a devise or other event or transaction), a price per share equal
to the Market Price (as that term is defined in Section 7.6(i)) for the Common
Shares on the date of the purported Transfer, Acquisition, change in capital
structure or other transaction or event that resulted in such Excess Shares. Any
amount available for distribution in excess of the foregoing limitations shall
be paid ratably to the holders of Common Shares and other holders of Excess
Shares resulting from the exchange of Common Shares to the extent permitted by
the foregoing limitations.
(vi) Voting Rights. Except as may be provided in these
Articles of Incorporation, and subject to the express terms of any series of
Preferred Shares, the holders of the Common Shares shall have the exclusive
right to vote on all matters (as to which a common Stockholder shall be entitled
to vote pursuant to applicable law) at all meetings of the Stockholders of the
Company, and shall be entitled to one (1) vote for each Common Share entitled to
vote at such meeting.
SECTION 7.3 Preferred Shares. The Directors are hereby expressly
granted the authority to authorize from time to time the issuance of one or more
series of Preferred Shares. Prior to the issuance of each such series, the Board
of Directors, by resolution, shall fix the number of shares to be included in
each series, and the terms, rights, restrictions and qualifications of the
shares of each series, however, the voting rights for each share of the
Preferred Shares shall not exceed voting rights which bear the same relationship
to the voting rights of the Common Shares as the consideration paid to the
Company for each of Preferred Shares bears to the book value of the Common
Shares or the date that such Preferred Shares are issued. The authority of the
Board of Directors with respect to each series shall include, but not be limited
to, determination of the following:
(i) The designation of the series, which may be by
distinguishing number, letter or title.
<PAGE>
(ii) The dividend rate on the shares of the series, if any,
whether any dividends shall be cumulative and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on shares
of the series.
(iii) The redemption rights, including conditions and the
price or prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the
purchase or redemption of shares of the series.
(v) The rights of the shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, and the relative rights of priority, if any, of payment of
shares of the series.
(vi) Whether the shares of the series shall be convertible
into shares of any other class or series, or any other security, of the Company
or any other corporation or other entity, and, if so, the specification of such
other class or series of such other security, the conversion price or prices or
rate or rates, any adjustments thereof, the date or dates on which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(vii) Restrictions on the issuance of shares of the same
series or of any other class or series.
(viii) The voting rights of the holders of shares of the
series subject to the limitations contained in this Section 7.3.
(ix) Any other relative rights, preferences and limitations on
that series.
Subject to the express provisions of any other series of Preferred
Shares then outstanding, and notwithstanding any other provision of these
Articles of Incorporation, the Board of Directors may increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares, or alter the designation or classify or reclassify any unissued shares
of a particular series of Preferred Shares, by fixing or altering, in one or
more respects, from time to time before issuing the shares, the terms, rights,
restrictions and qualifications of the shares of any such series of Preferred
Shares.
<PAGE>
SECTION 7.4 General Nature of Shares. All Shares shall be personal
property entitling the Stockholders only to those rights provided in these
Articles of Incorporation, the MGCL or in the resolution creating any class or
series of Shares. The legal ownership of the Company Property and the right to
conduct the business of the Company are vested exclusively in the Directors; the
Stockholders shall have no interest therein other than the beneficial interest
in the Company conferred by their Shares and shall have no right to compel any
partition, division, dividend or Distribution of the Company or any of the
Company Property. The death of a Stockholder shall not terminate the Company or
give his legal representative any rights against other Stockholders, the
Directors or the Company Property, except the right, exercised in accordance
with applicable provisions of the Bylaws, to require the Company to reflect on
its books the change in ownership of the Shares. Holders of Shares shall not
have any preemptive or other right to purchase or subscribe for any class of
securities of the Company which the Company may at any time issue or sell.
SECTION 7.5 No Issuance Of Share Certificates. The Company shall not
issue share certificates. A Stockholder's investment shall be recorded on the
books of the Company. To transfer his or her Shares a Stockholder shall submit
an executed form to the Company, which form shall be provided by the Company
upon request. Such transfer will also be recorded on the books of the Company.
Upon issuance or transfer of shares, the Company will provide the Stockholder
with information concerning his or her rights with regard to such stock, in a
form substantially similar to Section 7.6(xii), and required by the Bylaws and
the MGCL or other applicable law.
SECTION 7.6 Restrictions On Ownership and Transfer.
(i) Definitions. For purposes of Sections 7.6 and 7.7, the
following terms shall have the following meanings:
"Acquire" means the acquisition of Beneficial or Constructive Ownership
of Equity Shares by any means, including, without limitation, the exercise of
any rights under any option, warrant, convertible security, pledge or other
security interest or similar right to acquire shares, but shall not include the
acquisition of any such rights unless, as a result, the acquiror would be
considered a Beneficial Owner or Constructive Owner. The terms "Acquires" and
"Acquisition" shall have correlative meanings.
"Beneficial Ownership" means ownership of Shares by an individual who
would be treated as an owner of such Shares under Section 542(a)(2) of the Code,
either directly or constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. For purposes of this
definition, the term "individual" shall include any organization, trust, or
other entity that is treated as an individual for purposes of Section 542(a)(2)
of the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.
"Beneficiary" means a beneficiary of the Excess Shares Trust as
determined pursuant to Section 7.7(a) hereof.
<PAGE>
"Closing Price" on any day shall mean the last sale price, regular way
on such day, or, if no such sale takes place on that day, the average of the
closing bid and asked prices, regular way, in either case as reported on the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange, or if the affected
class or series of Equity Shares are not so listed or admitted to trading, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange (including
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System) on which the affected class or series of Equity
Shares are listed or admitted to trading, or, if the affected class or series of
Equity Shares are not so listed or admitted to trading, the last quoted price
or, if not quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal automated quotation system then in use, or, if the affected class
or series of Equity Shares are not so quoted by any such system, the average of
the closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the affected class or
series of Equity Shares, or, if there is no such market maker or such closing
prices otherwise are not available, the fair market value of the affected class
or series of Equity Shares as of such day, as determined by the Board of
Directors in its discretion.
"Common Share Ownership Limit" means, with respect to the Common
Shares, nine point eight percent (9.8%) of the outstanding Common Shares,
subject to adjustment pursuant to Section 7.6(x) (but not more than nine point
nine percent (9.9%) of the outstanding Common Shares, as so adjusted) and to the
limitations contained in Section 7.6(xi).
"Constructive Ownership" means ownership of Equity Shares by a person
who would be treated as an owner of such shares, either actually or
constructively, directly or indirectly, through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have correlative
meanings.
"Excess Shares Trust" means the trust created pursuant to Section
7.7(i) hereof.
"Excess Shares Trustee" means the Company as trustee for the Excess
Shares Trust, and any successor trustee appointed by the Company.
"Market Price" means, during the offering, the price per Equity Share
and thereafter, until the Equity Shares are listed for trading on an exchange or
market, a price determined on the basis of the quarterly valuation of the
Company's assets. Upon listing of the Shares, market price shall mean the
average of the Closing Prices for the ten (10) consecutive Trading Days
immediately preceding such day (or those days during such ten (10)-day period
for which Closing Prices are available).
<PAGE>
"Ownership Limit" means the Common Share Ownership Limit or the
Preferred Share Ownership Limit, or both, as the context may require.
"Preferred Share Ownership Limit" means, with respect to the Preferred
Shares, nine point eight percent (9.8%) of the outstanding Shares of a
particular series of Preferred Shares of the Company, subject to adjustment
pursuant to Section 7.6(x) (but not more than nine point nine percent (9.9%) of
the outstanding Preferred Shares, as so adjusted) and to the limitations
contained in this Section 7.6.
"Purported Beneficial Holder" means, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares, the Person for whom the applicable Purported Record Holder held
the Equity Shares that were, pursuant to paragraph (iii) of this Section 7.6,
automatically exchanged for Excess Shares upon the occurrence of such event or
transaction. The Purported Beneficial Holder and the Purported Record Holder may
be the same Person.
"Purported Beneficial Transferee" means, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the purported beneficial
transferee for whom the Purported Record Transferee would have acquired Equity
Shares if such Transfer or Acquisition which results in Excess Shares had been
valid under Section 7.6(ii). The Purported Beneficial Transferee and the
Purported Record Transferee may be the same Person.
"Purported Record Holder" means, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares, the record holder of the Equity Shares that were, pursuant to
Section 7.6(iii), automatically exchanged for Excess Shares upon the occurrence
of such an event or transaction. The Purported Record Holder and the Purported
Beneficial Holder may be the same Person.
"Purported Record Transferee" means, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the record holder of the
Equity Shares if such Transfer or Acquisition which results in Excess Shares had
been valid under Section 7.6(ii). The Purported Record Transferee and the
Purported Beneficial Transferee may be the same Person.
"Restriction Termination Date" means the first day after the date of
the closing of the Initial Public Offering on which the Board of Directors of
the Company determines, pursuant to Section 3.2(xxiii) hereof, that it is no
longer in the best interests of the Company to attempt or continue to qualify as
REIT.
"Trading Day" means a day on which the principal national securities
exchange on which the affected class or series of Equity Shares are listed or
admitted to trading is open for the transaction of business or, if the affected
class or series of Equity Shares are not listed or admitted to trading, shall
mean any day other than a Saturday, Sunday or other day on which
<PAGE>
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Transfer" means any sale, transfer, gift, hypothecation, assignment,
devise or other disposition of a direct or indirect interest in Equity Shares or
the right to vote or receive dividends on Equity Shares (including (i) the
granting of any option (including any option to acquire an option or any series
of such options) or entering into any agreement for the sale, transfer or other
disposition of Equity Shares or the right to vote or receive dividends on Equity
Shares or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares, whether
voluntary or involuntary, of record, constructively or beneficially, and whether
by operation of law or otherwise. The terms "Transfers," "Transferred" and
"Transferable" shall have correlative meanings.
(ii) Ownership and Transfer Limitations.
(a) Notwithstanding any other provision of these
Articles of Incorporation, except as provided in Section 7.6(ix) and Section
7.8, from the date of the Initial Public Offering and prior to the Restriction
Termination Date, no Person shall Beneficially or Constructively Own Equity
Shares in excess of the Common or Preferred Share Ownership Limit.
(b) Notwithstanding any other provision of these
Articles of Incorporation,
except as provided in Section 7.6(ix) and Section 7.8, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in Beneficial or Constructive Ownership of Equity Shares or
other event or transaction that, if effective, would result in any Person
Beneficially or Constructively Owning Equity Shares in excess of the Common or
Preferred Share Ownership Limit shall be void ab initio as to the Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or other event or transaction
with respect to that number of Equity Shares which would otherwise be
Beneficially or Constructively Owned by such Person in excess of the Common or
Preferred Share Ownership Limit, and none of the Purported Beneficial
Transferee, the Purported Record Transferee, the Purported Beneficial Holder or
the Purported Record Holder shall acquire any rights in that number of Equity
Shares.
(c) Notwithstanding any other provision of these
Articles of Incorporation,
and except as provided in Section 7.8, from the date of the Initial Public
Offering and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in the capital structure of the Company, or other purported
change in Beneficial or Constructive Ownership (including actual ownership) of
Equity Shares or other event or transaction that, if effective, would result in
the Equity Shares being actually owned by fewer than 100 Persons (determined
without reference to any rules of attribution) shall be void ab
<PAGE>
initio as to the Transfer, Acquisition, change in the capital structure of the
Company, other purported change in Beneficial or Constructive Ownership
(including actual ownership) with respect to that number of Equity Shares which
otherwise would be owned by the transferee, and the intended transferee or
subsequent owner (including a Beneficial Owner or Constructive Owner) shall
acquire no rights in that number of Equity Shares.
(d) Notwithstanding any other provision of these
Articles of Incorporation,
except as provided in Section 7.8, from the date of the Initial Public Offering
and prior to the Restriction Termination Date, any Transfer, Acquisition, change
in the capital structure of the Company, other purported change in Beneficial or
Constructive Ownership of Equity Shares or other event or transaction that, if
effective, would cause the Company to fail to qualify as a REIT by reason of
being "closely held" within the meaning of Section 856(h) of the Code or
otherwise, directly or indirectly, would cause the Company to fail to qualify as
a REIT shall be void ab initio as to the Transfer, Acquisition, change in the
capital structure of the Company, other purported change in Beneficial or
Constructive Ownership or other event or transaction with respect to that number
of Equity Shares which would cause the Company to be "closely held" within the
meaning of Section 856(h) of the Code or otherwise, directly or indirectly,
would cause the Company to fail to qualify as a REIT, and none of the Purported
Beneficial Transferee, the Purported Record Transferee, the Purported Beneficial
Holder or the Purported Record Holder shall acquire any rights in that number of
Equity Shares.
(e) Notwithstanding any other provision of these
Articles of Incorporation,
except as provided in Section 7.8, from the date of the Initial Public Offering
and prior to the Restriction Termination Date, any Transfer, Acquisition, change
in capital structure of the Company, or other purported change in Beneficial or
Constructive Ownership of Equity Shares or other event or transaction that, if
effective, would (i) cause the Company to own (directly or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the Code and
(ii) cause the Company to fail to satisfy any of the gross income requirements
of section 856(c) of the Code, shall be void ab initio as to the Transfer,
Acquisition, change in capital structure of the Company, other purported change
in Beneficial or Constructive Ownership or other event or transaction with
respect to that number of Equity Shares which would cause the Company to own an
interest (directly or Constructively) in a tenant that is described in Section
856(d)(2)(B) of the Code, and none of the Purported Beneficial Transferee, the
Purported Record Transferee, the Purported Beneficial Holder or the Purported
Record Holder shall acquire any rights in that number of Equity Shares.
(f) Notwithstanding any other provision of these
Articles of Incorporation,
any person selling securities on behalf of the Company in its Initial Public
Offering may not complete a sale of securities to a Stockholder until at least
five (5) business days after the date the Stockholder receives a final
Prospectus and shall send each Stockholder a confirmation of his or her
purchase.
<PAGE>
(iii) Exchange for Excess Shares.
(a) If, notwithstanding the other provisions
contained in this Article VII, at any time from the date of the Initial Public
Offering and prior to the Restriction Termination Date, there is a purported
Transfer, Acquisition, change in the capital structure of the Company, other
purported change in the Beneficial or Constructive Ownership of Equity Shares or
other event or transaction such that any Person would either Beneficially or
Constructively Own Equity Shares in excess of the Common or Preferred Share
Ownership Limit, then, except as otherwise provided in Section 7.6(ix), such
Equity Shares (rounded up to the next whole number of shares) in excess of the
Common or Preferred Share Ownership Limit automatically shall be exchanged for
an equal number of Excess Shares having terms, rights, restrictions and
qualifications identical thereto, except to the extent that this Article VII
requires different terms. Such exchange shall be effective as of the close of
business on the business day next preceding the date of the purported Transfer,
Acquisition, change in capital structure, other change in purported Beneficial
or Constructive Ownership of Shares, or other event or transaction.
(b) If, notwithstanding the other provisions
contained in this Article VII,
at any time after the date of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer, Acquisition, change
in the capital structure of the Company, other purported change in the
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (b), (c), (d) and (e) of paragraph (ii)
of this Section 7.6 or, directly or indirectly, would cause the Company for any
reason to fail to qualify as a REIT by reason of being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise, directly or indirectly,
would cause the Company to fail to qualify as a REIT, then the Shares (rounded
up to the next whole number of Shares) being Transferred or which are otherwise
affected by the change in capital structure or other purported change in
Beneficial or Constructive Ownership and which, in any case, would cause the
Company to be "closely held" within the meaning of such Section 856(h) or
otherwise would cause the Company to fail to qualify as a REIT automatically
shall be exchanged for an equal number of Excess Shares having terms, rights,
restrictions and qualifications identical thereto, except to the extent that
this Article VII requires different terms. Such exchange shall be effective as
of the close of business on the business day prior to the date of the purported
Transfer, Acquisition, change in capital structure, other purported change in
Beneficial or Constructive Ownership or other event or transaction.
(iv) Remedies For Breach. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer, Acquisition,
change in the capital structure of the Company or other purported change in
Beneficial or Constructive Ownership or other event or transaction has taken
place in violation of Section 7.6(ii) or that a Person intends to Acquire or has
attempted to Acquire Beneficial or Constructive Ownership of any Equity Shares
in violation of this Section 7.6, the Board of Directors or its designee
<PAGE>
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer, Acquisition, change in the capital structure of the
Company, other attempt to Acquire Beneficial or Constructive Ownership of any
Shares or other event or transaction, including, but not limited to, refusing to
give effect thereto on the books of the Company or instituting injunctive
proceedings with respect thereto; provided, however, that any Transfer,
Acquisition, change in the capital structure of the Company, attempted Transfer
or other attempt to Acquire Beneficial or Constructive Ownership of any Equity
Shares or other event or transaction in violation of subparagraphs (b), (c), (d)
and (e) of Section 7.6(ii) (as applicable) shall be void ab initio and where
applicable automatically shall result in the exchange described in Section
7.6(iii), irrespective of any action (or inaction) by the Board of Directors or
its designee.
(v) Notice of Restricted Transfer. Any Person who acquires or
attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of Section 7.6(ii) and any Person who Beneficially or Constructively
Owns Excess Shares as a transferee of Equity Shares resulting in an exchange for
Excess Shares, pursuant to Section 7.6(iii), or otherwise shall immediately give
written notice to the Company, or, in the event of a proposed or attempted
Transfer, Acquisition, or purported change in Beneficial or Constructive
Ownership, shall give at least fifteen (15) days prior written notice to the
Company, of such event and shall promptly provide to the Company such other
information as the Company, in its sole discretion, may request in order to
determine the effect, if any, of such Transfer, attempted Transfer, Acquisition,
Attempted Acquisition or purported change in Beneficial or Constructive
Ownership on the Company's status as a REIT.
(vi) Owners Required To Provide Information. From the date of
the Initial Public Offering and prior to the Restriction Termination Date:
(a) Every Beneficial or Constructive Owner of more
than five percent (5%), or such lower percentages as determined pursuant to
regulations under the Code or as may be requested by the Board of Directors, in
its sole discretion, of the outstanding shares of any class or series of Equity
Shares of the Company shall annually, no later than January 31 of each calendar
year, give written notice to the Company stating (i) the name and address of
such Beneficial or Constructive Owner; (ii) the number of shares of each class
or series of Equity Shares Beneficially or Constructively Owned; and (iii) a
description of how such shares are held. Each such Beneficial or Constructive
Owner promptly shall provide to the Company such additional information as the
Company, in its sole discretion, may request in order to determine the effect,
if any, of such Beneficial or Constructive Ownership on the Company's status as
a REIT and to ensure compliance with the Common or Preferred Share Ownership
Limit and other restrictions set forth herein.
(b) Each Person who is a Beneficial or Constructive
Owner of Equity Shares and each Person (including the Stockholder of record) who
is holding Equity
<PAGE>
Shares for a Beneficial or Constructive Owner promptly shall provide to the
Company such information as the Company, in its sole discretion, may request in
order to determine the Company's status as a REIT, to comply with the
requirements of any taxing authority or other governmental agency, to determine
any such compliance or to ensure compliance with the Common or Preferred Share
Ownership Limit and other restrictions set forth herein.
(vii) Remedies Not Limited. Nothing contained in this Article
VII except Section 7.8 shall limit scope or application of the provisions of
this Section 7.6, the ability of the Company to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with the Ownership Limit for
any class or series of Equity Shares and other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Company.
(viii) Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.6, including any
definition contained in Sections 1.5 and 7.6(i), the Board of Directors shall
have the power and authority, in its sole discretion, to determine the
application of the provisions of this Section 7.6 with respect to any situation
based on the facts known to it.
(ix) Exception. The Board of Directors, upon receipt of a
ruling from the Internal Revenue Service, an opinion of counsel or other
evidence satisfactory to the Board of Directors, in its sole discretion, in each
case to the effect that the restrictions contained in subparagraphs (c), (d) and
(e) of Section 7.6(ii) will not be violated, may waive or change, in whole or in
part, the application of the Common or Preferred Share Ownership Limit with
respect to any Person that is not an individual, as such term is defined in
Section 542(a)(2) of the Code. In connection with any such waiver or change, the
Board of Directors may require such representations and undertakings from such
Person or affiliates and may impose such other conditions as the Board deems
necessary, advisable or prudent, in its sole discretion, to determine the
effect, if any, of the proposed transaction or ownership of Equity Shares on the
Company's status as a REIT.
(x) Increase in Common or Preferred Share Ownership Limit.
Subject to the limitations contained in Section 7.6(xi), the Board of Directors
may from time to time increase the Common or Preferred Share Ownership Limit.
(xi) Limitations on Modifications.
(a) The Ownership Limit for a class or series of
Equity Shares may not be increased and no additional ownership limitations may
be created if, after giving
<PAGE>
effect to such increase or creation, the Company would be "closely held" within
the meaning of Section 856(h) of the Code (assuming ownership of shares of
Equity Shares by all Persons equal to the greatest of (A) the actual ownership,
(B) the Beneficial Ownership of Equity Shares by each Person, or (C) the
applicable Ownership Limit with respect to such Person.
(b) Prior to any modification of the Ownership Limit
with respect to any Person, the Board of Directors may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary,
advisable or prudent, in its sole discretion, in order to determine or ensure
the Company's status as a REIT.
(c) Neither the Preferred Share Ownership Limit nor
the Common Share Ownership Limit may be increased to a percentage that is
greater than nine point nine percent (9.9%).
(xii) Notice to Stockholders Upon Issuance or Transfer. Upon
issuance or transfer of Shares, the Company shall provide the recipient with a
notice containing information about the shares purchased or otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:
"The securities issued or transferred are subject to restrictions on
transfer and ownership for the purpose of maintenance of the Company's
status as a real estate investment trust (a "REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). Except as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may (i) Beneficially or
Constructively Own Common Shares of the Company in excess of 9.8% (or
such greater percent as may be determined by the Board of Directors of
the Company) of the outstanding Common Shares; (ii) Beneficially or
Constructively Own shares of any series of Preferred Shares of the
Company in excess of 9.8% of the outstanding shares of such series of
Preferred Shares; or (iii) Beneficially or Constructively Own Common
Shares or Preferred Shares (of any class or series) which would result
in the Company being "closely held" under Section 856(h) of the Code or
which otherwise would cause the Company to fail to qualify as a REIT.
Any Person who has Beneficial or Constructive Ownership, or who
Acquires or attempts to Acquire Beneficial or Constructive Ownership of
Common Shares and/or Preferred Shares in excess of the above
limitations and any Person who Beneficially or Constructively Owns
Excess Shares as a transferee of Common or Preferred Shares resulting
in an exchange for Excess Shares (as described below) immediately must
notify the Company in writing or, in the event of a proposed or
attempted
<PAGE>
Transfer or Acquisition or purported change in Beneficial or
Constructive Ownership, must give written notice to the Company at
least 15 days prior to the proposed or attempted transfer, transaction
or other event. Any Transfer or Acquisition of Common Shares and/or
Preferred Shares or other event which results in violation of the
ownership or transfer limitations set forth in the Company's Articles
of Incorporation shall be void ab initio and the Purported Beneficial
and Record Transferee shall not have or acquire any rights in such
Common Shares and/or Preferred Shares. If the transfer and ownership
limitations referred to herein are violated, the Common Shares or
Preferred Shares represented hereby automatically will be exchanged for
Excess Shares to the extent of violation of such limitations, and such
Excess Shares will be held in trust by the Company, all as provided by
the Articles of Incorporation of the Company. All defined terms used in
this legend have the meanings identified in the Company's Articles of
Incorporation, as the same may be amended from time to time, a copy of
which, including the restrictions on transfer, will be sent without
charge to each Stockholder who so requests."
SECTION 7.7 Excess Shares.
(i) Ownership In Trust. Upon any purported Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership or event or transaction that
results in Excess Shares pursuant to Section 7.6(iii), such Excess Shares shall
be deemed to have been transferred to the Company, as Excess Shares Trustee of
an Excess Shares Trust for the benefit of such Beneficiary or Beneficiaries to
whom an interest in such Excess Shares may later be transferred pursuant to
Section 7.6(v). Excess Shares so held in trust shall be issued and outstanding
stock of the Company. The Purported Record Transferee (or Purported Record
Holder) shall have no rights in such Excess Shares except the right to designate
a transferee of such Excess Shares upon the terms specified in Section 7.6(v).
The Purported Beneficial Transferee shall have no rights in such Excess Shares
except as provided in Section 7.7(iii) and (v) .
(ii) Distribution Rights. Excess Shares shall not be entitled
to any dividends or Distributions (except as provided in Section 7.7(iii)). Any
dividend or Distribution paid prior to the discovery by the Company that the
Equity Shares have been exchanged for Excess Shares shall be repaid to the
Company upon demand, and any dividend or Distribution declared but unpaid at the
time of such discovery shall be void ab initio with respect to such Excess
Shares.
<PAGE>
(iii) Rights Upon Liquidation.
(a) Except as provided below, in the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any
other distribution of the assets, of the Company, each holder of Excess
Shares resulting from the exchange of Preferred Shares of any specified
series shall be entitled to receive, ratably with each other holder of
Excess Shares resulting from the exchange of Preferred Shares of such
series and each holder of Preferred Shares of such series, such accrued
and unpaid dividends, liquidation preferences and other preferential
payments, if any, as are due to holders of Preferred Shares of such
series. In the event that holders of shares of any series of Preferred
Shares are entitled to participate in the Company's distribution of its
residual assets, each holder of Excess Shares resulting from the
exchange of Preferred Shares of any such series shall be entitled to
participate, ratably with (A) each other holder of Excess Shares
resulting from the exchange of Preferred Shares of all series entitled
to so participate; (B) each holder of Preferred Shares of all series
entitled to so participate; and (C) each holder of Common Shares and
Excess Shares resulting from the exchange of Common Shares (to the
extent permitted by Section 7.6(iii) hereof), that portion of the
aggregate assets available for distribution (determined in accordance
with applicable law) as the number of shares of such Excess Shares held
by such holder bears to the total number of (1) outstanding Excess
Shares resulting from the exchange of Preferred Shares of all series
entitled to so participate; (2) outstanding Preferred Shares of all
series entitled to so participate; and (3) outstanding Common Shares
and Excess Shares resulting from the exchange of Common Shares. The
Company, as holder of the Excess Shares in trust, or, if the Company
shall have been dissolved, any trustee appointed by the Company prior
to its dissolution, shall distribute ratably to the Beneficiaries of
the Excess Shares Trust, when determined, any such assets received in
respect of the Excess Shares in any liquidation, dissolution or winding
up, or any distribution of the assets, of the Company. Anything to the
contrary herein notwithstanding, in no event shall the amount payable
to a holder with respect to Excess Shares resulting from the exchange
of Preferred Shares exceed (A) the price per share such holder paid for
the Preferred Shares in the purported Transfer, Acquisition, change in
capital structure or other transaction or event that resulted in the
Excess Shares or (B) if the holder did not give full value for such
Excess Shares (as through a gift, devise or other event or
transaction), a price per share equal to the Market Price for the
shares of Preferred Shares on the date of the purported Transfer,
Acquisition, change in capital structure or other transaction or event
that resulted in such Excess Shares. Any amount available for
distribution in excess of the foregoing limitations shall be paid
ratably to the holders of Preferred Shares and Excess Shares resulting
from the exchange of Preferred Shares to the extent permitted by the
foregoing limitations.
(b) Except as provided below, in the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any
other distribution of the assets, of the Company, each holder of Excess
Shares resulting from the exchange of Common Shares shall be entitled
to receive, ratably with (A) each other holder of such Excess
<PAGE>
Shares and (B) each holder of Common Shares, that portion of the
aggregate assets available for distribution to holders of Common Shares
(including holders of Excess Shares resulting from the exchange of
Common Shares pursuant to Section 7.6(iii)), determined in accordance
with applicable law, as the number of such Excess Shares held by such
holder bears to the total number of outstanding Common Shares and
outstanding Excess Shares resulting from the exchange of Common Shares
then outstanding. The Company, as holder of the Excess Shares in trust,
or, if the Company shall have been dissolved, any trustee appointed by
the Company prior to its dissolution, shall distribute ratably to the
Beneficiaries of the Excess Shares, when determined, any such assets
received in respect of the Excess Shares in any liquidation,
dissolution or winding up, or any distribution of the assets, of the
Company. Anything herein to the contrary notwithstanding, in no event
shall the amount payable to a holder with respect to Excess Shares
exceed (A) the price per share such holder paid for the Equity Shares
in the purported Transfer, Acquisition, change in capital structure or
other transaction or event that resulted in the Excess Shares or (B) if
the holder did not give full value for such Equity Shares (as through a
gift, devise or other event or transaction), a price per share equal to
the Market Price for the Equity Shares on the date of the purported
Transfer, Acquisition, change in capital structure or other transaction
or event that resulted in such Excess Shares. Any amount available for
distribution in excess of the foregoing limitations shall be paid
ratably to the holders of Common Shares and Excess Shares resulting
from the exchange of Common Shares to the extent permitted by the
foregoing limitations.
(iv) Voting Rights. The holders of Excess Shares shall not be
entitled to vote on any matters (except as required by the MGCL).
(v) Restrictions on Transfer; Designation of Beneficiary.
(a) Excess Shares shall not be transferable. The
Purported Record Transferee (or Purported Record Holder) may freely
designate a Beneficiary of its interest in the Excess Shares Trust
(representing the number of Excess Shares held by the Excess Shares
Trust attributable to the purported Transfer or Acquisition that
resulted in the Excess Shares), if (A) the Excess Shares held in the
Excess Shares Trust would not be Excess Shares in the hands of such
Beneficiary and (B) the Purported Beneficial Transferee (or Purported
Beneficial Holder) does not receive a price for designating such
Beneficiary that reflects a price per share for such Excess Shares that
exceeds (1) the price per share such Purported Beneficial Transferee
(or Purported Beneficial Holder) paid for the Equity Shares in the
purported Transfer, Acquisition, change in capital structure, or other
transaction or event that resulted in the Excess Shares or (2) if the
Purported Beneficial Transferee (or Purported Beneficial Holder) did
not give value for such Excess Shares (as through a gift, devise or
other event or transaction), a price per share equal to the Market
Price for the Equity Shares on the date of the purported Transfer,
Acquisition, change in capital structure, or other transaction or event
that resulted in the Excess Shares. Upon such transfer of an interest
in the Excess Shares Trust, the corresponding Excess Shares in the
Excess Shares Trust automatically shall be exchanged for an equal
number of
<PAGE>
Equity Shares (depending on the type and class of Shares that were
originally exchanged for such Excess Shares), and such Equity Shares
shall be transferred of record to the Beneficiary of the interest in
the Excess Shares Trust designated by the Purported Record Transferee
(or Purported Record Holder), as described above, if such Equity Shares
would not be Excess Shares in the hands of such Beneficiary. Prior to
any transfer of any interest in the Excess Shares Trust, the Purported
Record Transferee (or Purported Record Holder) must give advance
written notice to the Company of the intended transfer and the Company
must have waived in writing its purchase rights under Section 7.7(vi).
(b) Notwithstanding the foregoing, if a Purported
Beneficial Transferee (or Purported Beneficial Holder) receives a price
for designating a Beneficiary of an interest in the Excess Shares Trust
that exceeds the amounts allowable under subparagraph (i) of this
Section 7.6(v), such Purported Beneficial Transferee (or Purported
Beneficial Holder) shall pay, or cause the Beneficiary of the interest
in the Excess Shares Trust to pay, such excess in full to the Company.
(c) If any of the transfer restrictions set forth in
this Section 7.6(v), or any application thereof, are determined to be
void, invalid or unenforceable by any court having jurisdiction over
the issue, the Purported Record Transferee (or Purported Record Holder)
may be deemed, at the option of the Company, to have acted as the agent
of the Company in acquiring the Excess Shares as to which such
restrictions would otherwise, by their terms, apply and to hold such
Excess Shares on behalf of the Company.
(vi) Purchase Right in Excess Shares. Excess Shares shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created such Excess Shares (or, in the case of devise or gift or event other
than a Transfer or Acquisition which results in the issuance of Excess Shares,
the Market Price at the time of such devise or gift or event other than a
Transfer or Acquisition which results in the issuance of Excess Shares) and (ii)
the Market Price of the Equity Shares exchanged for such Excess Shares on the
date the Company, or its designee, accepts such offer. The Company and its
assignees shall have the right to accept such offer for a period of ninety (90)
days after the later of (i) the date of the purported Transfer, Acquisition,
change in capital structure of the Company, purported change in Beneficial
Ownership or other event or transaction which resulted in such Excess Shares and
(ii) the date on which the Board of Directors determines in good faith that a
Transfer, Acquisition, change in capital structure of the Company, purported
change in Beneficial or Constructive Ownership resulting in Excess Shares has
occurred, if the Company does not receive a notice pursuant to Section 7.6(v),
but in no event later than a permitted Transfer pursuant to and in compliance
with the terms of Section 7.7(v).
(vii) Remedies Not Limited. Nothing contained in this Article
VII except Section 7.8 shall limit scope or application of the provisions of
this Section 7.7, the ability of the Company to implement or enforce compliance
with the terms hereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's
<PAGE>
status as a REIT and to ensure compliance with applicable Share Ownership Limits
and the other restrictions set forth herein, including, without limitation,
refusal to give effect to a transaction on the books of the Company.
(viii) Authorization. At such time as the Board of Directors
authorizes a series of Preferred Shares pursuant to Section 7.3 of this Article
VII, without any further or separate action of the Board of Directors, there
shall be deemed to be authorized a series of Excess Shares consisting of the
number of shares included in the series of Preferred Shares so authorized and
having terms, rights, restrictions and qualifications identical thereto, except
to the extent that such Excess Shares are already authorized or this Article VII
requires different terms.
SECTION 7.8 Settlements. Nothing in Sections 7.6 and 7.7 shall preclude
the settlement of any transaction with respect to the Common Shares entered into
through the facilities of the New York Stock Exchange or other national
securities exchange on which the Common Shares are listed.
SECTION 7.9 Severability. If any provision of this Article VII or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions of this Article VII shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
SECTION 7.10 Waiver. The Company shall have authority at any time to
waive the requirements that Excess Shares be issued or be deemed outstanding in
accordance with the provisions of this Article VII if the Company determines,
based on an opinion of nationally recognized tax counsel, that the issuance of
such Excess Shares or the fact that such Excess Shares are deemed to be
outstanding, would jeopardize the status of the Company as a REIT (as that term
is defined in Section 1.5 ).
ARTICLE VIII
STOCKHOLDERS
SECTION 8.1 Meetings of Stockholders. There shall be an annual meeting
of the Stockholders, to be held at such time and place as shall be determined by
or in the manner prescribed in the Bylaws, at which the Directors shall be
elected and any other proper business may be conducted. The annual meeting will
be held at a location convenient to the Stockholders, on a date which is a
reasonable period of time following the distribution of the Company's annual
report to Stockholders but not less than thirty (30) days after delivery of such
report. A majority of
<PAGE>
Stockholders present in person or by proxy at an annual meeting at which a
quorum is present, may, without the necessity for concurrence by the Directors,
vote to elect the Directors. Special meetings of Stockholders may be called in
the manner provided in the Bylaws, including at any time by Stockholders
holding, in the aggregate, not less than ten percent (10%) of the outstanding
Equity Shares entitled to be cast on any issue proposed to be considered at any
such special meeting. If there are no Directors, the officers of the Company
shall promptly call a special meeting of the Stockholders entitled to vote for
the election of successor Directors. Any meeting may be adjourned and reconvened
as the Directors determine or as provided by the Bylaws.
SECTION 8.2 Voting Rights of Stockholders. Subject to the provisions of
any class or series of Shares then outstanding and the mandatory provisions of
any applicable laws or regulations, the Stockholders shall be entitled to vote
only on the following matters; (a) election or removal of Directors as provided
in Sections 8.1, 2.4 and 2.7 hereof; (b) amendment of these Articles of
Incorporation as provided in Section 10.1 hereof; (c) termination of the Company
as provided in Section 11.2 hereof; (d) reorganization of the Company as
provided in Section 10.2 hereof; (e) merger, consolidation or sale or other
disposition of all or substantially all of the Company Property, as provided in
Section 10.3 hereof; and (f) termination of the Company's status as a real
estate investment trust under the REIT Provisions of the Code, as provided in
Section 3.2(xxii) hereof. The Stockholders may terminate the status of the
Company as a REIT under the Code by a vote of a majority of the Shares
outstanding and entitled to vote. Except with respect to the foregoing matters,
no action taken by the Stockholders at any meeting shall in any way bind the
Directors.
SECTION 8.3 Voting Limitations on Shares held by the Advisor, Directors
and Affiliates. With respect to Shares owned by the Advisor, the Directors, or
any of their Affiliates, neither the Advisor, nor the Directors, nor any of
their Affiliates may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, Directors or any of their Affiliates 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 of their Affiliates may not vote or
consent, any Shares owned by any of them shall not be included.
SECTION 8.4 Stockholder Action to be Taken by Meeting. Any action
required or permitted to be taken by the Stockholders of the Company must be
effected at a duly called annual or special meeting of Stockholders of the
Company and may not be effected by any consent in writing of such Stockholders.
SECTION 8.5 Right of Inspection. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the Company
at all reasonable times, and may inspect and copy any of them for a reasonable
charge. Inspection of the Company books and records by the office or agency
administering the securities laws of a jurisdiction shall be provided upon
reasonable notice and during normal business hours.
<PAGE>
SECTION 8.6 Access to Stockholder List. An alphabetical list of the
names, addresses and telephone numbers of the Stockholders of the Company, along
with the number of Shares held by each of them (the "Stockholder List"), shall
be maintained as part of the books and records of the Company and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the home office of the Company upon the request of the Stockholder. The
Stockholder List shall be updated at least quarterly to reflect changes in the
information contained therein and a copy of such list shall be mailed to any
Stockholder so requesting within ten (10) days of the request. The Company may
impose a reasonable charge for expenses incurred in reproduction pursuant to the
Stockholder request. A Stockholder may request a copy of the Stockholder List in
connection with matters relating to Stockholders' voting rights, and the
exercise of Stockholder rights under federal proxy laws. The Company may require
the Stockholder requesting the Stockholder List to represent that the list is
not requested for a commercial purpose unrelated to the Stockholder's interest
in the Company. The Company may impose a reasonable charge for expenses incurred
in reproducing such Stockholder List. The Stockholder List may not be used for
commercial purposes.
If the Advisor or Directors neglect or refuse to exhibit, produce or
mail a copy of the Stockholder List as requested, the Advisor and the Directors
shall be liable to any Stockholder requesting the list for the costs, including
attorneys' fees, incurred by that Stockholder for compelling the production of
the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense that the actual purpose
and reason for the requests for inspection or for a copy of the Stockholder List
is to secure such list of Stockholders or other information for the purpose of
selling such list or copies thereof, or of using the same for a commercial
purpose other than in the interest of the applicant as a Stockholder relative to
the affairs of the Company. The remedies provided hereunder to Stockholders
requesting copies of the Stockholder List are in addition, to and shall not in
any way limit, other remedies available to Stockholders under federal law, or
the laws of any state.
SECTION 8.7 Reports. The Directors, including the Independent
Directors, shall take reasonable steps to insure that the Company shall cause to
be prepared and mailed or delivered to each Stockholder as of a record date
after the end of the fiscal year and each holder of other publicly held
securities of the Company within one hundred twenty (120) days after the end of
the fiscal year to which it relates an annual report for each fiscal year ending
after the initial public offering of its securities which shall include: (i)
financial statements prepared in accordance with generally accepted accounting
principles 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 changes 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 Average
Invested Assets 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 interests 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,
<PAGE>
Directors, Advisors and any Affiliate thereof occurring in the year for which
the annual report is made; 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 sixty
(60) days after the end of the fiscal year in which the distribution was made).
Independent Directors shall be specifically charged with a duty to examine and
comment in the report on the fairness of such transactions.
ARTICLE IX
LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES;
TRANSACTIONS BETWEEN AFFILIATES AND THE COMPANY
SECTION 9.1 Limitation of Stockholder Liability. No Stockholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Company by reason of his being a Stockholder, nor
shall any Stockholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Company Property or
the affairs of the Company by reason of his being a Stockholder. The Company
shall include a clause in its contracts which provides that Stockholders shall
not be personally liable for obligations entered into on behalf of the Company.
SECTION 9.2 Limitation of Liability and Indemnification.
(i) The Company shall indemnify and hold harmless a Director,
Advisor, or Affiliate (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 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 shall not indemnify or hold
harmless the Indemnitee if one or more of the following is applicable: (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.
<PAGE>
(ii) The Company shall not provide indemnification for any
loss, liability or expense 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 Indemnitee, (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the Indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims against the 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.
(iii) The Directors may take such action as is necessary to
carry out this Section 9.2 and are expressly empowered to adopt, approve and
amend from time to time Bylaws, resolutions or contracts implementing such
provisions. No amendment of these Articles of Incorporation or repeal of any of
its provisions shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.
SECTION 9.3 Payment of Expenses. The Company shall pay or reimburse
reasonable expenses incurred by a Director Advisor, or Affiliate in advance of
final disposition of a proceeding if all of the following are satisfied: (i) the
proceeding relates to acts or omissions with respect to the performance of
duties or services on behalf of the Company, (ii) the Indemnitee provides the
Company with written affirmation of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Company as authorized
by Section 9.2 hereof, (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. Any
indemnification payment or reimbursement of expenses will be furnished in
accordance with the procedures in Section 2-418 of the Maryland General
Corporation Law and may be paid only out of Net Assets of the Company, and no
portion may be recoverable from Stockholders.
SECTION 9.4 Express Exculpatory Clauses In Instruments. Neither the
Stockholders nor the Directors, officers, employees or agents of the Company
shall be liable under any written instrument creating an obligation of the
Company by reason of their being Stockholders, Directors, officers, employees or
agents of the Company, and all Persons shall look solely to the Company Property
for the payment of any claim under or for the performance of that instrument.
The omission of the foregoing exculpatory language from any instrument shall not
affect the validity or enforceability of such instrument and shall not render
any Stockholder, Director, officer,
<PAGE>
employee or agent liable thereunder to any third party, nor shall the Directors
or any officer, employee or agent of the Company be liable to anyone as a result
of such omission.
SECTION 9.5 Transactions with Affiliates. The Company shall not engage
in transactions with any Affiliates, except to the extent that each such
transaction has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Directors (including a majority of
the Independent Directors) not Affiliated with the person who is party to the
transaction and:
(i) The transaction is fair and reasonable to the Company and
its Stockholders.
(ii) The terms of such transaction are at least as favorable
as the terms of any comparable transactions made on an arms-length
basis and known to the Directors.
(iii) The total consideration is not in excess of the
appraised value of the property being acquired, if an acquisition is
involved.
(iv) Payments to the Advisor, its Affiliates and the Directors
for services rendered in a capacity other than that as Advisor or
Director may only be made upon a determination that:
(a) The compensation is not in excess of their
compensation paid for any comparable services; and
(b) The compensation is not greater than the charges
for comparable services available from others who are competent and not
Affiliated with any of the parties involved.
Transactions between the Company and its Affiliates are further subject
to any express restrictions in these Articles of Incorporation (including
Article IV and Section 7.7) or adopted by the Directors in the Bylaws or by
resolution, and further subject to the disclosure and ratification requirements
of MGCL ss. 2-419 and other applicable law.
<PAGE>
ARTICLE X
AMENDMENT; REORGANIZATION; MERGER, ETC.
SECTION 10.1 Amendment.
(i) These Articles of Incorporation may be amended, without
the necessity for concurrence by the Directors, by the affirmative vote of the
holders of not less than a majority of the Shares then outstanding and entitled
to vote thereon, except that (1) no amendment may be made which would change any
rights with respect to any outstanding class of securities, by reducing the
amount payable thereon upon liquidation, or by diminishing or eliminating any
voting rights pertaining thereto; and (2) Section 10.2 hereof and this Section
10.1 shall not be amended (or any other provision of these Articles of
Incorporation be amended or any provision of these Articles of Incorporation be
added that would have the effect of amending such sections), without the
affirmative vote of the holders of two-thirds (2/3) of the Shares then
outstanding and entitled to vote thereon.
(ii) The Directors, by a two-thirds (2/3) vote, may amend
provisions of these Articles of Incorporation from time to time as necessary to
enable the Company to qualify as a real estate investment trust under the REIT
Provisions of the Code. With the exception of the foregoing, the Directors may
not amend these Articles of Incorporation.
(iii) An amendment to these Articles of Incorporation shall
become effective as provided in Section 12.5.
(iv) These Articles of Incorporation may not be amended except
as provided in this Section 10.1.
SECTION 10.2 Reorganization. Subject to the provisions of any class or
series of Shares at the time outstanding, the Directors shall have the power (i)
to cause the organization of a corporation, association, trust or other
organization to take over the Company Property and to carry on the affairs of
the Company, or (ii) merge the Company into, or sell, convey and transfer the
Company Property to any such corporation, association, trust or organization in
exchange for Securities thereof or beneficial interests therein, and the
assumption by the transferee of the liabilities of the Company, and upon the
occurrence of (i) or (ii) above terminate the Company and deliver such
Securities or beneficial interests ratably among the Stockholders according to
the respective rights of the class or series of Shares held by them; provided,
however, that any such action shall have been approved, at a meeting of the
Stockholders called for that purpose, by the affirmative vote of the holders of
not less than a majority of the Shares then outstanding and entitled to vote
thereon.
<PAGE>
SECTION 10.3 Merger, Consolidation or Sale of Company Property. Subject
to the provisions of any class or series of Shares at the time outstanding, the
Directors shall have the power to (i) merge the Company into another entity,
(ii) consolidate the Company with one (1) or more other entities into a new
entity; (iii) sell or otherwise dispose of all or substantially all of the
Company Property; or (iv) dissolve or liquidate the Company, other than before
the initial investment in Company Property; provided, however, that such action
shall have been approved, at a meeting of the Stockholders called for that
purpose, by the affirmative vote of the holders of not less than a majority of
the Shares then outstanding and entitled to vote thereon. 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.
In connection with any 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 a competent independent appraiser. 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 the
independent appraiser shall clearly state that the engagement is for the benefit
of the Company and the Stockholders. A summary of the 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 vote of at
least two-thirds (2/3) of the Stockholders, the person sponsoring the Roll-Up
Transaction shall offer to Stockholders who vote against the proposed Roll-Up
Transaction the choice of:
(i) accepting the securities of a 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:
<PAGE>
(iii) which would result in the Stockholders having democracy
rights in a Roll-Up Entity that are less than the rights provided for
in Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 of these Articles of
Incorporation;
(iv) 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 pre serve 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;
(v) in which investor's rights to access of records of the
Roll-Up Entity will be less than those described in Sections 8.5 and
8.6 hereof; or
(vi) 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.
ARTICLE XI
DURATION OF COMPANY
SECTION 11.1 The Company automatically will terminate and dissolve on
December 31, 2005, will undertake orderly liquidation and Sales of Company
Properties and Secured Equipment Leases, and will distribute any Net Sales
Proceeds to Stockholders, unless Listing occurs, in which event the Company
shall continue perpetually unless dissolved pursuant to the provisions contained
herein or pursuant to any applicable provision of the MGCL.
SECTION 11.2 Dissolution of the Company by Stockholder Vote. The
Company may be terminated at any time, without the necessity for concurrence by
the Board of Directors, by the vote or written consent of a majority of the
outstanding Equity Shares.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Governing Law. These Articles of Incorporation are
executed by the undersigned Directors and delivered in the State of Maryland
with reference to the laws thereof,
<PAGE>
and the rights of all parties and the validity, construction and effect of every
provision hereof shall be subject to and construed according to the laws of the
State of Maryland without regard to conflicts of laws provisions thereof.
SECTION 12.2 Reliance by Third Parties. Any certificate shall be final
and conclusive as to any persons dealing with the Company if executed by an
individual who, according to the records of the Company or of any recording
office in which these Articles of Incorporation may be recorded, appears to be
the Secretary or an Assistant Secretary of the Company or a Director, and if
certifying to: (i) the number or identity of Directors, officers of the Company
or Stockholders; (ii) the due authorization of the execution of any document;
(iii) the action or vote taken, and the existence of a quorum, at a meeting of
the Directors or Stockholders; (iv) a copy of the Articles of Incorporation or
of the Bylaws as a true and complete copy as then in force; (v) an amendment to
these Articles of Incorporation; (vi) the dissolution of the Company; or (vii)
the existence of any fact or facts which relate to the affairs of the Company.
No purchaser, lender, transfer agent or other person shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made on
behalf of the Company by the Directors or by any duly authorized officer,
employee or agent of the Company.
SECTION 12.3 Provisions in Conflict with Law or Regulations.
(i) The provisions of these Articles of Incorporation are
severable, and if the Directors shall determine that any one or more of such
provisions are in conflict with the REIT Provisions of the Code, or other
applicable federal or state laws, the conflicting provisions shall be deemed
never to have constituted a part of these Articles of Incorporation, even with
out any amendment of these Articles of Incorporation pursuant to Section 10.1
hereof; provided, however, that such determination by the Directors shall not
affect or impair any of the remaining provisions of these Articles of
Incorporation or render invalid or improper any action taken or omitted prior to
such determination. No Director shall be liable for making or failing to make
such a determination.
(ii) If any provision of these Articles of Incorporation shall
be held invalid or unenforceable in any jurisdiction, such holding shall not in
any manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of these Articles of Incorporation in any
jurisdiction.
SECTION 12.4 Construction. In these Articles of Incorporation, unless
the context otherwise requires, words used in the singular or in the plural
include both the plural and singular and words denoting any gender include both
genders. The title and headings of different parts are inserted for convenience
and shall not affect the meaning, construction or effect of these Articles of
Incorporation. In defining or interpreting the powers and duties of the Company
and its Directors and officers, reference may be made, to the extent
appropriate, to the Code and to
<PAGE>
Titles 1 through 3 of the Corporations and Associations Article of the Annotated
Code of Maryland, referred to herein as the "MGCL."
SECTION 12.5 Recordation. These Articles of Incorporation and any
amendment hereto shall be filed for record with the State Department of
Assessments and Taxation of Maryland and may also be filed or recorded in such
other places as the Directors deem appropriate, but failure to file for record
these Articles of Incorporation or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of these Articles of Incorporation or any amendment hereto. A
restated Articles of Incorporation shall, upon filing, be conclusive evidence of
all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration of Trust and the various amendments thereto.
* * * * * * * * * *
THIRD: This amendment and restatement of the Articles of Incorporation
of the Company has been approved by a majority of the Directors and approved by
the Stockholders as required by law.
FOURTH: The Company currently has authority to issue one hundred
thousand (100,000) shares of capital stock, all of one class of common stock,
par value $0.01 per share. The number, classes, par values and preferences,
rights, powers, restrictions, limitations, qualifications, terms and conditions
of the shares of capital stock that the Company will have authority to issue
upon effectiveness of this amendment and restatement of its Articles of
Incorporation are set forth in Article VII of the foregoing amendment and
restatement of such Articles of Incorporation.
<PAGE>
IN WITNESS WHEREOF, these Articles of Incorporation have been signed on
this 29th day of March, 1995 by the undersigned Directors, each of whom
acknowledges, under penalty of perjury, that this document is his free act and
deed, and that to the best of his knowledge, information and belief, the matters
and facts set forth herein are true in all material respects.
/s/ James M. Seneff, Jr.
-------------------------------------
James M. Seneff, Jr.
/s/ Robert A. Bourne
-------------------------------------
Robert A. Bourne
/s/ G. Richard Hostetter
-------------------------------------
G. Richard Hostetter
/s/ J. Joseph Kruse
-------------------------------------
J. Joseph Kruse
/s/ Richard C. Huseman
-------------------------------------
Richard C. Huseman
<PAGE>
CERTIFICATE OF CORRECTION
OF
CNL American Properties Fund, Inc.
FIRST: This Certificate of Correction is being filed to
correct the Articles of Amendment and Restatement of CNL American
Properties Fund, Inc.
SECOND: The name of the only corporation effected by this
certificate is: CNL American Properties Fund, Inc.
THIRD: The Articles of Amendment and Restatement were filed
with the Maryland State Department of Assessments and Taxation on
April 20, 1995.
FOURTH: The charter of the Corporation is hereby corrected
by striking out Article I, Section 1.5 "Directors," "Board of
Directors" or "Board" as follows:
SECTION 1.5 "Directors," "Board of Directors" or "Board" means,
collectively, the individuals named in Section 2.2 of these Articles of
Incorporation so long as they continue in office and all other individuals who
have been duly elected and qualify as Directors of the Company hereunder.
and inserting in lieu thereof the following:
SECTION 1.5 "Directors," "Board of Directors" or "Board" means,
collectively, the individuals named in Section 2.4 of these Articles of
Incorporation so long as they continue in office and all other individuals who
have been duly elected and qualify as Directors of the Company hereunder.
<PAGE>
FIFTH: The charter of the Corporation is hereby corrected
by striking out Article II, Section 2.6 as follows:
SECTION 2.6 Approval by Independent Directors. A majority of
Independent Directors must approve all matters to which Sections 2.1, 3.2(vii)
and (xii), 3.3, 4.1, 4.2, 4.6, 4.7, 4.8, 4.10, 4.13, 5.12, 5.4(xiii) and (xx),
6.3, 6.4, 8.1, 8.2, 9.2 and 9.4 herein apply.
and inserting in lieu thereof the following:
SECTION 2.6 Approval by Independent Directors. A majority of
Independent Directors must approve all matters to which Sections 2.1, 3.2(vii)
and (xii), 3.3, 4.1, 4.2, 4.6, 4.7, 4.8, 4.10, 4.13, 5.2, 5.4(xiii) and (xiv),
6.3, 6.4, 8.1, 8.2, 9.2 and 9.4 herein apply.
SIXTH: The charter of the Corporation is hereby corrected
by striking out Article VII, Section 7.6(i) "Beneficiary," as
follows:
SECTION 7.6(i) "Beneficiary" means a beneficiary of the Excess Shares
Trust as determined pursuant to Section 7.7(a) hereof.
and inserting in lieu thereof the following:
SECTION 7.6(i) "Beneficiary" means a beneficiary of the Excess Shares
Trust as determined pursuant to Section 7.7(v) (a) hereof.
SEVENTH: The charter of the Corporation is hereby corrected
by striking our Article VII, Section 7.6(i) "Restriction
Termination Date," as follows:
SECTION 7.6(i) "Restriction Termination Date" means the first day after
the date of the closing of the Initial Public Offering on which the Board of
Directors of the Company
<PAGE>
determines, pursuant to Section 3.2(xxiii) hereof, that it is no longer in the
best interest of the Company to attempt or continue to qualify as a REIT.
and inserting in lieu thereof the following:
SECTION 7.6(i) "Restriction Termination Date" means the first day after
the date of the closing of the Initial Public Offering on which the Board of
Directors of the Company determines, pursuant to Section 3.2(xxii) hereof, that
it is no longer in the best interests of the Company to attempt or continue to
qualify as a REIT.
<PAGE>
IN WITNESS WHEREOF, this certificate of correction has been signed by
the undersigned directors, each of whom acknowledges, under penalty of perjury,
that this document is his free act and deed, and that the best of his knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects.
Dated this 28th day of July, 1995.
/s/ James. M. Seneff, Jr.
-----------------------------
James M. Seneff, Jr.
/s/ Robert A. Bourne
-----------------------------
Robert A. Bourne
/s/ G. Richard Hostetter
-----------------------------
G. Richard Hostetter
/s/ J. Joseph Kruse
-----------------------------
J. Joseph Kruse
/s/ Richard C. Huseman
-----------------------------
Richard C. Huseman
<PAGE>
CNL AMERICAN PROPERTIES FUND, INC.
ARTICLES OF AMENDMENT
CNL American Properties Fund, Inc., a Maryland corporation
having its principal office at 32 south Street, Bal-timore, Maryland 21202
(hereinafter called the "corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Amended and Restated Articles of Incorporation of
the corporation are hereby amended by striking out SECTION 7.1, Authorized
Shares and inserting in lieu thereof the following:
SECTION 7.1 Authorized Shares. The capital stock of the
Company shall be divided into Equity Shares. The total number of Equity Shares
which the Company is authorized to issue is one hundred fifty-six million
(156,000,000) shares, consisting of seventy-five million (75,000,000) Common
Shares (as defined and described in Section 7.2(ii) hereof), three million
(3,000,000) Preferred Shares (as defined in Section 7.3 hereof) and
seventy-eight million (78,000,000) Excess Shares (as defined in Section 7.7
hereof). All shares shall be fully paid and nonassessable when issued. Shares
may be issued for such consideration as the Directors determine or, if issued as
a result of a share dividend or share split, without any consideration.
SECOND: The amendment to the Amended and Restated Articles of
Incorporation of the charter of the corporation as hereinabove set forth has
been duly advised by the board of directors and approved by the stockholders of
the corporation.
THIRD: (a) The total number of shares of all classes of
stock of the corporation heretofore authorized, and the number and
par value of the shares of each class are as follows:
The total number of Equity Shares which the Company was
authorized to issue was forty-six million (46,000,000) shares, consisting of
twenty million (20,000,000) Common Shares, three million (3,000,000) Preferred
Shares and twenty-three million (23,000,000) Excess Shares. The par value of the
Common Shares and Excess Shares was $.01 per share. Preferred Shares had not
been assigned a par value.
(b) The total number of shares of all classes of stock of the
corporation as increased, and the number and par value of the shares of each
class, are as follows:
The total number of Equity Shares which the Company is
authorized to issue is one hundred fifty-six million (156,000,000) shares,
consisting of seventy-five million (75,000,000) Common Shares, three million
(3,000,000) Preferred Shares and seventy-
<PAGE>
eight million (78,000,000) Excess Shares. The par value of the
Common Shares and Excess Shares remains $.01 per share. Preferred
Shares have not been assigned a par value.
IN WITNESS WHEREOF: CNL American Properties Fund, Inc., has
caused these Articles of Amendment to be signed in its name and on its behalf by
its President and attested by its Secretary on May 8, 1997.
THE UNDERSIGNED, President of CNL American Properties Fund,
Inc., who executed on behalf of said corporation, the foregoing Articles of
Amendment, of which this certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles of Amendment to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information, and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
ATTEST: CNL AMERICAN PROPERTIES FUND, INC.
/s/ Lynn E. Rose /s/ Robert A. Bourne
- ------------------------ ----------------------------
Lynn E. Rose, Secretary Robert A. Bourne, President
<PAGE>
ARTICLES OF AMENDMENT
TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CNL AMERICAN PROPERTIES FUND, INC.
CNL AMERICAN PROPERTIES FUND, INC., a Maryland corporation having its
principal office at 32 South Street, Baltimore, Maryland 21202 (hereinafter, the
"Company"), does hereby certify to the Department of Assessments and Taxation of
the State of Maryland, that:
FIRST: The name of the Company is CNL American Properties Fund, Inc.
SECOND: Section 7.1 of the Article VII of the Amended and Restated
Articles of Incorporation of the Company is hereby deleted in its entirety and
amended and restated to read as follows:
"SECTION 7.1 Authorized Shares. The capital stock of the
Company shall be divided into Equity Shares. The total number of Equity
Shares which the Company is authorized to issue is two hundred six
million (206,000,000) shares, consisting of one hundred twenty-five
million (125,000,000) Common Shares (as defined and described in
Section 7.2(ii)), three million (3,000,000) Preferred Shares (as
defined in Section 7.3 hereof) and seventy eight million (78,000,000)
Excess Shares (as defined in Section 7.7 hereof). All shares shall be
fully paid and nonassessable when issued. Shares may be issued for such
consideration as the Directors determine or, if issued as a result of a
share dividend or share split, without any consideration."
THIRD: The amendment to the Amended and Restated Articles of
Incorporation of the charter of the Company as hereinabove set forth has been
duly advised by the board of directors and approved by the stockholders of the
Company.
FOURTH: (a) The total number of shares of all classes of stock of the
Company heretofore authorized, and the number and par value of the shares of
each class, were as follows:
The total number of Equity Shares which the Company was
authorized to issue was one hundred fifty-six million (156,000,000) shares,
consisting of seventy-five million (75,000,000) Common Shares, three million
(3,000,000) Preferred Shares and seventy-eight million (78,000,000) Excess
Shares. The par value of the Common Shares and Excess Shares was $.01 per share
and the aggregate par value of all of the authorized shares of all classes of
capital stock having a par value was $1,530,000.00. Preferred Shares had not
been assigned a par value.
<PAGE>
(b) The total number of shares of all classes of stock of the
Company as increased, and the number and par value of the shares of each class,
are as follows:
The total number of Equity Shares which the Company is
authorized to issue is two hundred six million (206,000,000) shares, consisting
of one hundred twenty-five million (125,000,000) Common Shares, three million
(3,000,000) Preferred Shares and seventy-eight million (78,000,000) Excess
Shares. The par value of the Common Shares and Excess Shares remains $.01 per
share and the aggregate par value of all of the authorized shares of all classes
of capital stock having a par value is $2,030,000.00. Preferred Shares have not
been assigned a par value.
FIFTH: These Articles of Amendment do not change the information
required by subsection (b)(2)(i) of Section 2-607 of the General Corporation Law
of Maryland.
IN WITNESS WHEREOF, these Articles of Amendment are hereby executed by
Robert A. Bourne, the President of the Company, who hereby acknowledges that the
Articles of Amendment are the act of the Company, and who does hereby state
under the penalties of perjury that the matters and facts set forth herein with
respect to authorization and approval of such Articles are true in all material
respects to the best of his knowledge, information and belief.
By: /s/ Robert A. Bourne
-----------------------
Robert A. Bourne
President
Date: June 1, 1998
ATTEST
BY: /s/ Lynn E. Rose
---------------------
Lynn E. Rose
Secretary
Date: June 1, 1998
<PAGE>
ARTICLES OF AMENDMENT
TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CNL AMERICAN PROPERTIES FUND, INC.
CNL AMERICAN PROPERTIES FUND, INC., a Maryland corporation having its
principal office at 32 South Street, Baltimore, Maryland 21202 (hereinafter, the
"Company"), does hereby certify to the Department of Assessments and Taxation of
the State of Maryland, that:
FIRST: The name of the Company is CNL American Properties Fund, Inc.
SECOND: Section 7.1 of Article VII of the Amended and Restated Articles
of Incorporation of the Company is hereby deleted in its entirety and amended to
read as follows:
"SECTION 7.1 Authorized Shares. The capital stock of the Company shall
be divided into Equity Shares. The total number of Equity Shares which the
Company is authorized to issue is one hundred forty three million five hundred
thousand (143,500,000) shares, consisting of sixty two million five hundred
thousand (62,500,000) Common Shares (as defined and described in Section
7.2(ii)), three million (3,000,000) Preferred Shares (as defined in Section 7.3
hereof) and seventy eight million (78,000,000) Excess Shares (as defined in
Section 7.7 hereof). All shares shall be fully paid and nonassessable when
issued. Shares may be issued for such consideration as the Directors determine
or, if issued as a result of a share dividend or share split, without any
consideration."
THIRD: The amendment to the Amended and Restated Articles of
Incorporation of the charter of the Company as hereinabove set forth has been
duly advised by the board of directors and approved by the stockholders of the
Company.
FOURTH: Upon the filing with the Department of Assessments and Taxation
of the State of Maryland of these Articles of Amendment to the Amended and
Restated Articles of Incorporation of the Company, whereby Section 7.1 of
Article VII, is amended to read as set forth herein (the "Filing"), each two
shares of Common Shares issued and outstanding and held of record by each
stockholder of the Company immediately prior to the Filing shall, automatically
and without the need for any further action on the part of any stockholder, be
combined into one (1) validly issued, fully paid and nonassessable share of
Common Shares, par value $.01 per share. No scrip or fractional shares will be
issued by reason of this amendment, but in lieu thereof the Company will pay to
any such holder of a fractional share an amount of cash for such fractional
share based on a per share value of $20.00.
FIFTH: (a) The total number of shares of all classes of stock of the
Company heretofore authorized, and the number and par value of the shares of
each class, were as follows:
The total number of Equity Shares which the Company
was authorized to issue was two hundred six million (206,000,000) shares,
consisting of one hundred twenty five million (125,000,000) Common Shares, three
million (3,000,000) Preferred Shares and seventy-eight million (78,000,000)
Excess Shares. The par value of the Common Shares and Excess Shares was $.01 per
share and the aggregate par value of all of the authorized shares of all classes
of capital stock having a par value was $2,030,000.00. Preferred Shares had not
been assigned a par value.
(b) The total number of shares of all classes of
stock of the Company as increased, and the number and par value of the shares of
each class, are as follows:
The total number of Equity Shares which the Company
is authorized to issue is one hundred forty three million five hundred thousand
(143,500,000) shares, consisting of sixty two million five hundred thousand
(62,500,000) Common Shares, three million (3,000,000) Preferred Shares and
seventy eight million (78,000,000) Excess Shares. The par value of the Common
Shares and Excess Shares remains $.01 per share and the aggregate par value of
all of the authorized shares of all classes of capital stock having a par value
is $1,405,000.00. Preferred Shares have not been assigned a par value.
SIXTH: These Articles of Amendment do not change the information
required by subsection (b)(2)(i) of Section 2-607 of the General Corporation Law
of Maryland.
IN WITNESS WHEREOF, these Articles of Amendment are hereby executed by
Curtis B. McWilliams, the President of the Company, who hereby acknowledges that
the Articles of Amendment are the act of the Company, and who does hereby state
under the penalties of perjury that the matters and facts set forth herein with
respect to authorization and approval of such Articles are true in all material
respects to the best of his knowledge, information and belief.
CNL American Properties Fund, Inc.
By: /s/ Curtis B. McWilliams
--------------------------------
Name: Curtis B. McWilliams
Title: President
Date: May 27, 1999
ATTEST
By: /s/ Lynn E. Rose
--------------------------
Lynn E. Rose
Secretary
Date: May 27, 1999
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, dated as of April 19, 1999, is between CNL
AMERICAN PROPERTIES FUND, INC., a corporation organized under the laws of the
State of Maryland (the "Company") and CNL FUND ADVISORS, INC., a corporation
organized under the laws of the State of Florida (the "Advisor").
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice, assistance and certain facilities available to the
Advisor and to have the Advisor undertake the duties and responsibilities
hereinafter set forth, on behalf of, and subject to the supervision of, the
Board of Directors of the Company all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
(1) Definitions. As used in this Advisory Agreement (the "Agreement"),
the following terms have the definitions hereinafter indicated:
Acquisition Expenses. 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
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, and title insurance.
Acquisition Fees. 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 no affiliated with the Advisor in connection with the
actual development and construction of any property.
Advisor. 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 advisor subcontracts substantially all of its functions.
Affiliate or Affiliated. As to any individual, corporation,
partnership, trust or other association (other than the Excess Shares Trust),
(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 or
controlling 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.
Appraised Value. Value according to an appraisal made by an Independent
Appraiser.
Articles of Incorporation. The Articles of Incorporation of the Company
under Title 2 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended from time to time.
Asset Management Fee. The Asset Management Fee as defined in Paragraph
9(a).
Average Invested Assets. 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.
Board of Directors or Board. The persons holding such office, as of any
particular time, under the Articles of Incorporation of the Company, whether
they be the Directors named therein or additional or successor Directors.
Bylaws. The bylaws of the Company, as the same are in effect from time
to time.
Cash from Financings. Net cash proceeds realized by the Company from
the financing of Company Property, the refinancing of any Company indebtedness,
or from the Company's Secured Equipment Leases.
Cash from Sales. Net cash proceeds realized by the Company from the
sale, exchange or other disposition of any of its assets, including Secured
Equipment Leases, after deduction of all expenses incurred in connection
therewith. Cash from Sales shall not include Cash from Financings.
Cash from Sales and Financings. The total sum of Cash from Sales and
Cash from Financings.
Cause. With respect to the termination of this Agreement, fraud,
criminal conduct, willful misconduct or willful or negligent breach of fiduciary
duty by the Advisor, breach of this Agreement, a default by the Sponsor under
the guarantee by the Sponsor to the Company or the bankruptcy of the Sponsor.
Change of Control. A change of control of the Company of such a nature
that would be required to be reported in response to the disclosure requirements
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended, as enacted and in force on the date hereof (the "Exchange
Act"), whether or not the Company is then subject to such reporting
requirements; provided, however, that, without limitation, a change of control
shall be deemed to have occurred if: (i) any "person" (within the meaning of
Section 13(d) of the Exchange Act) is or becomes the "beneficial owner" (as that
term is defined in Rule 13d-3, as enacted and in force on the date hereof, under
the Exchange Act) of securities of the Company representing 8.5% or more of the
combined voting power of the Company's securities then outstanding; (ii) there
occurs a merger, consolidation or other reorganization of the Company which is
not approved by the Board of Directors of the Company; (iii) there occurs a
sale, exchange, transfer or other disposition of substantially all of the assets
of the Company to another entity, which disposition is not approved by the Board
of Directors of the Company; or (iv) there occurs a contested proxy solicitation
of the Stockholders of the Company that results in the contesting party electing
candidates to a majority of the Board of Directors' positions next up for
election.
Code. Internal Revenue Code of 1986, as amended from time to time, or
any successor statute thereto. Reference to any provision of the Code shall mean
such provision as in effect from time to time, as the same may be amended, and
any successor provision thereto, as interpreted by any applicable regulations as
in effect from time to time.
Company. CNL American Properties Fund, Inc., a corporation organized
under the laws of the State of Maryland.
Company Property. Any and all property, real, personal or otherwise,
tangible or intangible, including Secured Equipment Leases, which is transferred
or conveyed to the Company (including all rents, income, profits and gains
therefrom), and which is owned or held by, or for the account of, the Company.
Competitive Real Estate Commission. 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
(including the Subordinated 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.
Contract Purchase Price. The amount actually paid or allocated (as of
the date of purchase) to the purchase, development, construction or improvement
of property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company
for the sale of a Company Property.
Cumulative Return. For the period for which the calculation is being
made, the percentage resulting from dividing (A) the total Distributions paid on
each Distribution date during such period (without regard to Distributions paid
out of Cash from Sales and Financings), by (B) the product of (i) the average
Invested Capital for such period (calculated on a daily basis), and (ii) the
number of years (including fractions thereof) elapsed during such period.
Director. A member of the Board of Directors of the Company.
Distributions. 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. The furniture, fixtures and equipment used at Restaurant
Chains.
Equity Interest. The stock of or other interests in, or warrants or
other rights to purchase the stock of or other interests in, any entity that has
borrowed money from the Company or that is a tenant of the Company or that is a
parent or controlling Person of any such borrower or tenant.
Equity Shares. Transferable shares of beneficial interest of the
Company of any class or series, including common shares or preferred shares.
Final Closing Date. The last date on which purchasers of Shares offered
pursuant to the Prospectus are issued such Shares.
Good Reason. With respect to the termination of this Agreement, (i) any
failure to obtain a satisfactory agreement from any successor to the Company to
assume and agree to perform the Company's obligations under this Agreement; or
(ii) any material breach of this Agreement of any nature whatsoever by the
Company.
Gross Proceeds. The aggregate purchase price of all Shares sold for the
account of the Company through the Offerings, 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.
Independent Appraiser. A qualified appraiser of real estate as
determined by the Board. Membership in a nationally recognized appraisal society
such as the American Institute of Real Estate Appraisers ("M.A.I.") or the
Society of Real Estate Appraisers ("S.R.E.A.") shall be conclusive evidence of
such qualification.
Independent Director. 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) 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. 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 Director's annual gross revenue during
either of the last two years or the Director's net worth on a fair market value
basis. An indirect relationship shall include circumstances in which a
Director's spouse, parents, children, siblings, mothers- or fathers-in-law,
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.
Independent Expert. 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. The amount calculated by multiplying the total number
of Shares purchased by stockholders by the issue price, reduced by the portion
of any Distribution that is attributable to Net Sales Proceeds and by any
amounts paid by the Company to repurchase Shares pursuant to the Company's plan
for redemption of Shares.
Joint Ventures. The joint venture or general partnership arrangements
in which the Company is a co-venturer or general partner which are established
to acquire Properties.
Line of Credit. The revolving $200,000,000 unsecured line of credit, as
may be increased pursuant to its terms and as may be amended from time to time,
the proceeds of which will be used to fund Secured Equipment Leases, to purchase
and develop properties and to fund mortgage loans.
Listing. The listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
Loans. The notes and other evidences of indebtedness or obligations
acquired or entered into by the Company as lender which are secured or
collateralized by personal property or fee or leasehold interests in real estate
or other assets, including, but not limited to, first or subordinate mortgage
loans, construction loans, development loans, loans secured by capital stock or
any other assets or form of equity interest and any other type of loan or
financial arrangement, such as providing or arranging for letters of credit,
providing guarantees of obligations to third parties, or providing commitments
for loans. The term "Loans" shall not include leases which are not recognized as
leases for federal income tax reporting purposes and shall not include Secured
Equipment Leases as defined herein.
Managing Dealer. CNL Securities Corp., an Affiliate of the Advisor, or
such 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. The notes or other evidence of indebtedness or
obligations which are secured or collateralized by building or other
improvements in real property.
Net Income. 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 Sales Proceeds. 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 Property consisting of a building only,
any amounts 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.
Offerings. The initial public offering of the Company of up to
16,500,000 shares, the second public offering of the Company of up to 27,500,000
shares and the third public offering of the Company of up to 34,500,000 shares.
Operating Expenses. 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 Organizational and
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 loan 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).
Organizational and Offering Expenses. 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
formation, 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
organization and Offering Expenses paid by the Company in connection with each
of the Offerings, together with all Selling Commissions, the 0.5% marketing
support and due diligence reimbursement fee, and the Soliciting Deal Servicing
Fee incurred by the Company will not exceed fifteen percent (15%) of the
proceeds raised in connection with each of such Offerings.
Performance Fee. The fee payable to the Advisor upon termination of
this Agreement under certain circumstances if certain performance standards have
been met and the Subordinated Incentive Fee has not been paid.
Person. An individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or any government or any agency or political subdivision
thereof, and also includes 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) an underwriter that participates in a public offering of Equity
Shares for a period of sixty (60) days following the initial purchase by such
underwriter of such Equity Shares in such public offering, or (ii) CNL Fund
Advisors, Inc., during the period ending December 31, 1995, provided that the
foregoing exclusions shall apply only if the ownership of such Equity Shares by
an underwriter or CNL Fund Advisors, Inc. 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.
Property or Properties. (i) The real properties, including the
buildings located thereon, or (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.
Prospectus. "Prospectus" means the same as that term as defined in
Section 2(10) of the Securities Act of 1993, including a preliminary Prospectus,
an offering circular as described in Rule 256 of the General Rules and
Regulations under the Securities Act of 1933 or, in the case of an intrastate
offering, any document by whatever name known, utilized for the purpose of
offering and selling securities to the public.
Real Estate Asset Value. The amount actually paid or allocated to the
purchase, development, construction or improvement of a Property, exclusive of
Acquisition Fees and Acquisition Expenses.
REIT. A "real estate investment trust" under Sections 856 through 860
of the Code. ----
Restaurant Chains. The national and regional restaurant chains,
primarily fast-food family-style, 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 the Mortgage
Loans or (iii) become lessees of Secured Equipment Leases.
Sale or Sales. (i) 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) not including any transaction or series of
transactions specified in clause (i)(A), (i)(B), or (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.
Secured Equipment Leases. 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. 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.
Securities. Any Equity Shares, Excess Shares, as such term is defined
in the Company's Articles of Incorporation, any other stock, shares or other
evidences of equity or beneficial or other interests, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participations in, temporary or interim certificates for, receipts for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
Shares. The shares of common stock, par value $.01 per share, of the
Company.
Soliciting Dealers. Broker-dealers who are members of the National
Association of Securities Dealers, Inc., or that are exempt from broker-dealer
registration, and who, in either case, have executed participating broker or
other agreements with the Managing Dealer to sell Shares.
Soliciting Dealer Servicing Fee. An annual fee of .20% of Invested
Capital, from each of the respective Offerings 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 who participated in such Offering and whose clients hold
Shares on such date.
Sponsor. 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 that was
not negotiated at arm's-length with the Company.
Stockholders. The registered holders of the Company's Shares.
Stockholders' 8% Return. As of each date, an aggregate amount equal to
an 8% cumulative, noncompounded, annual return on Invested Capital.
Subordinated Disposition Fee. The Subordinated Disposition Fee as
defined in Paragraph 9(c).
Subordinated Incentive Fee. 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. The date of termination of the Agreement.
Total Property Cost. With regard to any Company Property, an amount
equal to the sum of the Real Estate Asset Value of such Property plus the
Acquisition Fees paid in connection with such Property.
2%/25% Guidelines. The requirement pursuant to the guidelines of the
North American Securities Administrators Association, Inc. that, in any 12 month
period, total Operating Expenses not exceed the greater of 2% of the Company's
Average Invested Assets during such 12 month period or 25% of the Company's Net
Income over the same 12 month period.
Valuation. An estimate of value of the assets of the Company as
determined by an Independent Expert.
(2) Appointment. The Company hereby appoints the Advisor to serve as
its advisor on the terms and conditions set forth in this Agreement, and the
Advisor hereby accepts such appointment.
(3) Duties of the Advisor. The Advisor undertakes to use its best
efforts to present to the Company potential investment opportunities and to
provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted from
time to time by the Directors. In performance of this undertaking, subject to
the supervision of the Directors and consistent with the provisions of the
Registration Statement, Articles of Incorporation and Bylaws of the Company, the
Advisor shall, either directly or by engaging an Affiliate:
(a) serve as the Company's investment and financial
advisor and provide research and economic and
statistical data in connection with the Company's
assets and investment policies;
(b) provide the daily management of the Company and
perform and supervise the various administrative
functions reasonably necessary for the management of
the Company;
(c) investigate, select, and, on behalf of the Company,
engage and conduct business with such Persons as the
Advisor deems necessary to the proper performance of
its obligations hereunder, including but not limited
to consultants, accountants, correspondents, lenders,
technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers,
insurance agents, banks, builders, developers,
property owners, mortgagors, and any and all agents
for any of the foregoing, including Affiliates of the
Advisor, and Persons acting in any other capacity
deemed by the Advisor necessary or desirable for the
performance of any of the foregoing services,
including but not limited to entering into contracts
in the name of the Company with any of the foregoing;
(d) consult with the officers and Directors of the
Company and assist the Directors in the formulation
and implementation of the Company's financial
policies, and, as necessary, furnish the Directors
with advice and recommendations with respect to the
making of investments consistent with the investment
objectives and policies of the Company and in
connection with any borrowings proposed to be
undertaken by the Company;
(e) subject to the provisions of Paragraphs 3(g) and 4
hereof, (i) locate, analyze and select potential
investments in Properties, Mortgage Loans and Loans
and potential lessees of Secured Equipment Leases,
(ii) structure and negotiate the terms and conditions
of transactions pursuant to which investment in
Properties, Mortgage Loans and Loans will be made and
Secured Equipment Leases will be offered by the
Company; (iii) make investments in Properties,
Mortgage Loans and Loans and enter into Secured
Equipment Leases on behalf of the Company in
compliance with the investment objectives and
policies of the Company; (iv) arrange for financing
and refinancing and make other changes in the asset
or capital structure of, and dispose of, reinvest the
proceeds from the sale of, or otherwise deal with the
investments in, Property, Mortgage Loans, Loans and
Secured Equipment Leases; and (v) enter into leases
and service contracts for Company Property and, to
the extent necessary, perform all other operational
functions for the maintenance and administration of
such Company Property;
(f) provide the Directors with periodic reports regarding
prospective investments in Properties, Mortgage Loans
and Loans and prospective lessees of Secured
Equipment Leases;
(g) obtain the prior approval of the Directors (including
a majority of all Independent Directors) for any and
all investments in Properties, Loans and in
connection with the offering of Secured Equipment
Leases;
(h) negotiate on behalf of the Company with banks or
lenders for loans to be made to the Company,
including the Line of Credit, and negotiate on behalf
of the Company with investment banking firms and
broker-dealers or negotiate private sales of Shares
and Securities or obtain loans for the Company, but
in no event in such a way so that the Advisor shall
be acting as broker-dealer or underwriter; and
provided, further, that any fees and costs payable to
third parties incurred by the Advisor in connection
with the foregoing shall be the responsibility of the
Company;
(i) obtain reports (which may be prepared by the Advisor
or its Affiliates), where appropriate, concerning the
value of investments or contemplated investments of
the Company in Properties, Mortgage Loans, Loans
and/or Secured Equipment Leases;
(j) from time to time, or at any time reasonably
requested by the Directors, make reports to the
Directors of its performance of services to the
Company under this Agreement;
(k) provide the Company with all necessary cash
management services;
(l) do all things necessary to assure its ability to
render the services described in this Agreement;
(m) deliver to or maintain on behalf of the Company
copies of all appraisals obtained in connection with
the investments in Properties, Mortgage Loans and
Loans; and
(n) notify the Board of all proposed material
transactions before they are completed.
(o) administer the Secured Equipment Lease program on
behalf of the Company.
(4) Authority of Advisor.
(a) Pursuant to the terms of this Agreement (including the
restrictions included in this Paragraph 4 and in Paragraph 7), and subject to
the continuing and exclusive authority of the Directors over the management of
the Company, the Directors hereby delegate to the Advisor the authority to (1)
locate, analyze and select investment opportunities, (2) structure the terms and
conditions of transactions pursuant to which investments will be made or
acquired for the Company, (3) acquire Properties, make Mortgage Loans, make
Loans and offer Secured Equipment Leases in compliance with the investment
objectives and policies of the Company, (4) arrange for financing or refinancing
Property, Mortgage Loans, Loans and Secured Equipment Leases, (5) enter into
leases and service contracts for the Company's Property, and perform other
property management services, (6) oversee non-affiliated property managers and
other non-affiliated Persons who perform services for the Company; and (7)
undertake accounting and other record-keeping functions at the Property level.
(b) Notwithstanding the foregoing, any investment in
Properties, Mortgage Loans or Loans, or extension of a Secured Equipment Lease,
including any acquisition of Property by the Company (as well as any financing
acquired by the Company in connection with such acquisition), will require the
prior approval of the Directors (including a majority of the Independent
Directors).
(c) If a transaction requires approval by the Independent
Directors, the Advisor will deliver to the Independent Directors all documents
required by them to properly evaluate the proposed investment in the Property,
Mortgage Loan, Loan or Secured Equipment Lease.
The approval of a majority of the Independent Directors and a majority
of the Directors not otherwise interested in the transaction will be required
for each transaction with the Advisor or its Affiliates. Any transaction outside
of the previously approved investment policies requires approval of the Board
prior to execution.
The Directors may, at any time upon the giving of notice to the
Advisor, modify or revoke the authority set forth in this Paragraph 4. If and to
the extent the Directors so modify or revoke the authority contained herein, the
Advisor shall henceforth submit to the Directors for prior approval such
proposed transactions involving investments in Property as thereafter require
prior approval, provided however, that such modification or revocation shall be
effective upon receipt by the Advisor and shall not be applicable to investment
transactions to which the Advisor has committed the Company prior to the date of
receipt by the Advisor of such notification.
(5) Bank Accounts. The Advisor may establish and maintain one or more
bank accounts in its own name for the account of the Company or in the name of
the Company and may collect and deposit into any such account or accounts, and
disburse from any such account or accounts, any money on behalf of the Company,
under such terms and conditions as the Directors may approve, provided that no
funds shall be commingled with the funds of the Advisor; and the Advisor shall
from time to time render appropriate accountings of such collections and
payments to the Directors and to the auditors of the Company.
(6) Records; Access. The Advisor shall maintain appropriate records of
all its activities hereunder and make such records available for inspection by
the Directors and by counsel, auditors and authorized agents of the Company, at
any time or from time to time during normal business hours. The Advisor shall at
all reasonable times have access to the books and records of the Company.
(7) Limitations on Activities. Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under the
Investment Company Act of 1940, or (c) violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Company, its Shares or its Securities, or otherwise not be permitted by the
Articles of Incorporation or Bylaws of the Company, except if such action shall
be ordered by the Directors, in which case the Advisor shall notify promptly the
Directors of the Advisor's judgment of the potential impact of such action and
shall refrain from taking such action until it receives further clarification or
instructions from the Directors. In such event the Advisor shall have no
liability for acting in accordance with the specific instructions of the
Directors so given. Notwithstanding the foregoing, the Advisor, its directors,
officers, employees and stockholders, and stockholders, directors and officers
of the Advisor's Affiliates shall not be liable to the Company or to the
Directors or stockholders for any act or omission by the Advisor, its directors,
officers or employees, or stockholders, directors or officers of the Advisor's
Affiliates except as provided in Paragraphs 20 and 21 of this Agreement.
(8) Relationship with Directors. Directors, officers and employees of
the Advisor or an Affiliate of the Advisor or any corporate parents of an
Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of the
Company, except that no director, officer or employee of the Advisor or its
Affiliates who also is a Director or officer of the Company shall receive any
compensation from the Company for serving as a Director or officer other than
reasonable reimbursement for travel and related expenses incurred in attending
meetings of the Directors.
(9) Fees.
(a) Asset Management Fee. The Company shall pay to the Advisor
as compensation for the advisory services rendered to the Company under
Paragraph 3 above a monthly fee in an amount equal to one-twelfth of .60% of the
Company's Real Estate Asset Value and the outstanding principal amount of the
Mortgage Loans (the "Asset Management Fee") as of the end of the preceding
month. Specifically, Real Estate Asset Value equals the amount invested in the
Properties wholly owned by the Company, determined on the basis of cost, plus,
in the case of Properties owned by any Joint Venture or 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
Management Fee shall be payable monthly on the last day of such month, or the
first business day following the last day of such month. The Asset Management
Fee, which will not exceed fees that 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.
(b) Acquisition Fees. The Advisor may receive as compensation
for services rendered in connection with the investigation, selection and
acquisition (by purchase, investment or exchange) of Property or in connection
with making or investing in mortgage loans or the purchase, development or
construction of a property an Acquisition Fee payable by the Company. The
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 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 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. The Acquisition Fees paid by the Company
shall include a fee in the amount of 4.5% of the gross proceeds (without
deduction for any fees or expenses, including Acquisition Fees and Acquisition
Expenses) from the Line of Credit, or any other unsecured or secured line of
credit or loan, used by the Company to invest in Properties or make Mortgage
Loans.
(c) Subordinated Disposition Fee. If the Advisor or an
Affiliate provides a substantial amount of the services (as determined by a
majority of the Independent Directors) in connection with the Sale of one or
more Properties, the Advisor or an Affiliate shall receive a Subordinated
Disposition Fee equal to the lesser of (i) one-half of a Competitive Real Estate
Commission or (ii) 3% of the sales price of such Property or Properties. The
Subordinated Disposition Fee will be paid only if Stockholders have received
total Distributions in an amount equal to the sum of their aggregate Invested
Capital and their aggregate Stockholders' 8% Return. To the extent that
Subordinated Disposition Fees are not paid by the Company on a current basis due
to the foregoing limitation, the unpaid fees will be accrued and paid at such
time as the subordination conditions have been satisfied. The Subordinated
Disposition Fee may be paid in addition to real estate commissions paid to
non-Affiliates, provided that the total real estate commissions paid to all
Persons by the Company shall not exceed an amount equal to the lesser of (i) 6%
of the Contract Sales Price of a Property or (ii) the Competitive Real Estate
Commission. In the event this Agreement is terminated prior to such time as the
Stockholders have received total Distributions in an amount equal to 100% of
Invested Capital plus an amount sufficient to pay the Stockholders' 8% Return
through the Termination Date, an appraisal of the Properties then owned by the
Company shall be made and the Subordinated Disposition Fee on Properties
previously sold will be deemed earned if the Appraised Value of the Properties
then owned by the Company plus total Distributions received prior to the
Termination Date equals 100% of Invested Capital plus an amount sufficient to
pay the Stockholders' 8% Return through the Termination Date. Upon Listing, if
the Advisor has accrued but not been paid such Subordinated 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.
(d) Subordinated Share of Net Sales Proceeds. The Subordinated
Share of Net Sales Proceeds shall be payable to the Advisor in an amount equal
to 10% of Net Sales Proceeds payable after the Stockholders have received
Distributions equal to the sum of the Stockholders' 8% Return and 100% of
Invested Capital. Following Listing, no Subordinated Share of Net Sales Proceeds
will be paid to the Advisor.
(e) Subordinated Incentive Fee. Upon Listing, the Advisor
shall be paid the Subordinated Incentive fee in an amount equal to 10% of the
amount by which (i) the market value of the Company, measured by taking 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 "Market Value"), plus the total
Distributions paid to Stockholders from the Company's inception until the date
of Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the
total Distributions required to be paid to the Stockholders in order to pay the
Stockholders' 8% Return from inception through the date the Market Value is
determined. The Company shall have the option to pay such fee in the form of
cash, Shares, a promissory note or any combination of the foregoing. 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 a Sale
or Sales of a assets of the Company.
(f) Secured Equipment Lease Servicing Fee. The Company shall
pay to the Advisor out of the Proceeds of the Line of Credit as compensation for
negotiating its respective Secured Equipment Leases and supervising the Secured
Equipment Lease program a fee equal to 2% of the purchase price of the Equipment
subject to each Secured Equipment Lease upon entering into such lease.
(g) Loans from Affiliates. If any loans are made to the
Company by an Affiliate of the Advisor, the maximum amount of interest that may
be charged by such Affiliate shall be the lesser of (i) 1% above the prime rate
of interest charged from time to time by The Bank of New York and (ii) the rate
that would be charged to the Company by unrelated lending institutions on
comparable loans for the same purpose. The terms of any such loans shall be no
less favorable than the terms available between non-Affiliated Persons for
similar commercial loans.
(h) Changes to Fee Structure. In the event of Listing, the
Company and the Advisor shall negotiate in good faith to establish a fee
structure appropriate for a perpetual-life entity. A majority of the Independent
Directors must approve the new fee structure negotiated with the Advisor. In
negotiating a new fee structure, the Independent Directors shall consider all of
the factors they deem relevant, including, but not 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
performing 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 REIT or by others
with whom the REIT does business; (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the REIT, including income, conversion or appreciation of capital,
and number and frequency of problem investments; and (vii) the quality of the
Property, Mortgage Loan, Loan and Secured Equipment Lease portfolio of the
Company in relationship to the investments generated by the Advisor for its own
account. The new fee structure can be no more favorable to the Advisor than the
current fee structure.
(10) Expenses.
(a) In addition to the compensation paid to the Advisor
pursuant to Paragraph 9 hereof, the Company shall pay directly or reimburse the
Advisor for all of the expenses paid or incurred by the Advisor in connection
with the services it provides to the Company pursuant to this Agreement,
including, but not limited to:
(i) the Company's Organizational and Offering Expenses;
provided, however, that within 60 days after the end of the month in which each
Offering terminates, the Advisor shall reimburse the Company for any
Organizational and Offering Expenses reimbursement received by the Advisor
pursuant to this Paragraph 10, to the extent that such reimbursement exceeds 3%
of the Gross Proceeds related to such Offering. The Advisor shall be responsible
for the payment of all the Company's Organizational and Offering Expenses in
excess of 3% of the Gross Proceeds related to our Offering;
(ii) Acquisition Expenses incurred in connection with the
selection and acquisition of Properties at the lesser of the actual cost or 90%
of the competitive rate charged by unaffiliated persons providing similar goods
and services in the same geographic location;
(iii) the actual cost of goods and services used by the
Company and obtained from entities not affiliated with the Advisor, other than
Acquisition Expenses, including brokerage fees paid in connection with the
purchase and sale of securities;
(iv) interest and other costs for borrowed money, including
discounts, points and other similar fees;
(v) taxes and assessments on income or Property and taxes as
an expense of doing business;
(vi) costs associated with insurance required in connection
with the business of the Company or by the Directors;
(vii) expenses of managing and operating Properties owned by
the Company, whether payable to an Affiliate of the Company or a non-affiliated
Person;
(viii) all expenses in connection with payments to the
Directors and meetings of the Directors and Stockholders;
(ix) expenses associated with Listing or with the issuance
and distribution of Shares and Securities, such as selling commissions and fees,
advertising expenses, taxes, legal and accounting fees, Listing and registration
fees, and other Organization and Offering Expenses;
(x) expenses connected with payments of Distributions in
cash or otherwise made or caused to be made by the Directors to the
Stockholders;
(xi) expenses of organizing, revising, amending, converting,
modifying, or terminating the Company or the Articles of Incorporation;
(xii) expenses of maintaining communications with
Stockholders, including the cost of preparation, printing, and mailing annual
reports and other Stockholder reports, proxy statements and other reports
required by governmental entities;
(xiii) expenses related to negotiating and servicing Loans and
Mortgage Loans;
(xiv) expenses related to negotiating and servicing Secured
Equipment Leases and administering the Secured Equipment Lease program;
(xv) administrative service expenses (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);
(xvi) audit, accounting and legal fees.
(b) Expenses incurred by the Advisor on behalf of the Company
and payable pursuant to this Paragraph 10 shall be reimbursed no less than
monthly to the Advisor. The Advisor shall prepare a statement documenting the
expenses of the Company during each quarter, and shall deliver such statement to
the Company within 45 days after the end of each quarter.
(11) Other Services. Should the Directors request that the Advisor or
any director, officer or employee thereof render services for the Company other
than set forth in Paragraph 3, such services shall be separately compensated at
such rates and in such amounts as are agreed by the Advisor and the Independent
Directors of the Company, subject to the limitations contained in the Articles
of Incorporation, and shall not be deemed to be services pursuant to the terms
of this Agreement.
(12) Fidelity Bond. The Advisor shall maintain a fidelity bond for the
benefit of the Company which bond shall insure the Company from losses of up to
$10 million per occurrence and shall be of the type customarily purchased by
entities performing services similar to those provided to the Company by the
Advisor.
(13) Reimbursement to the Advisor. 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. 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. All figures used in the foregoing computation shall be determined
in accordance with generally accepted accounting principles applied on a
consistent basis.
(14) Other Activities of the Advisor. Nothing herein contained shall
prevent the Advisor from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor
or its Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, employee, or stockholder of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association. The Advisor
may, with respect to any investment in which the Company is a participant, also
render advice and service to each and every other participant therein. The
Advisor shall report to the Directors the existence of any condition or
circumstance, existing or anticipated, of which it has knowledge, which creates
or could create a conflict of interest between the Advisor's obligations to the
Company and its obligations to or its interest in any other partnership,
corporation, firm, individual, trust or association. The Advisor or its
Affiliates shall promptly disclose to the Directors knowledge of such condition
or circumstance. If the Sponsor, Advisor, Director or Affiliates thereof have
sponsored other investment programs with similar investment objectives which
have investment funds available at the same time as the Company, it shall be the
duty of the Directors (including the Independent Directors) to adopt the method
set forth in the Registration Statement or another reasonable method by which
properties are to be allocated to the competing investment entities and to use
their best efforts to apply such method fairly to the Company.
The Advisor shall be required to use its best efforts to present a continuing
and suitable investment program to the Company which is consistent with the
investment policies and objectives of the Company, but neither the Advisor nor
any Affiliate of the Advisor shall be obligated generally to present any
particular investment opportunity to the Company even if the opportunity is of
character which, if presented to the Company, could be taken by the Company. The
Advisor or its Affiliates may make such an investment in a property only after
(i) such investment has been offered to the Company and all public partnerships
and other investment entities affiliated with the Company with funds available
for such investment and (ii) such investment is found to be unsuitable for
investment by the Company, such partnerships and investment entities.
In the event that the Advisor or its Affiliates is presented with a potential
investment which might be made by the Company and by another investment entity
which the Advisor or its Affiliates advises or manages, the Advisor shall
consider the investment portfolio of each entity, cash flow of each entity, the
effect of the acquisition on the diversification of each entity's portfolio,
rental payments during any renewal period, the estimated income tax effects of
the purchase on each entity, the policies of each entity relating to leverage,
the funds of each entity available for investment and the length of time such
funds have been available for investment. In the event that an investment
opportunity becomes available which is suitable for both the Company and a
public or private entity which the Advisor or its Affiliates are Affiliated,
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. The Advisor may consider the property for private placement only if
such property is deemed inappropriate for any investment entity that is advised
or managed by the Advisor, including the Company.
(15) Relationship of Advisor and Company. The Company and the Advisor
are not partners or joint venturers with each other, and nothing in this
Agreement shall be construed to make them such partners or joint venturers or
impose any liability as such on either of them.
(16) Term; Termination of Agreement. This Agreement shall continue in
force until April 18, 2000, subject to an unlimited number of successive
one-year renewals upon mutual consent of the parties. It is the duty of the
Directors to evaluate the performance of the Advisor or annually before renewing
the Agreement, and each such agreement shall have a term of no more than one
year.
(17) Termination by Either Party. This Agreement may be terminated upon
60 days written notice without Cause or penalty, by either party (by a majority
of the Independent Directors of the Company or a majority of the Board of
Directors of the Advisor, as the case may be).
(18) Assignment to an Affiliate. This Agreement may be assigned by the
Advisor to an Affiliate with the approval of a majority of the Directors
(including a majority of the Independent Directors). The Advisor may assign any
rights to receive fees or other payments under this Agreement without obtaining
the approval of the Directors. This Agreement shall not be assigned by the
Company without the consent of the Advisor, except in the case of an assignment
by the Company to a corporation or other organization which is a successor to
all of the assets, rights and obligations of the Company, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound by this Agreement.
(19) Payments to and Duties of Advisor Upon Termination. Payments to
the Advisor pursuant to this Section (19) shall be subject to the 2%/25%
Guidelines to the extent applicable.
(a) After the Termination Date, the Advisor shall not be
entitled to compensation for further services hereunder except it shall be
entitled to receive from the Company within 30 days after the effective date of
such termination all unpaid reimbursements of expenses and all earned but unpaid
fees payable to the Advisor prior to termination of this Agreement.
(b) Upon termination, the Advisor shall be entitled to payment
of 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 Termination Date, less the amount of
all indebtedness secured assets of the Company, plus the total Distributions
paid 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.
(c) 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 Advisor only for that portion of the holding period
for the respective assets during which the Advisor provided services to the
Company.
(d) 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
this Agreement is terminated because of failure of the Company and the Advisor
to establish, pursuant to Paragraph 9(h) hereof, a fee structure appropriate for
a perpetual-life entity at such time, if any, as Listing occurs.
(e) The Advisor shall promptly upon termination:
(i) pay over to the Company all money collected and held for
the account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(ii) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Directors;
(iii) deliver to the Directors all assets, including
Properties, Loans, and Secured Equipment Leases, and documents of the Company
then in the custody of the Advisor; and
(iv) cooperate with the Company to provide an orderly
management transition.
(20) Indemnification by the Company. The Company shall indemnify and
hold harmless the Advisor and its Affiliates, including their respective
officers, directors, partners and employees, from all liability, claims, damages
or losses arising in the performance of their duties hereunder, and related
expenses, including reasonable attorneys' fees, to the extent such liability,
claims, damages or losses and related expenses are not fully reimbursed by
insurance, subject to any limitations imposed by the laws of the State of
Maryland or the Articles of Incorporation of the Company. Notwithstanding the
foregoing, the Advisor shall not be entitled to indemnification or be held
harmless pursuant to this paragraph 20 for any activity which the Advisor shall
be required to indemnify or hold harmless the Company pursuant to paragraph 21.
Any indemnification of the Advisor may be made only out of the net assets of the
Company and not from Stockholders.
(21) Indemnification by Advisor. The Advisor shall indemnify and hold
harmless the Company from contract or other liability, claims, damages, taxes or
losses and related expenses including attorneys' fees, to the extent that such
liability, claims, damages, taxes or losses and related expenses are not fully
reimbursed by insurance and are incurred by reason of the Advisor's bad faith,
fraud, willful misfeasance, misconduct, negligence or reckless disregard of its
duties, but the Advisor shall not be held responsible for any action of the
Board of Directors in following or declining to follow any advice or
recommendation given by the Advisor.
(22) Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is required by the Articles of
Incorporation, the Bylaws, or accepted by the party to whom it is given, and
shall be given by being delivered by hand or by overnight mail or other
overnight delivery service to the addresses set forth herein:
To the Directors and to the Company: CNL American Properties Fund, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
To the Advisor: CNL Fund Advisors, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Paragraph 22.
(23) Modification. This Agreement shall not be changed, modified,
terminated, or discharged, in whole or in part, except by an instrument in
writing signed by both parties hereto, or their respective successors or
assignees.
(24) Severability. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
(25) Construction. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Florida.
(26) Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
(27) Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(28) Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(29) Titles Not to Affect Interpretation. The titles of paragraphs and
subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
(30) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(31) Name. CNL Fund Advisors, Inc. has a proprietary interest in the
name "CNL." Accordingly, and in recognition of this right, if at any time the
Company ceases to retain CNL Fund Advisors, Inc. or an Affiliate thereof to
perform the services of Advisor, the Directors of the Company will, promptly
after receipt of written request from CNL Fund Advisors, Inc., cease to conduct
business under or use the name "CNL" or any derivative thereof and the Company
shall use its best efforts to change the name of the Company to a name that does
not contain the name "CNL" or any other word or words that might, in the sole
discretion of the Advisor, be susceptible of indication of some form of
relationship between the Company and the Advisor or any Affiliate thereof.
Consistent with the foregoing, it is specifically recognized that the Advisor or
one or more of its Affiliates has in the past and may in the future organize,
sponsor or otherwise permit to exist other investment vehicles (including
vehicles for investment in real estate) and financial and service organizations
having "CNL" as a part of their name, all without the need for any consent (and
without the right to object thereto) by the Company or its Directors.
(32) Initial Investment. The Advisor has contributed to the Company
$200,000 in exchange for 20,000 Shares (the "Initial Investment"). The Advisor
may transfer the Initial Investment to its Affiliates. The Advisor or its
Affiliates may not sell the Initial Investment during the term of this
agreement. The restrictions included above shall not apply to any Shares, other
than the Initial Investment, acquired by the Advisor or its Affiliates. The
Advisor shall not vote any Shares it now owns, or hereafter acquires, in any
vote for the election of Directors or any vote regarding the approval or
termination of any contract with the Advisor or any of its Affiliates.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
CNL AMERICAN PROPERTIES FUND, INC.
By:_______________________________
Name:
Its:
CNL FUND ADVISORS, INC.
By:______________________________
Name:
Its:
<PAGE>
UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF
CNL AMERICAN PROPERTIES FUND, INC.
The undersigned, constituting all of the members of the Board of
Directors of CNL American Properties Fund, Inc., a Maryland corporation (the
"Company"), do hereby consent to the adoption of the following resolution.
WHEREAS: an Advisory Agreement between the Company and CNL Fund
Advisors, Inc. (the "Advisor") currently exists;
WHEREAS: under the terms of the Advisory Agreement, the Advisor has the
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;
WHEREAS: such duties are outlined in section (3) of the Advisory
Agreement;
WHEREAS: under the Advisory Agreement the Advisor will be entited to
certain fees and reimbursement of expenses as outlined in sections (9) and (10)
of such agreement;
WHEREAS: such Advisory Agreement has been reviewed by the Company's
external legal counsel and management of the Advisor;
WHEREAS: such Advisory Agreement between the Company and CNL Fund
Advisors,Inc. expires on April 19, 1999;
WHEREAS: such Advisory Agreement requires renewal;
RESOLVED, that Advisory Agreement should be renewed, to expire April
18, 2000.
Adopted this day of April 19, 1999.
DIRECTORS:
/s/ James M. Seneff, Jr.
--------------------------
James M. Seneff, Jr.
/s/ Robert A. Bourne
--------------------------
Robert A. Bourne
/s/ G. Richard Hostetter
--------------------------
G. Richard Hostetter
/s/ Richard Huseman
--------------------------
Richard Huseman
/s/ J. Joseph Kruse
--------------------------
J. Joseph Kruse
