UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
[x] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the fiscal year ended December 31, 2004.
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 0-11290
COMMERCIAL NET LEASE REALTY, INC.
Maryland | 56-1431377 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
450 South Orange Avenue, Suite 900
Orlando, Florida 32801
Registrants telephone number, including area code: (407) 265-7348
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered:
Common Stock, $0.01 par value
New York Stock Exchange
9% Non-Voting Series A Preferred Stock
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes X No .
The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2004 was $831,086,060.
The aggregate market value of voting common stock held by non-affiliates of the registrant as of February 8, 2005 was $963,531,763.
The number of shares of common stock outstanding as of March 3, 2005 was 52,096,633.
DOCUMENTS INCORPORATED BY REFERENCE:
1. | Registrant incorporates by reference portions of the Commercial Net Lease Realty, Inc. Proxy Statement for the 2005 Annual Meeting of Shareholders (Items 10, 11, 12, 13 and 14 of Part III). |
TABLE OF CONTENTS
PAGE | ||||||
REFERENCE | ||||||
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Part I
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Item 1.
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Business | 4 | ||||
Item 2.
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Properties | 10 | ||||
Item 3.
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Legal Proceedings | 13 | ||||
Item 4.
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Submission of Matters to a Vote of Stockholders | 14 | ||||
Part II
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Item 5.
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Market for the Registrant's Common Equity, Related Stockholder Matters and | |||||
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Issuer Purchases of Equity Securities | 15 | ||||
Item 6.
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Selected Financial Information | 16 | ||||
Item 7.
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Management's Discussion and Analysis of Financial Condition and Results | |||||
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of Operations | 18 | ||||
Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk | 40 | ||||
Item 8.
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Financial Statements and Supplementary Data | 41 | ||||
Item 9.
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Changes In and Disagreements with Accountants on Accounting and | |||||
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Financial Disclosure | 90 | ||||
Item 9A.
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Controls and Procedures | 91 | ||||
Item 9B.
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Other Information | 94 | ||||
Part III
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Item 10.
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Directors and Executive Officers of the Registrant | 95 | ||||
Item 11.
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Executive Compensation | 96 | ||||
Item 12.
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Security Ownership of Certain Beneficial Owners and Management and | |||||
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Related Stockholder Matters | 97 | ||||
Item 13.
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Certain Relationships and Related Transactions | 98 | ||||
Item 14.
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Principal Accountant Fees and Services | 99 | ||||
Part IV
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Item 15.
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Exhibits and Financial Statement Schedules | 100 | ||||
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Signatures | 105 |
PART I
Item 1. Business
The Company
Commercial Net Lease Realty, Inc., a Maryland corporation, is a fully integrated real estate
investment trust (REIT) formed in 1984. The terms Registrant or Company refer to Commercial
Net Lease Realty, Inc. and its majority owned and controlled subsidiaries. These subsidiaries
include the wholly-owned qualified REIT subsidiaries of Commercial Net Lease Realty, Inc., as well
as the taxable REIT subsidiary (TRS) Commercial Net Lease Realty Services, Inc. and its majority
owned and controlled subsidiaries (collectively, Services). The Company holds a 98.7 percent,
non-controlling interest in Services and is entitled to receive 98.7 percent of the dividends paid
by Services. James M. Seneff, Jr., a director of the Company, Kevin B. Habicht, an officer and
director of the Company, and Gary M. Ralston, a former officer and director of the Company,
collectively own the remaining 1.3 percent interest, which is 100 percent of the voting interest in
Services. Effective January 1, 2005, the Company acquired the remaining 1.3 percent voting
interest in Services increasing the Companys ownership in Services to 100 percent.
The Companys executive offices are located at 450 S. Orange Avenue, Suite 900, Orlando, Florida
32801, and its telephone number is (800) NNN-REIT (666-7348). The Company has an internet website
at
www.nnnreit.com
where the Companys filings with the Securities and Exchange Commission can be
downloaded free of charge.
The Companys operations are divided into two primary business segments: real estate held for
investment, including structured finance investments, and real estate held for sale. The real
estate held for investment and structured finance investments (included in mortgages and notes
receivable on the balance sheet) are operated through the Company and its wholly owned qualified
REIT subsidiaries. The Company, directly and indirectly, through investment interests, acquires,
owns, invests in, manages and develops primarily single-tenant retail properties that are generally
leased to established tenants under long-term commercial net leases.
Properties
Real Estate Held for Investment
As of December 31, 2004, the Company owned 362 properties (the Investment Properties),
with an aggregate gross leaseable area of 8,542,000 square feet, that are leased to established
tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS, Eckerd, OfficeMax, The Sports
Authority, United Rentals and the United States of America. Approximately 97 percent of
the gross leaseable area of the Companys portfolio of Investment Properties was leased at December
31, 2004.
The Investment Properties are generally leased under net leases pursuant to which the tenant
typically will bear responsibility for substantially all property costs and expenses associated
with ongoing maintenance and operation. Certain of the Companys Investment Properties are subject
to leases under which the Company retains responsibility for certain costs and expenses associated
with the Investment Property. The leases of each of the Companys Investment Properties require
payment of base rent plus, generally, either percentage rent based on the tenants gross sales or
contractual increases in base rent.
During 2004, one of the Companys tenants, the United States of America (the USA), accounted for
more than 10 percent of the Companys total rental income. As of December 31, 2004, the USA leased
three properties. Based on the minimum rental payments required by the leases, we expect that the
USA will continue to account for more than 10 percent of the Companys total rental income in 2005.
Any failure of this lessee to make the lease payments when they are due could materially affect
the Companys income.
4
Structured Finance Investments
Structured finance agreements are typically loans secured by a pledge of ownership interests in the
borrowers (or their subsidiaries) that own the underlying real estate. These agreements are
typically subordinated to senior loans secured by first mortgages encumbering the underlying real
estate. Subordinated positions are generally subject to a higher risk of nonpayment of principal
and interest than the more senior loans. The Company has entered $50,290,000 structure finance
agreements between October 2003 and December 2004. As of December 31, 2004, the structured finance
agreements had an outstanding receivable balance of $29,390,000.
Real Estate Held for Sale
The Companys real estate held for sale is operated through Services, which directly, and
indirectly through investment interests, acquires and develops, real estate primarily for the
purpose of selling the real estate to purchasers who are looking for replacement like-kind exchange
property or to other purchasers with different investment objectives. As of December 31, 2004,
Services owned 21 properties that were held for sale (Inventory Properties). The portfolio of
Inventory Properties consists of properties that have been acquired in the marketplace with the
intent to resell and properties that have been, or are currently being, developed by Services. As
of December 31, 2004, the portfolio of Inventory Properties consisted of 10 completed inventory
properties, seven properties under construction and four land parcels.
Investments in Consolidated Subsidiaries
As of December 31, 2004, the Company had 36 majority or wholly-owned subsidiaries primarily to
facilitate the acquisition, development and disposition of certain properties. Some of the
subsidiaries were formed to hold an interest in certain of the Companys unconsolidated affiliates.
Investments in Unconsolidated Affiliates
The Company has entered into five limited liability company (LLC) agreements between June 2001
and July 2003, with Orange Avenue Mortgage Investments, Inc. (OAMI), formerly known as CNL
Commercial Finance, Inc. Each of the LLCs holds an interest in mortgage loans and is 100 percent
equity financed. The Company holds a non-voting and non-controlling interest in each of the LLCs
ranging from 36.7 to 44.0 percent and accounts for its interests under the equity method of
accounting. In 2003, in connection with a loan to OAMI, the Company pledged a portion of its
interest in two of the LLCs as partial collateral for the loan.
In May 2002, the Company contributed cash to purchase a combined 25 percent partnership interest in
CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, Plaza), which owns a 346,000 square
foot office building and an interest in an adjacent parking garage. Affiliates of James M. Seneff,
Jr. and Robert A. Bourne, each a member of the Companys board of directors, own the remaining
partnership interests. The Company accounts for its 25 percent interest in the Plaza under the
equity method of accounting. Since November 1999, the Company has leased its office space from
Plaza. The Companys lease expires in October 2014. In addition, the Company has severally
guaranteed 41.67% of a $15,500,000 promissory note on behalf of Plaza. The maximum obligation of
the Company under this guarantee is $6,458,300 plus interest. Interest accrues at a rate of LIBOR
plus 200 basis points per annum on the unpaid principal amount. This guarantee shall continue
through the loan maturity, which was extended from the original maturity of November 2004 to May
2005. Plaza intends to refinance the promissory note in 2005.
In 1999, a wholly-owned subsidiary of Services entered into a limited liability membership
arrangement, WXI/SMC Real Estate LLC (WXI), with Whitehall Street Real Estate Limited Partnership
XI. Services subsidiary is the sole managing member and holds a 33 1/3 percent interest in WXI.
WXI was organized for
5
the purpose of owning, developing, redeveloping, operating, leasing and selling a portfolio of real
estate. The Company accounts for its interest under the equity method of accounting.
In September 1997, Net Lease Realty III, Inc., a wholly-owned subsidiary of the Company, formed a
limited partnership, Net Lease Institutional Realty L.P. (the Partnership), with The Northern
Trust Company, Trustee of the Retirement Plan for the Chicago Transit Authority Employees (CTA)
to acquire, own and manage nine properties. Net Lease Realty III, Inc. was the sole general
partner with a 20 percent interest in the Partnership and CTA was the sole limited partner with an
80 percent interest in the Partnership. Under the terms of the limited partnership agreement of
the Partnership, CTA had the right to convert its 80 percent limited partnership interest into
shares of the Companys common stock. In February 2004, CTA exercised its right to convert and the
Company issued 953,551 shares of its common stock to CTA in a private transaction in exchange for
CTAs 80 percent limited partnership interest.
Merger
In December 2001, the Company acquired 100 percent of Captec Net Lease Realty, Inc. (Captec), a
publicly traded real estate investment trust, which owned 135 freestanding, net lease properties
located in 26 states. Captec shareholders had the right to receive $11,839,000 in cash, 4,349,918
newly issued shares of the Companys common stock and 1,999,974 newly issued shares of the
Companys 9% Series A Preferred Stock. The merger was accounted for under the purchase method of
accounting. Under the purchase method of accounting, the merger acquisition price of $124,722,000
was allocated to the assets acquired and liabilities assumed at their fair values. As a result,
the Company did not record goodwill.
In January 2002, beneficial owners of shares of Captec stock held of record by Cede & Co. who
alleged that they did not vote for the merger (and who alleged that they caused a written demand
for appraisal of their Captec shares to be served on Captec), filed in the Chancery Court of the
State of Delaware in and for New Castle County a Petition for Appraisal of Stock (Appraisal
Action). The Appraisal Action alleged that 1,037,946 shares of Captec dissented from the merger
and sought to require the Company to pay to all Captec stockholders who demanded appraisal of their
shares the fair value of those shares, with interest from the date of the merger. As a result of
this action, the plaintiffs were not entitled to receive the Companys common and Series A
Preferred Stock shares as offered in the original merger consideration. Accordingly, the Company
reduced the number of common and Series A Preferred Stock shares issued and outstanding by 474,037
and 217,950, respectively, which represents the number of shares that would have been issued to the
plaintiffs had they accepted the original merger consideration. In 2003, the Company further
reduced the number of common and Series A Preferred Stock shares issued and outstanding by 824 and
379, respectively. In 2004, the Company further reduced the number of common and Series A
Preferred Stock shares issued and outstanding by 51 and 56, respectively. As of December 31,
2002, the Company had recorded the value of these shares at the original consideration share price
in addition to the cash portion of the original merger consideration as other liabilities totaling
$13,278,000. In February 2003, the Company entered into a settlement agreement with the beneficial
owners of the 1,037,946 dissenting shares (including the petitioners in the Appraisal Action) which
required the Company to pay $15,569,000, which approximated the value of the original merger
consideration (which included cash, common stock and Series A Preferred Stock shares) at the time
of the litigation settlement plus the dividends that would have been paid if the shares had been
issued at the time of the merger. On February 13, 2003, the parties filed a stipulation and order
of dismissal and the Court entered the order of dismissal, dismissing the Appraisal Action with
prejudice.
Anticipated Merger
In January 2005, the Company entered into an agreement with National Properties Corporation
(NAPE), which provided that NAPE would merge with and into a subsidiary of the Company. At the
time of the merger agreement, NAPE owned 43 properties located in 12 states which were leased to 17
tenants. If the acquisition is consummated, the Company will issue approximately 1,637,000 shares
of common stock to holders of NAPE common stock. Total consideration for the merger transaction is
estimated to be
6
approximately $61,000,000 based on the Companys closing stock price on the date of the merger
agreement. Completion of the merger is subject to customary closing conditions, including the
approval of the holders of a majority of the outstanding shares of NAPE common stock. The Company
has entered into a shareholders agreement with the holders of approximately 53 percent of the
outstanding NAPE common stock whereby these holders have agreed to vote in favor of the merger.
However, the Company may terminate the merger agreement if a majority of the NAPE shareholders who
are not bound by the shareholders agreement do not approve the merger. The merger does not
require approval by the Companys shareholders. The Company anticipates that the merger will be
completed not later than the second quarter of 2005.
Competition
The Company generally competes with other REITs, commercial developers, real estate limited
partnerships and other investors, including but not limited to, insurance companies, pension funds
and financial institutions, in the acquisition, leasing, financing, development and disposition of
investments in net-leased properties. There are numerous other REITs that own, manage or develop
retail properties.
Employees
As of December 31, 2004, the Company employed 74 full-time persons including executive,
administrative and field personnel. Reference is made to Item 10. Directors and Executive
Officers of the Registrant for a listing of the Companys Executive Officers.
Business Strategies and Policies
The following is a discussion of the Companys operating strategy and certain of its investment,
financing and other policies. These strategies and policies have been determined by the Board of
Directors and, in general, may be amended or revised from time to time by the Board of Directors
without a vote of the Companys stockholders.
Operating Strategies
The Companys strategy is to invest primarily in single-tenant retail properties which typically
are located along high traffic commercial corridors near areas of commercial and residential
density. Management believes that these types of properties when leased to high-quality tenants
primarily pursuant to triple-net leases provide attractive opportunities for a stable current
return and the potential for capital appreciation. Triple-net leases typically require the tenant
to pay substantially all operating expenses of a property, including, but not limited to, all real
estate taxes, assessments and other government charges, insurance, utilities, repairs and
maintenance. In managements view, these types of properties also provide the Company with
flexibility in use and tenant selection when the properties are re-let. As of December 31, 2004,
the Company owned Investment Properties in 38 states.
In some limited cases, the Companys investment in properties is in the form of structured finance
investments, which are typically loans secured by a pledge of ownership interests in the borrowers
(or their subsidiaries) that own the underlying real estate. These agreements are typically
subordinated to senior loans secured by first mortgages encumbering the underlying real estate.
Subordinated positions are generally subject to a higher risk of nonpayment of principal and
interest than the more senior loans. While not a Company strategy, in the past, the Company also
has made opportunistic investments in single-tenant office properties.
With respect to real estate held for investment, the Company holds its properties until it
determines that the sale of the properties is advantageous in view of the Companys investment
objectives. In deciding whether to sell properties, the Company will consider factors such as
potential capital appreciation, net cash flow, potential use of sale proceeds and federal income
tax considerations.
7
With respect to real estate held for sale, Services strategy is to acquire and develop real estate
directly and indirectly, through investment interests, primarily for the purpose of selling the
real estate to purchasers who are looking for replacement like-kind exchange property, or to other
purchasers with different investment objectives.
The Companys management team focuses on certain key indicators to evaluate the financial condition
and operating performance of the Company. The key indicators for the Company include items such
as: the composition of the Companys portfolio of investment properties and structured finance
investments (such as tenant, geographic and industry classification diversification); the occupancy
rate of the Companys portfolio of investment properties; certain financial performance ratios and
profitability measures; industry trends and performance compared to that of the Company and returns
the Company receives on its invested capital in Services.
Investment in Real Estate or Interests in Real Estate
Management believes that attractive acquisition opportunities for single-tenant retail properties
will continue to be available and that the Company is suited to take advantage of these
opportunities because of its access to capital markets, ability to underwrite and acquire
properties, either for cash or securities, and because of managements experience in seeking out,
identifying and evaluating potential acquisitions.
In evaluating a particular acquisition, management will consider a variety of factors, including
(i) the location and accessibility of the property; (ii) the geographic area and demographic
characteristics of the community, as well as the local real estate market, including potential for
growth; (iii) the size of the property; (iv) the purchase price; (v) the non-financial terms of the
proposed acquisition; (vi) the availability of funds or other consideration for the proposed
acquisition and the cost thereof; (vii) the fit of the property with the Companys existing
portfolio; (viii) the potential for, and current extent of, any environmental problems; (ix) the
quality of construction and design and the current physical condition of the property; (x) the
financial and other characteristics of the existing tenant, (xi) the tenants business plan,
operating history and management team, (xii) the tenants industry, (xiii) the terms of any
existing leases; and (xiv) the potential for capital appreciation. As of December 31, 2004, the
Company owned retail Investment Properties located in 38 states and on parcels of land averaging
117,000 square feet upon which are constructed single story buildings averaging 22,000 square feet.
However, the Company may, in the future, acquire other types of real estate in other areas of the
country as opportunities present themselves. While the Company may diversify in terms of property
locations, size and market, the Company does not set any limit on the amount or percentage of
Company assets that may be invested in any one property or any one geographic area.
The Company intends to engage in such future investment activities in a manner that is consistent
with the maintenance of its status as a REIT for federal income tax purposes and that will not make
the Company an investment company under the Investment Company Act of 1940, as amended. Equity
investments in acquired properties may be subject to existing mortgage financings and other
indebtedness or to new indebtedness which may be incurred in connection with acquiring or
refinancing these investments.
Investments in Real Estate Mortgages and Securities of or Interests in Persons Engaged in Real
Estate Activities
While the Companys current portfolio of, and its business objectives primarily emphasize, equity
investments in single-tenant retail properties, the Company may invest in (i) a wide variety of
retail properties or other property and tenant types; (ii) mortgages, participating or convertible
mortgages, deeds of trust and other types of real estate interests or (iii) securities of other
REITs, other entities engaged in real estate activities or securities of other issuers, including
for the purpose of exercising control over such entities, consistent with its qualification as a
REIT. For example, the Company from time to time has made investments in mortgage loans or held
mortgages on properties the Company sold and has made structured
8
finance investments (as discussed above), which are typically loans secured by a pledge of
ownership interests in the borrowers (or their subsidiaries) that own the underlying real estate.
Capital Policies
The Company has authority to offer equity or debt securities in exchange for property and to
repurchase or otherwise acquire its common stock or other securities in the open market or
otherwise, and may engage in such activities in the future. The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issues and does not intend to do
so.
Policy Changes
Any of the Companys policies described above may be changed at any time by the Companys Board of
Directors without a vote of the Companys stockholders.
9
Item 2. Properties
Investment Properties
As of December 31, 2004, the Company owned 362 Investment Properties, with an aggregate gross
leaseable area of 8,542,000 square feet, located in 38 states, of which 97 percent of the gross
leaseable area is leased to established retail and office tenants. Reference is made to the
Schedule of Real Estate and Accumulated Depreciation and Amortization filed with this report for a
listing of the Investment Properties and their respective carrying costs.
Description of Retail and Office Investment Properties
Retail Investment Properties
Land
. The Companys retail Investment Property sites range from approximately 15,000 to 774,000
(average of 117,000) square feet depending upon building size and local demographic factors. Land
costs range from approximately $25,000 to $10,197,000 (average of $1,191,000).
Buildings
. The buildings generally are single-story structures constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from approximately 1,000
to 135,000 (average of 22,000) square feet. Building costs range from $44,000 to $9,211,000
(average of $1,706,000) for each retail Investment Property, depending upon the size of the
building and the site and the area in which the Investment Property is located. Generally, the
retail Investment Properties owned by the Company are freestanding, with paved parking areas.
Leases
. Although there are variations in the specific terms of the leases, the following is a
summarized description of the general structure of the Companys leases. Generally, the leases of
the retail Investment Properties owned by the Company provide for initial terms of 10 to 20 years.
As of December 31, 2004, the weighted average remaining lease term was approximately 10 years. The
retail Investment Properties are generally leased under net leases pursuant to which the
tenant typically will bear responsibility for substantially all property costs and expenses
associated with ongoing maintenance and operation, including utilities, property taxes and
insurance. In addition, the majority of the Companys leases provide that the tenant is
responsible for roof and structural repairs. The leases of the retail Investment Properties
provide for annual base rental payments (payable in monthly installments) ranging from $12,000 to
$1,635,000 (average of $272,000). Generally, the leases provide for either percentage rent or
contractual increases in annual rent. Leases which provide for contractual increases in annual
rent generally have increases which range from one to 10 percent after every one to five years of
the lease term. In addition, for those leases which provide for the payment of percentage rent,
such rent is generally one to eight percent of the tenants annual gross sales for the respective
location, less the amount of annual base rent payable in that lease year. As of December 31, 2004,
83 percent of the Companys annualized base rent was derived from retail Investment Properties.
Based on the aggregate annual base rent of the retail Investment Property leases, (i) 55 percent
include contractual increases, (ii) eight percent include percentage rent provisions and (iii) 13
percent include both contractual and percentage rent provisions.
Generally, the leases of the retail Investment Properties provide the tenant with one or more
multi-year renewal options subject to generally the same terms and conditions as the initial lease.
Some of the leases also provide that in the event the Company wishes to sell the Investment
Property subject to that lease, the Company first must offer the lessee the right to purchase the
Investment Property on the same terms and conditions as any offer which the Company intends to
accept for the sale of the Investment Property.
Certain of the Companys Investment Properties have leases that provide the tenant with a purchase
option to acquire the Investment Property from the Company. The purchase price calculations are
generally stated in the lease agreement or are based on current market value.
10
Office Investment Properties
As of December 31, 2004, the Companys portfolio of Investment Properties included four office
properties with an aggregate gross leaseable area of 687,000 square feet. These office Investment
Properties represent 17 percent of the current annual base rent of the entire portfolio of
Investment Properties.
In August 2003, the Company acquired two office buildings and a related parking garage in the
Washington, D.C. metropolitan area (DC Office Properties), for $142,800,000. In addition, the
Company has agreed to fund an additional $27,322,000 for building and tenant improvements, and
other costs related to the lease. As of December 31, 2004, the Company had funded $23,850,000 of
these improvements. The DC Office Properties include two office buildings which have an aggregate
of 555,000 rentable square feet and a two-level garage with approximately 1,000 parking spaces.
The DC Office Properties are leased substantially to the USA to be used as the headquarters of the
Transportation Security Administration. The lease was executed in December 2002 and the USA began
occupying space in the buildings in phases beginning in January 2003. The lease will expire in
2014. The USA executed a lease (per which the landlord pays certain property related operating
costs), that commenced for a portion of the properties in December 2002. Annual rent for the DC
Office Properties is approximately $18,473,000. The USA is responsible for the actual amount of
real estate taxes above the base year amount and increases in operating expenses above an expected
base year amount, subject to a consumer price index cap. As landlord, the Company is responsible
for property insurance.
During 2004, the USA was the Companys only tenant that accounted for more than 10 percent of the
Companys total rental income. As of December 31, 2004, the USA leased three properties
representing 12 percent of the Companys total assets.
In May 2004, the Company acquired an office building in St. Louis, Missouri for $15,596,000, with
132,000 rentable square feet. The lease was executed in January 2004, with rent commencement in
July 2004 and will expire in January 2015. The tenant is responsible for the actual amount of real
estate taxes and operating expenses from rent commencement date.
Structured Finance Investments
Notes Receivable.
Structured finance agreements are typically loans secured by a pledge
of ownership interests in the borrowers (or their subsidiaries) that own the underlying real
estate. These agreements are typically subordinated to senior loans secured by first mortgages
encumbering the underlying real estate. Subordinated positions are generally subject to a higher
risk of nonpayment of principal and interest than the more senior loans.
In 2004 and 2003, the Company made structured finance investments of $6,857,000 and $43,433,000,
respectively. As of December 31, 2004, the structured finance investments bear a weighted average
interest rate of 14.3% per annum, of which 12.5% is payable monthly and the remaining 1.8% accrues
and is due at maturity. The principal balance of each structured finance investment is due in full
at maturity, which range between November 2006 and November 2007. The structured finance
investments are secured by the borrowers pledge of their respective membership interests in the
certain subsidiaries which own real estate. In December 2004, the Company received $20,900,000 in
principal payments and a $418,000 prepayment fee. As of December 31, 2004 and 2003, the
outstanding receivable balance of the structured finance investments was $29,390,000 and
$43,433,000, respectively.
In January 2005, the Company received $3,935,000 in principal payments; the outstanding receivable
balance of the remaining structured finance agreements was $25,455,000 with a weighted average
interest rate of 11.8% per annum.
11
Inventory Properties
The portfolio of Inventory Properties may consist of properties that have been acquired with the
intent to resell and properties that have been, or are currently being, developed by Services. The
Companys Inventory Properties are typically sold to purchasers who are looking for replacement
like-kind exchange property or to other purchasers with different investment objectives. As of
December 31, 2004, the Company owned 21 Inventory Properties which include 10 completed inventory
properties, seven properties under construction and four land parcels. Reference is made to the
Schedule of Real Estate and Accumulated Depreciation and Amortization filed with this report for a
listing of the Inventory Properties and their respective carrying costs.
Completed Inventory Properties.
The completed Inventory Properties held for sale at December 31,
2004 had sites range from approximately 35,000 to 511,000 (average of 129,000) square feet
depending upon building size and local demographic factors. Land costs range from approximately
$77,000 to $5,454,000 (average of $1,645,000).
The buildings generally are single-story structures ranging in size from approximately 8,000 to
52,000 (average of 16,000) square feet. Building costs range from $309,000 to $8,779,000 (average
of $2,226,000) for each Inventory Property, depending upon the size of the building and the site
and the area in which the Inventory Property is located.
Under Construction.
In connection with the development of seven Inventory Properties by Services,
the Company has agreed to fund construction commitments of $26,409,000, of which $12,248,000 has
been funded as of December 31, 2004.
Property Environmental Considerations
The Company may acquire a property whose environmental site assessment indicates that a
contamination or potential contamination exists, subject to a determination of the level of risk
and potential cost of remediation. Investments in real property create a potential for
environmental liability on the part of the owner of such property from the presence or discharge of
hazardous substances on the property. It is the Companys policy, as a part of its acquisition due
diligence process, generally to obtain a Phase I environmental site assessment for each property,
and where warranted, a Phase II environmental site assessment. In such cases, the Company
generally requires the seller and/or tenant to (i) remediate the problem prior to the Companys
acquiring the property, (ii) indemnify the Company for environmental liabilities or (iii) agree to
other arrangements deemed appropriate by the Company to address environmental conditions at the
property. Phase I assessments involve site reconnaissance and review of regulatory files
identifying potential areas of concern, whereas Phase II assessments involve some degree of soil
and/or groundwater testing. The Company has 12 properties currently under some level of
environmental remediation. In general, the seller or the tenant is contractually responsible for
the cost of the environmental remediation for each of these properties.
12
Item 3. Legal Proceedings
In January 2002, Calapasas Investment Partnership No. 1 Limited Partnership (Calapasas), a Captec
stockholder, filed a class action complaint against Captec, certain former Captec directors, and
the Company (as successor in interest to Captec). In its complaint Calapasas alleged that Captec
and certain of its directors violated provisions of the Securities and Exchange Act of 1934 by
misrepresenting the value of certain Captec assets on certain of its financial statements in 2000
and 2001. In July 2004, the parties entered into a Stipulation of Settlement which was filed with
the court. Pursuant to the Stipulation of Settlement, the total settlement amount paid to the
plaintiffs was $225,000, which included payment of attorneys fees and costs to plaintiffs
counsel. In July 2004, a final judgment of dismissal was entered by the court.
In the ordinary course of its business, the Company is a party to various other legal actions which
management believes is routine in nature and incidental to the operation of the business of the
Company. Management believes that the outcome of the proceedings will not have a material adverse
effect upon its operations, financial condition or liquidity.
13
Item 4. Submission of Matters to a Vote of Security Holders
None.
14
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The common stock of the Company currently is traded on the New York Stock Exchange (NYSE)
under the symbol NNN. For each calendar quarter indicated, the following table reflects
respective high, low and closing sales prices for the common stock as quoted by the NYSE and
the dividends paid per share in each such period.
The following presents the characterizations for tax purposes of such common stock
dividends for the years ended December 31:
In February 2005, the Company paid dividends to its stockholders of $16,925,000, or
$0.325 per share of common stock.
The Company intends to pay regular quarterly dividends to its stockholders. Future
distributions will be declared and paid at the discretion of the board of directors and will
depend upon cash generated by operating activities, the Companys financial condition,
capital requirements, annual distribution requirements under the REIT provisions of the
Internal Revenue Code of 1986 as amended, and such other factors as the board of directors
deems relevant.
On February 28, 2005, there were 1,185 stockholders of record of common stock.
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); certain information responsive to this Item is contained in the
section thereof captioned Executive Compensation Equity Compensation Plan Information, and the
information in such section is incorporated herein by reference.
15
Item 6. Selected Financial Data
Historical Financial Highlights
16
17
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements
generally are characterized by the use of terms such as believe, expect and may. The terms
Registrant or Company refer to Commercial Net Lease Realty, Inc. and its majority owned and
controlled subsidiaries. These subsidiaries include the wholly-owned qualified real estate
investment trust (REIT) subsidiaries of Commercial Net Lease Realty, Inc., as well as the taxable
REIT subsidiary (TRS) Commercial Net Lease Realty Services, Inc. and its majority owned and
controlled subsidiaries (collectively, Services).
Although management believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, the Companys actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause a difference include
the following:
Given these uncertainties, readers are cautioned not to place undue reliance on such statements.
Management of the Company currently knows of no trends that will have a material adverse effect on
its liquidity, capital resources or results of operations.
18
Overview
Commercial Net Lease Realty, Inc., a Maryland corporation, is a fully integrated REIT formed in
1984. All prior period comparable consolidated financial statements have been derived from the
audited consolidated financial statements and have been restated to include the consolidated
financial information of Services. Effective January 1, 2004, Services is included in the
consolidated financial statements due to the Companys implementation of Financial Accounting
Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities, as
amended (FIN 46R). The Company holds a 98.7 percent, non-controlling interest in Services and is
entitled to receive 98.7 percent of the dividends paid by Services. James M. Seneff, Jr., a
director of the Company, Kevin B. Habicht, an officer and director of the Company, and Gary M.
Ralston, a former officer and director of the Company, collectively own the remaining 1.3 percent
interest, which is 100 percent of the voting interest in Services. Effective January 1, 2005, the
Company acquired the remaining 1.3 percent voting interest in Services increasing the Companys
ownership in Services to 100 percent.
The Companys operations are divided into two primary business segments: real estate held for
investment, including structured finance investments, and real estate held for sale. The real
estate held for investment (the Investment Properties) and structured finance investments
(included in mortgages and notes receivable on the balance sheet), are operated through Commercial
Net Lease Realty, Inc. and its wholly owned qualified REIT subsidiaries. The Company, directly and
indirectly, through investment interests, acquires, owns, invests in, manages and develops
primarily single-tenant retail properties that are generally leased to established tenants under
long-term commercial net leases. As of December 31, 2004, the Company owned 362 Investment
Properties, with an aggregate gross leaseable area of 8,542,000 square feet, located in 38 states
and leased to established tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS,
Eckerd, OfficeMax, The Sports Authority, United Rentals and the United States of America. In
addition to the Investment Properties, as of December 31, 2004, the Company had $29,390,000 in
structured finance investments. The real estate held for sale is operated through Services.
Services, directly and indirectly, through investment interests, acquires and develops real estate
primarily for the purpose of selling the real estate to purchasers who are looking for replacement
like-kind exchange property or to other purchasers with different investment objectives. As of
December 31, 2004, Services owned 21 properties that were held for sale (Inventory Properties).
The Companys management team focuses on certain key indicators to evaluate the financial condition
and operating performance of the Company. The key indicators for the Company include items such
as: the composition of the Companys portfolio of Investment Properties and structured finance
investments (such as tenant, geographic and industry classification diversification); the occupancy
rate of the Companys portfolio of Investment Properties; certain financial performance ratios and
profitability measures; and industry trends and performance compared to that of the Company; and
returns the Company receives on its invested capital in Services.
19
Liquidity
General
. Historically, the Companys demand for funds has been primarily for (i) payment of
operating expenses and dividends, (ii) property acquisitions, structured finance investments,
capital expenditures and development, either directly or through investment interests, (iii)
payment of principal and interest on its outstanding indebtedness and (iv) other investments.
Contractual Obligations and Commercial Commitments
. The information in the following table
summarizes the Companys contractual obligations and commercial commitments outstanding as of
December 31, 2004. The table presents principal cash flows by year-end of the expected maturity
for debt obligations and commercial commitments outstanding as of December 31, 2004. As the table
incorporates only those exposures that exist as of December 31, 2004, it does not consider those
exposures or positions which may arise after that date.
Management anticipates satisfying these obligations with a combination of the Companys
current capital resources, cash on hand, its revolving credit facility and debt or equity
financings.
In addition to the contractual obligations outlined in the above table, in connection with its
acquisition of two office buildings and a related parking garage located in the Washington, D.C.
metropolitan area (DC Office Properties) in August 2003, the Company has agreed to fund
$27,322,000 for building and tenant improvements, of which $23,850,000 had been funded as of
December 31, 2004. The Company anticipates funding the additional costs from borrowings under the
Companys revolving credit facility, which is anticipated to be substantially complete by June 30,
2005.
In connection with the development of seven Inventory Properties by Services, the Company has
agreed to fund construction commitments of $26,409,000, of which $12,248,000 has been funded as of
December 31, 2004. The Company anticipates funding the additional costs from borrowings under the
Companys revolving credit facility.
The Company has also guaranteed 41.67 percent of a $15,500,000 promissory note on behalf of an
unconsolidated affiliate. The maximum obligation to the Company is $6,458,000 plus interest, and
the guarantee shall continue through the loan maturity, which was extended from the original
maturity of November 2004 to May 2005. In the event the Company is required to perform under this
guarantee, the Company would potentially use proceeds from its revolving credit facility.
Many of the Investment Properties are recently constructed and are generally net leased, therefore
management anticipates that capital demands to meet obligations with respect to these Properties
will be modest for the foreseeable future and can be met with funds from operations and working
capital. The leases typically provide that the tenant bears responsibility for substantially all
property costs and expenses associated with ongoing maintenance and operation, including utilities,
property taxes and
20
insurance. In addition, the Companys leases generally provide that the tenant is responsible for
roof and structural repairs. Certain of the Companys Investment Properties, including the DC
Office Properties, are subject to leases under which the Company retains responsibility for certain
costs and expenses associated with the Investment Property. Management anticipates the costs
associated with the Companys vacant Investment Properties or those Investment Properties that
become vacant will also be met with funds from operations and working capital. The Company may be
required to borrow under the Companys revolving credit facility or use other sources of capital in
the event of unforeseen significant capital expenditures.
The lost revenues and increased property expenses resulting from the rejection by any bankrupt
tenant of any of their respective leases with the Company could have a material adverse effect on
the liquidity and results of operations of the Company if the Company is unable to re-lease the
Investment Properties at comparable rental rates and in a timely manner. As of January 31, 2005,
the Company owns 10 vacant, unleased Investment Properties, which account for approximately three
percent of the total gross leaseable area of the Companys portfolio of Investment Properties.
Dividends.
The Company has made an election to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended, and related regulations. The Company generally
will not be subject to federal income tax on income that it distributes to its stockholders,
providing it distributes at least 90 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. If the Company fails to qualify as a REIT in any taxable
year, it will be subject to federal income tax on its taxable income at regular corporate rates and
will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four
years following the year during which qualification is lost. Such an event could materially affect
the Companys income and its ability to pay dividends. However, the Company believes that it was
organized and operated in such a manner as to qualify for treatment as a REIT for the years ended
December 31, 2004, 2003 and 2002, and intends to continue to operate the Company so as to remain
qualified as a REIT for federal income tax purposes.
One of the Companys primary objectives, consistent with its policy of retaining sufficient cash
for reserves and working capital purposes and maintaining its status as a REIT, is to distribute a
substantial portion of its funds available from operations to its stockholders in the form of
dividends. During the years ended December 31, 2004, 2003 and 2002, the Company declared and paid
dividends to its common stockholders of $66,272,000, $55,473,000 and $51,178,000 respectively, or
$1.29, $1.28 and $1.27 per share, respectively, of common stock.
The following presents the characterizations for tax purposes of such common stock dividends for
the years ended December 31:
In February 2005, the Company paid dividends to its common stockholders of $16,925,000, or
$0.325 per share of stock.
Holders of the 9% Non-Voting Series A Preferred Stock (the Series A Preferred Stock) are entitled
to receive, when and as authorized by the board of directors, cumulative preferential cash
distributions at the rate of nine percent of the $25.00 liquidation preference per annum
(equivalent to a fixed annual amount of $2.25 per share). For the years ended December 31, 2004,
2003 and 2002, the Company declared and
21
paid dividends to its Series A Preferred Stock stockholders of $4,008,000, $4,008,000 and
$4,010,000, respectively, or $2.25 per share of stock.
In February 2005, the Company declared dividends of $1,002,000 or $0.5625 per share of Series A
Preferred Stock, payable in March 2005.
Holders of the 6.70% Non-Voting Series B Preferred Cumulative Convertible Perpetual Preferred Stock
(the Series B Convertible Preferred Stock), issued during 2003, are entitled to receive, when and
as authorized by the board of directors, cumulative preferential cash distributions at the rate of
6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed annual amount
of $167.50 per share). For the years ended December 31, 2004 and 2003, the Company declared and
paid dividends to its Series B Convertible Preferred Stock stockholders of $1,675,000 and $502,000,
respectively, or $167.50 and $50.25 per share of stock.
In February 2005, the Company declared dividends of $419,000 or $41.875 per share of Series B
Convertible Preferred Stock, payable in March 2005.
Property Environmental Considerations.
The Company may acquire a property whose environmental site
assessment indicates that a contamination or potential contamination exists, subject to a
determination of the level of risk and potential cost of remediation. Investments in real property
create a potential for environmental liability on the part of the owner of such property from the
presence or discharge of hazardous substances on the property. It is the Companys policy, as a
part of its acquisition due diligence process, generally to obtain a Phase I environmental site
assessment for each property and, where warranted, a Phase II environmental site assessment. In
such cases that the Company intends to acquire real estate where contamination or potential
contamination exists, the Company generally requires the seller and/or tenant to (i) remediate the
problem prior to the Companys acquiring the property, (ii) indemnify the Company for environmental
liabilities or (iii) agree to other arrangements deemed appropriate by the Company to address
environmental conditions at the property. Phase I assessments involve site reconnaissance and
review of regulatory files identifying potential areas of concern, whereas Phase II assessments
involve some degree of soil and/or groundwater testing. The Company has 12 Investment Properties
currently under some level of environmental remediation. In general, the seller or the tenant is
contractually responsible for the cost of the environmental remediation for each of these
Investment Properties.
Capital Resources
Generally, cash needs for property acquisitions, structured finance investments, capital
expenditures, development and other investments have been funded by equity and debt offerings, bank
borrowings, the sale of properties and, to a lesser extent, from internally generated funds. Cash
needs for other items have been met from operations. Potential future sources of capital include
proceeds from the public or private offering of the Companys debt or equity securities, secured or
unsecured borrowings from banks or other lenders, proceeds from the sale of properties, as well as
undistributed funds from operations. For the years ended December 31, 2004, 2003, and 2002, the
company generated $74,792,000, $48,531,000 and $111,589,000 respectively, of net cash from
operating activities. The change in cash provided by operations for the years ended December 31,
2004, 2003 and 2002, is primarily the result of changes in revenues and expenses as discussed in
Results of Operations. Cash generated from operations could be expected to fluctuate in the
future.
Indebtedness.
The Company expects to use indebtedness primarily for property acquisitions and
development of single-tenant retail and office properties, either directly or through investment
interests and structured finance investments.
In May 2003, the Company entered into an amended and restated loan agreement for a $225,000,000
revolving credit facility (the Credit Facility) which amended the Companys existing loan
agreement by
22
(i) increasing the borrowing capacity to $225,000,000 from $200,000,000, (ii) lowering the interest
rates of the tiered rate structure from a maximum of 150 points above LIBOR to a maximum rate of
135 basis points above LIBOR (based upon the debt rating of the Company, the current interest rate
is 100 basis points above LIBOR), (iii) requiring the Company to pay a commitment fee based on a
tiered rate structure to a maximum of 30 basis points per annum (based upon the debt rating of the
Company), (iv) providing for a competitive bid option for up to 50 percent of the facility amount,
(v) extending the expiration date to May 9, 2006 and (vi) amending certain of the financial
covenants of the Company. The principal balance is due in full upon expiration of the Credit
Facility in May 2006, which the Company may request to be extended for an additional 12-month
period with the consent of the lender. As of December 31, 2004, $17,900,000 was outstanding and
approximately $207,100,000 was available for future borrowings under the Credit Facility, excluding
undrawn letters of credit.
In accordance with the terms of the Credit Facility, the Company is required to meet certain
restrictive financial covenants, which, among other things, require the Company to maintain certain
(i) maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage. At December
31, 2004, the Company was in compliance with those covenants. In the event that the Company
violates any of the certain restrictive financial covenants, its access to the debt or equity
markets may become impaired.
In November 2003, the Company entered into a long-term, fixed rate interest-only loan for
$95,000,000. The loan bears interest at a rate of 5.42% per annum with monthly interest payments
of $435,000 and the principal balance due in November 2013. Proceeds from the loan were used to
pay down outstanding indebtedness of the Companys Credit Facility. The loan is secured by a first
mortgage lien on the DC Office Properties. As of December 31, 2004, the outstanding principal
balance was $95,000,000, and the aggregate carrying value of these properties totaled $155,601,000.
In January 1996, the Company entered into a long-term, fixed rate loan for $39,450,000. The loan
bears interest at a rate of 7.435% per annum and provides for a ten-year term with monthly
principal and interest payments of $330,000 and the balance due in February 2006. The loan is
secured by a first mortgage lien on certain of the Companys Investment Properties. As of December
31, 2004, the outstanding principal balance was $22,466,000, and the aggregate carrying value of
these Investment Properties totaled $58,049,000.
In February 2004, the Company increased its ownership in Net Lease Institutional Realty, L.P. to
100 percent (see Capital Resources Investments in Unconsolidated Affiliates). In October 1997,
the partnership entered into a long-term, fixed rated loan for $12,000,000. The loan bears
interest at a rate of 7.37% per annum with monthly principal and interest payments of $103,000 and
the principal balance due in September 2007. The loan is secured by a first mortgage lien on
certain of the partnerships properties. As of December 31, 2004, the outstanding principal
balance was $8,606,000, and the aggregate carrying value of these Investment Properties totaled
$28,893,000.
In June 2002, the Company entered into a long-term, fixed rate loan for $21,000,000. The loan
bears interest at a rate of 6.9% per annum and provides for a 10-year term, with monthly principal
and interest payments of $138,000 and the balance due in July 2012. Proceeds from the loan were
used to pay down outstanding indebtedness of the Companys Credit Facility. The loan is secured by
a first mortgage lien on five of the Companys Investment Properties. As of December 31, 2004, the
outstanding principal balance was $20,508,000, and the aggregate carrying value of these Investment
Properties totaled $27,111,000.
In February 2004, the Company acquired an Investment Property subject to a mortgage securing a loan
for $6,952,000. The loan bears interest at a rate of 6.90% per annum with monthly principal and
interest payments of $68,000 and the balance due in January 2016. As of December 31, 2004, the
aggregate carrying value of this Investment Property was $12,358,000. The outstanding principal
balance as of December 31, 2004, was $6,665,000.
23
The Company has acquired four Investment Properties subject to mortgages securing loans in the
aggregate original principal balance of $7,214,000 (collectively the Mortgages) with the
maturities between December 2007 and December 2009. In December 2004, the Company sold one of the
properties and the related mortgage was simultaneously paid, which accounted for $2,455,000 of the
original principal balance. The remaining Mortgages bear interest at a weighted average rate of
8.45% per annum and have a weighted average remaining maturity of 2.4 years, with an aggregate
monthly payment of principal and interest of $60,000. In addition to the Mortgages, the company
has letters of credit that also secure two of the loans, which collectively total $2,426,000. As
of December 31, 2004, the outstanding principal balances secured by the Mortgages totaled
$2,189,000, and the aggregate carrying value of the three Investment Properties and letters of
credit totaled $10,751,000.
In July 2002, Services entered into a long-term, fixed rate loan for $2,340,000. The loan bore
interest at a rate of 7.42% per annum with monthly principal and interest payments of $18,000 and
the principal balance due in July 2012. The loan was secured by a first mortgage lien on one of
Services properties. In August 2004, the Company disposed of the property, at which time the
buyer assumed the loan.
Payments of principal on the mortgage debt and on advances outstanding under the Credit Facility
are expected to be met from borrowings under the Credit Facility, proceeds from public or private
offerings of the Companys debt or equity securities, the Companys secured or unsecured borrowings
from banks or other lenders or proceeds from the sale of one or more of its properties.
Debt and Equity Securities
. The Company has used, and expects to use in the future, issuances of
debt and equity securities primarily to pay down its outstanding indebtedness and to finance
investment acquisitions. The Company has maintained investment grade debt ratings from Standard
and Poors, Moodys Investor Service and Fitch IBCA on its senior, unsecured debt since 1998. In
May 2003, the Company filed a shelf registration statement with the Securities and Exchange
Commission, which permits the issuance by the Company of up to $600,000,000 in debt and equity
securities; as of December 31, 2004, the Company had $259,167,000 available for issuance under this
shelf registration statement.
The Company filed a prospectus supplement to its shelf registration for each issuance of notes
outlined in the table below (dollars in thousands).
Each issuance of notes is redeemable at the option of the Company, in whole or in part, at a
redemption price equal to the sum of (i) the principal amount of the notes being redeemed plus
accrued interest
24
thereon through the redemption date and (ii) the make-whole amount, as defined in the respective
supplemental indenture notes.
In connection with the debt offerings, the Company incurred debt issuance costs totaling $4,193,000
consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating
agency fees and printing expenses. Debt issuance costs have been deferred and are being amortized
over the term of the respective notes using the effective interest method.
In accordance with the terms of the indenture, pursuant to which the Companys notes have been
issued, the Company is required to meet certain restrictive financial covenants, which, among other
things, require the Company to maintain (i) certain leverage ratios and (ii) certain interest
coverage. At December 31, 2004, the Company was in compliance with those covenants. In the event
that the Company violates any of the certain restrictive financial covenants, its access to the
debt or equity markets may become impaired.
In November 2001, the Company entered into an unsecured $70,000,000 term note (Term Note), due
November 30, 2004, to finance the acquisition of Captec Net Lease Realty, Inc. (Captec) and for
the repayment of indebtedness and related expenses in connection therewith. As of December 31,
2003, the Term Note had an outstanding principal balance of $20,000,000. The Term Note bore
interest at a rate of 175 basis points above LIBOR. In November 2004, the Company used proceeds
from the Credit Facility to repay the obligation of the Term Note.
In December 2001, the Company issued 4,349,918 shares of common stock and 1,999,974 shares of
Series A Preferred Stock in connection with the acquisition of Captec (see Results of Operations
Merger Transactions). Holders of the Series A Preferred Stock are entitled to receive, when and
as authorized by the board of directors, cumulative preferential cash distributions at the rate of
nine percent of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of
$2.25 per share). The Series A Preferred Stock ranks senior to the Companys common stock with
respect to distribution rights and rights upon liquidation, dissolution or winding up of the
Company. The Company may redeem the Series A Preferred Stock on or after December 31, 2006, in
whole or from time to time in part, for cash, at a redemption price of $25.00 per share, plus all
accumulated and unpaid distributions.
In 2002, as a result of the appraisal action arising out of the Captec merger (see Results of
Operations Merger Transactions), the Company reduced the number of common and Series A Preferred
Stock shares issued and outstanding by 474,037 and 217,950, respectively. In 2003, the Company
further reduced the number of common and Series A Preferred Stock shares issued and outstanding by
823 and 379, respectively. In 2004, the Company further reduced the number of common and Series A
Preferred Stock shares issued and outstanding by 51 and 56, respectively. The reduction in shares
represent the number of shares that would have been issued to the plaintiffs had they accepted the
original merger consideration. As of December 31, 2002, the Company had recorded the value of
these shares at the original consideration share price in addition to the cash portion of the
original merger consideration as other liabilities totaling $13,278,000. In 2003, the Company used
proceeds from its Credit Facility to fund the settlement of the appraisal action.
In May 2003, the Company filed a shelf registration statement with the Securities and Exchange
Commission, which permits the issuance by the Company of up to $600,000,000 in debt and equity
securities (which includes approximately $89,637,000 of unissued debt and equity securities under
the Companys previous shelf registration statement).
In July 2003, the Company filed a prospectus supplement to its shelf registration statement and
issued 5,600,000 shares of common stock and received gross proceeds of $100,800,000. In connection
with this offering, the Company incurred stock issuance costs totaling approximately $5,374,000,
consisting primarily of underwriters commissions and fees, legal and accounting fees and printing
expenses. Net proceeds from the offering were used to fund a portion of the acquisition of the DC
Office Properties (see Results of Operations Property Analysis Real Estate Held for
Investment).
25
In August 2003, the Company filed a prospectus supplement to its shelf registration statement and
issued 10,000 shares of Series B Convertible Preferred Stock and received gross proceeds of
$25,000,000. In connection with this offering, the Company incurred stock issuance costs totaling
approximately $687,000, consisting primarily of placement fees and legal and accounting fees. The
Series B Convertible Preferred Stock is convertible at the option of the holder into 1,293,996
shares of the Companys common stock on and after the first anniversary from the date on which the
shares were issued. Holders of the Series B Convertible Preferred Stock are entitled to receive,
when and as authorized by the board of directors, cumulative preferential cash distributions at the
rate of 6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed
annual amount of $167.50 per share). The Series B Convertible Preferred Stock ranks pari passu
with the Series A Preferred Stock and senior to the Companys common stock with respect to
distribution rights and rights upon liquidation, dissolution or winding up of the Company. The
Company may redeem the Series B Convertible Preferred Stock on or after August 13, 2008, in whole
or from time to time in part, for cash, at a redemption price of $2,500.00 per share, plus all
accumulated and unpaid distributions. Net proceeds from the offering were used to pay down
outstanding indebtedness of the Companys Credit Facility.
In December 2003, the Company filed a prospectus supplement to its shelf registration statement and
issued 3,250,000 shares of common stock and received gross proceeds of $56,517,000. In addition,
the Company issued an additional 487,500 shares of common stock in connection with the
underwriters over-allotment option and received gross proceeds of $8,478,000. In connection with
these offerings, the Company incurred stock issuance costs totaling approximately $671,000,
consisting primarily of underwriters commissions and fees, legal and accounting fees and printing
expenses. Net proceeds from these offerings were used to pay down outstanding indebtedness of the
Companys Credit Facility.
Financing Lease Obligation.
In July 2004, the Company sold five investment properties for
approximately $26,041,000 and subsequently leased back the properties under a 10-year financing
lease obligation. The Company may repurchase one or more of the properties subject to put and call
options included in the financing lease. In accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 66, Accounting for Sales of Real Estate, the Company
has recognized this as a financing transaction. The 10-year financing lease bears an interest rate
of 5.00% annually with monthly interest payments of $109,000 and expires in June 2014 unless either
the put or call option is exercised. The Company used the proceeds from two properties to reinvest
in other Investment Properties and the remaining proceeds to pay down outstanding indebtedness of
the Companys Credit Facility.
Compensation Plan Equity Issuances.
The Company believes that equity-based or equity-related
compensation is an important element of overall compensation for the Company. Such compensation
advances the interest of the Company by encouraging, and providing for, the acquisition of equity
interests in the Company by directors, officers and other key associates, thereby aligning their
interests with stockholders and providing them with a substantial motivation to enhance stockholder
value.
26
Pursuant to the Companys 2000 Performance Incentive Plan, the Company has granted and issued
shares of restricted stock to certain officers and directors of the Company. The following
information is a summary of the restricted stock grants for the years ended December 31, 2004, 2003
and 2002:
During 2004 and 2003, the Company cancelled 29,926 and 5,950, respectively, shares of
restricted stock.
Investments in Unconsolidated Affiliates
. In September 1997, the Company entered into a
partnership, Net Lease Institutional Realty, L.P. (the Partnership), with the Northern Trust
Company, as Trustee of the Retirement Plan for the Chicago Transit Authority Employees (CTA).
Under the terms of the limited partnership agreement of the Partnership, CTA had the right to
convert its 80 percent limited partnership interest into shares of the Companys common stock. In
October 2003, CTA exercised that right, and, based on the terms of and calculation defined in the
limited partnership agreement, the Company issued 953,551 shares of common stock to CTA in a
private transaction in February 2004 in exchange for CTAs 80 percent limited partnership interest,
increasing the Companys ownership in the Partnership to 100 percent. Prior to CTAs exercise, the
Company accounted for its 20 percent interest in the Partnership under the equity method of
accounting. Net income and losses of the Partnership were allocated to the partners in accordance
with their respective percentage interest in the Partnerships term.
The Company has entered into five limited liability company (LLC) agreements (collectively, CCMH
LLCs) with Orange Avenue Mortgage Investments, Inc. (OAMI), formerly known as CNL Commercial
Finance, Inc. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity
financed. The Company holds a non-voting and non-controlling interest in each of the LLCs and
accounts for its investment under the equity method of accounting. The following table summarizes
each of the investments as of December 31, 2004:
27
In 2003, in connection with a loan to OAMI, the Company pledged a portion of its interest in
two of the LLCs as partial collateral for the loan.
In May 2002, the Company purchased a combined 25 percent partnership interest for $750,000 in CNL
Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, Plaza), which owns a 346,000 square foot
office building and an interest in an adjacent parking garage. Affiliates of James M. Seneff, Jr.
and Robert A. Bourne, each members of the Companys board of directors, own the remaining
partnership interests. Since November 1999, the Company has leased its office space from Plaza.
The Companys lease expires in October 2014. In addition, the Company has severally guaranteed
41.67 percent of a $15,500,000 promissory note on behalf of Plaza. The maximum obligation of the
Company is $6,458,000 plus interest. Interest accrues at a rate of LIBOR plus 200 basis points per
annum on the unpaid principal amount. This guarantee shall continue through the loan maturity,
which was extended from the original maturity of November 2004 to May 2005. Plaza intends to
refinance the promissory note in 2005.
Notes Receivable
. Structured finance agreements are typically loans secured by a pledge of
ownership interests in the borrowers (or their subsidiaries) that own the underlying real estate.
These agreements are typically subordinated to senior loans secured by first mortgages encumbering
the underlying real estate. Subordinated positions are generally subject to a higher risk of
nonpayment of principal and interest than the more senior loans.
In 2004 and 2003, the Company made structured finance investments of $6,857,000 and $43,433,000,
respectively. As of December 31, 2004, the structured finance investments bear a weighted average
interest rate of 14.3% per annum, of which 12.5% is payable monthly and the remaining 1.8% accrues
and is due at maturity. The principal balance of each structured finance investment is due in full
at maturity, which range between November 2006 and November 2007. The structured finance
investments are secured by the borrowers pledge of their respective membership interests in the
certain subsidiaries which own real estate. In December 2004, the Company received $20,900,000 in
principal payments and a $418,000 prepayment fee. As of December 31, 2004 and 2003, the
outstanding receivable balance of the structured finance investments was $29,390,000 and
$43,433,000, respectively.
In January 2005, the Company received $3,935,000 in principal payments; the outstanding receivable
balance of the remaining structured finance agreements was $25,455,000 with a weighted average
interest rate of 11.8% per annum.
Results of Operations
Critical Accounting Policies and Estimates
.
In response to the SECs Release Numbers 33-8040, Cautionary Advice Regarding Disclosure About
Critical Accounting Policies, and 33-8056, Commission Statement About Analysis of Financial
Condition and Results of Operations, the Companys management has identified the following
critical accounting policies that affect the more significant judgments and estimates used in the
preparation of the Companys consolidated financial statements. The preparation of the Companys
consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and judgments on assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates and judgments. A summary of the Companys
accounting policies and procedures are included in Note 1 of the Companys consolidated financial
statements. Management believes the following critical accounting policies among others affect its
more significant judgment of estimates used in the preparation of the Companys consolidated
financial statements.
28
Real Estate Held for Investment and Lease Accounting.
The Company records the acquisition of
real estate at cost, including acquisition and closing costs. The cost of properties developed by
the Company includes direct and indirect costs of construction, property taxes, interest and other
miscellaneous costs incurred during the development period until the project is substantially
complete and available for occupancy.
Real estate is generally leased to tenants on a net lease basis, whereby the tenant is responsible
for all operating expenses relating to the property, including property taxes, insurance,
maintenance and repairs. The leases are accounted for using either the operating or the direct
financing method. Such methods are described below:
Operating
method
Leases accounted for using the operating method are recorded at the cost
of the real estate. Revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives (generally 35 to 40 years).
Leasehold interests are amortized on the straight-line method over the terms of their
respective leases. When scheduled rentals vary during the lease term, income is recognized
on a straight-line basis so as to produce a constant periodic rent over the term of the
lease. Accrued rental income is the aggregate difference between the scheduled rents which
vary during the lease term and the income recognized on a straight-line basis.
Direct
financing method
Leases accounted for using the direct financing method are
recorded at their net investment (which at the inception of the lease generally represents
the cost of the property). Unearned income is deferred and amortized into income over the
lease terms so as to produce a constant periodic rate of return on the Companys net
investment in the leases.
The Company periodically assesses its real estate assets for possible impairment when certain
events or changes in circumstances indicate that the carrying value of the asset, including any
accrued rental income, may not be recoverable. Management considers current market conditions and
tenant credit analysis in determining whether the recoverability of the carrying amount of an asset
should be assessed. When an assessment is warranted, management determines whether an impairment
in value has occurred by comparing the estimated future cash flows (undiscounted and without
interest charges), including the residual value of the real estate, with the carrying cost of the
individual asset. If an impairment is indicated, a loss will be recorded for the amount by which
the carrying value of the asset exceeds its fair value.
Intangible Assets.
In connection with real estate acquisitions, value is assigned to tangible and
other intangible assets. These other intangible assets are computed by valuing the property on an
as-if-vacant basis and subtracting from the total acquisition cost the sum of the (i) as-if-vacant
value, (ii) contractual to market value rent and (iii) value assigned to in-place leases. Deferred
revenue or deferred assets recorded in connection with the contractual to market rent value for
acquired properties are amortized into rental revenue over the life of the leases. The value
assigned to in-place leases is amortized over the life of the leases.
Real Estate Held for Sale
. Services acquires, develops and currently owns properties that it
intends to sell. The properties that are classified as held for sale at any given time may consist
of properties that have been acquired in the marketplace with the intent to resell the properties that have been, or
are currently being, constructed by Services. Services records the acquisition of the real estate
at cost, including the acquisition and closing costs. The cost of the real estate developed by
Services includes direct and indirect costs of construction, interest and other miscellaneous costs
incurred during the development period until the project is substantially complete and available
for occupancy. The asset is not depreciated. In accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, Services classifies its real estate held for sale as discontinued operations
when rental revenues are generated.
29
When real estate held for sale is disposed of, the related
costs are removed from the accounts and gains and losses from the dispositions are reflected in
earnings.
Income Taxes.
The Company has made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, and related regulations. The Company
generally will not be subject to federal income taxes on amounts distributed to stockholders,
providing it distributes at least 90 percent of its real estate investment trust taxable income and
meets certain other requirements for qualifying as a REIT. For each of the years in the three-year
period ended December 31, 2004, the Company believes it has qualified as a REIT. Not withstanding
the Companys qualification for taxation as a real estate investment trust, the Company is subject
to certain state taxes on its income and real estate.
Effective January 1, 2001, Commercial Net Lease Realty, Inc. elected for Services to be treated as
a TRS pursuant to the provisions of the REIT Modernization Act. As a TRS, Services is able to
engage in activities resulting in income that previously would have been disqualified from being
eligible REIT income under the federal income tax regulations. As a result, certain activities of
the Company which occur within Services are therefore subject to federal and state income taxes.
All provisions for federal income taxes in the accompanying consolidated financial statements are
attributable to Services.
Income taxes are accounted for under the asset and liability method as required by SFAS No. 109,
Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the
temporary differences based on estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
Use of Estimates.
Additional critical accounting policies of the Company include managements
estimates and assumptions relating to the reporting of assets and liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities to prepare the consolidated
financial statements in conformity with accounting principles generally accepted in the United
States of America. Additional critical accounting policies include managements estimates of the
useful lives used in calculating depreciation expense relating to the Companys real estate assets,
the recoverability of the carrying value of long-lived assets, the collectibility of receivables
from tenants, including accrued rental income, and capitalized overhead relating to development
projects. Actual results could differ from those estimates.
30
Property Analysis
Property Analysis Real Estate Held for Investment
General.
As of December 31, 2004, the Company owned 362 Investment Properties that are leased to
established tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS, Eckerd, OfficeMax,
The Sports Authority, United Rentals and the United States of America. Approximately 97 percent of
the gross leaseable area of the Companys portfolio of Investment Properties was leased at December
31, 2004. The following table summarizes the Companys portfolio of Investment Properties as of
December 31:
The Company regularly evaluates its (i) portfolio of Investment Properties, (ii) financial
position, (iii) market opportunities and (iv) strategic objectives and, based on certain factors,
may decide to acquire or dispose of a given property or portfolio of properties.
Property Acquisitions.
Property acquisitions are typically funded using funds from the Companys
revolving credit facility, proceeds for debt or equity offerings and to a lesser extent, proceeds
generated from like-kind exchange transactions. The following table summarizes the Investment
Property acquisitions for each of the years ended December 31:
Construction projects:
Tenant improvements
Number of Investment Properties
Total dollars invested
In August 2003, the Company acquired the DC Office Properties. Pursuant to the lease
agreement, the Company has agreed to fund $27,322,000 for building and tenant improvements, of
which $23,850,000 had been funded as of December 31, 2004. The Company anticipates funding the
additional costs, which are anticipated to be substantially complete by June 30, 2005, from
borrowings under the Companys Credit Facility. The properties include two office buildings
containing an aggregate of 555,000 rentable square feet and a two-level garage with approximately
1,000 parking spaces.
31
Property Dispositions.
The Company typically uses property sales proceeds to either (i) pay down
the outstanding indebtedness of the Companys Credit Facility or (ii) reinvest in real estate. The
following table summarizes the properties held for investment sold by the Company for each of the
years ended December 31:
Number of properties
During 2004 and 2003, the Company used the proceeds from the dispositions to pay down the
outstanding indebtedness of the Companys Credit Facility.
During 2002, the Company reinvested the proceeds from three of the investment properties sold to
reinvest in additional Investment Properties and the proceeds from the sale of the remaining 16
investment properties to pay down the outstanding indebtedness of the Companys Credit Facility.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the Company has classified its investment
properties sold during the years ended December 31, 2004, 2003 and 2002, as discontinued
operations. In addition, the Company has classified one leasehold interest that expired during the
year ended December 31, 2004 as discontinued operations. All investment properties sold subsequent
to December 31, 2001, the effective date of SFAS No. 144, have been reclassified to discontinued
operations.
Property Analysis Real Estate Held for Sale
General.
The Companys real estate held for sale is operated through Services, which directly and
indirectly, through investment interests, acquires and develops real estate primarily for the
purpose of selling the real estate to purchasers who are looking for replacement like-kind exchange
property or to other purchasers with different investment objectives. The following summarizes the
Companys real estate held for sale as of December 31:
Number of properties held for sale:
32
Property Acquisitions.
Inventory Property acquisitions are typically funded using funds from
the Companys credit facility and proceeds from debt or equity offerings.
The following table summarizes the Inventory Property acquisitions for each of the years ended
December 31:
Completed construction:
Total dollars invested in real estate held for sale
Property Dispositions.
The following table summarizes the number of inventory properties sold
and the corresponding gain recognized from the disposition of real estate held for sale included in
earnings from continuing and discontinued operations for each of the years ended December 31
(dollars in thousands):
Continuing operations
Discontinued operations:
Minority interest
Total discontinued operations
During the years ended December 31, 2004, 2003 and 2002, the Company used the proceeds from
the sale of the inventory properties to pay down the outstanding indebtedness of the Companys
Credit Facility.
Merger Transactions
In December 2001, the Company acquired 100 percent of Captec, a publicly traded real estate
investment trust, which owned 135 freestanding, net lease properties located in 26 states. Captec
shareholders received $11,839,000 in cash, 4,349,918 newly issued shares of the Companys common
stock and 1,999,974 newly issued Series A Preferred Stock (see
Capital Resources Debt and Equity
Securities). Under the purchase method of accounting, the acquisition price of $124,722,000 was
allocated to the assets acquired and liabilities assumed at their fair values. No goodwill was
recorded in connection with the acquisition. The merger was unanimously approved by both the
Companys and Captecs board of directors and Captecs shareholders. This transaction increased
funds from operations, increased diversification, produced cost savings from opportunities for
economies of scale and operating efficiencies and enhanced the Companys capital markets profile.
In January 2002, beneficial owners of shares of Captec stock held of record by Cede & Co. who
alleged that they did not vote for the merger (and who alleged that they caused a written demand
for appraisal of their Captec shares to be served on Captec), filed in the Chancery Court of the
State of Delaware in and
33
for New Castle County a Petition for Appraisal of Stock (Appraisal Action). The Appraisal Action
alleged that 1,037,946 shares of Captec dissented from the merger and sought to require the Company
to pay to all Captec stockholders who demanded appraisal of their shares the fair value of those
shares, with interest from the date of the merger. As a result of this action, the plaintiffs were
not entitled to receive the Companys common and Series A Preferred Stock as offered in the
original merger consideration. Accordingly, the Company reduced the number of common and Series A
Preferred Stock shares issued and outstanding by 474,037 and 217,950, respectively, which
represents the number of shares that would have been issued to the plaintiffs had they accepted the
original merger consideration. In 2003, the Company further reduced the number of common and
Series A Preferred Stock shares issued and outstanding by 823 and 379, respectively. In 2004, the
Company further reduced the number of common and Series A Preferred Stock shares issued and
outstanding by 51 and 56, respectively. As of December 31, 2002, the Company had recorded the
value of these shares at the original consideration share price in addition to the cash portion of
the original merger consideration as other liabilities totaling $13,278,000. In February 2003, the
Company entered into a settlement agreement with the beneficial owners of the 1,037,946 dissenting
shares (including the petitioners in the Appraisal Action) which required the Company to pay
$15,569,000 which approximated the value of the original merger consideration (which included cash,
common stock and Series A Preferred Stock shares) at the time of the litigation settlement plus the
dividends that would have been paid if the shares had been issued at the time of the merger. The
Company used proceeds from its Credit Facility to fund the settlement of the legal action. In
February 2003, the parties filed a stipulation and order of dismissal and the Court entered the
order of dismissal, dismissing the Appraisal Action with prejudice.
Anticipated Merger
In January 2005, the Company entered into an agreement with National Properties Corporation
(NAPE), which provided that NAPE would merge with and into a subsidiary of the Company. At the
time of the merger agreement, NAPE owned 43 properties located in 12 states which were leased to 17
tenants. If the acquisition is consummated, the Company will issue approximately 1,637,000 shares
of common stock to holders of NAPE common stock. Total consideration for the merger transaction is
estimated to be approximately $61,000,000 based on the Companys closing stock price on the date of
the merger agreement. Completion of the merger is subject to customary closing conditions,
including the approval of the holders of a majority of the outstanding shares of NAPE common stock.
The Company has entered into a shareholders agreement with the holders of approximately 53
percent of the outstanding NAPE common stock whereby these holders have agreed to vote in favor of
the merger. However, the Company may terminate the merger agreement if a majority of the NAPE
shareholders who are not bound by the shareholders agreement do not approve the merger. The
merger does not require approval by the Companys shareholders. The Company anticipates that the
merger will be completed not later than the second quarter of 2005.
34
Revenue From Operations Analysis
General.
During the year ended December 31, 2004, the Companys rental income increased primarily
due to the acquisition of DC Office Properties in August 2003 and other Investment Properties (See
Results of Operations Property Analysis Real Estate Held For Investment Property
Acquisitions) and maintaining an occupancy rate of 97 percent at December 31, 2004 and 2003. The
Company anticipates any significant increase in rental income will continue to come primarily from
additional property acquisitions.
The following summarizes the Companys revenues (dollars in thousands):
Revenue From Operations Analysis by Source of Income.
The Company has identified two primary
business segments, and thus, sources of revenue: (i) earnings from real estate held for investment
and (ii) earnings from real estate held for sale. Breaking down revenues into the Companys two
primary operating segments of revenue shows that revenues are historically consistent. Operating
segments are components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision makers in deciding how to allocate
resources and in assessing performance. The following table summarizes the revenues from
continuing operations (dollars in thousands):
The Company evaluates its ability to pay dividends to stockholders by considering the combined
effect of income from continuing and discontinued operations.
Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003
. Rental Income
increased 19.6 percent for the year ended December 31, 2004, as compared to the year ended December
31, 2003, primarily due to the addition of an aggregate gross leaseable area of 825,000 square feet
to the Companys portfolio resulting from the acquisition of 36 Investment Properties during the
year ended December 31, 2004 and the addition of 24 Investment Properties with an aggregate gross
leaseable area of 1,453,000 during the year ended December 31, 2003. However, this increase is
partially offset by the investment property dispositions during the years ended December 31, 2004
and 2003.
Real estate expense reimbursements from tenants increased 14 percent for the year ended December
31, 2004, as compared to the year ended December 31, 2003, primarily due to the addition of
properties that reimburse for expenses, see
Results of Operations Property Analysis Real Estate Held for
Investment.
35
The gain on disposition of real estate held for sale included in continuing operations, increased
44.8 percent for the year ended December 31, 2004, as compared to the year ended December 31, 2003,
primarily due to the increase in gross margin on sales of inventory properties. During the year
ended December 31, 2004, the Company disposed of seven inventory properties and recognized a gain
of $4,700,000 compared to three inventory properties for a $3,247,000 gain for the year ended
December 31, 2003.
Interest and other income from real estate transactions increased 222.9 percent for the year ended
December 31, 2004 as compared to the year ended December 31, 2003, primarily due to the interest
earned on the $50,290,000 structured finance investments entered into since October 2003. However,
this increase was partially offset by a decrease in development fees.
Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002.
Rental Income
increased 19.1 percent for the year ended December 31, 2003 due to a three percent increase in the
Companys Investment Property portfolio occupancy rate (97 percent at December 31, 2003 versus 94
percent at December 31, 2002) and the addition of 24 Investment Properties with an aggregate gross
leaseable area of 1,453,000 square feet and the completed tenant improvements on nine Investment
Properties. However, this increase is partially offset by the investment property dispositions
during the years ended December 31, 2003 and 2002.
Real estate expense reimbursements from tenants increased 72.2 percent for the year ended December
31, 2003, as compared to the year ended December 31, 2002, primarily due to the addition of
properties and the addition of real estate expenses reimbursed by tenants from the DC Office
Properties, see Property Analysis Real Estate Held for Investment.
The gain on disposition of real estate held for sale included in continuing operations, increased
151.6 percent, as compared to the year ended December 31, 2002, primarily due to the increase in
gross margin on sales of inventory properties. During the year ended December 31, 2003, the
Company disposed of three inventory properties and recognized a gain of $3,247,000 compared to four
inventory properties for a $1,290,000 gain for the year ended December 31, 2002.
Interest and other income from real estate transactions increased 34.8 percent for the year ended
December 31, 2003, compared to the year ended December 31, 2002. This increase was primarily
attributable to (i) the $45,200,000 structured finance investment entered into in October 2003, and
(ii) an increase in development fees. However, the increase was partially offset by a decrease in
mortgage interest income.
Expense Analysis
General.
During 2004 operating expenses increased primarily as a result of the acquisition of
additional properties but remained generally proportionate to the Companys total revenue. The
following summarizes the Companys expenses (dollars in thousands):
36
Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003.
In general,
operating expenses increased 25.3 percent for the year ended December 31, 2004, over the year ended
December 31, 2003, and increased as a percentage of total revenues by 0.1 percent to 43.3 percent.
General and administrative expenses increased 6.0 percent for the year ended December 31, 2004, but
decreased as a percentage of total revenues by 3.1 percent to 17.8 percent. General and
administrative expenses increased for the year ended December 31, 2004, primarily as a result of
increases in expenses related to personnel. In addition, expenses related to professional services
provided to the Company increased for the year ended December 31, 2004. For the year ended
December 31, 2004, this increase is partially offset by a decrease in state taxes paid by the
Company.
Real estate expenses increased 64.5 percent for the year ended December 31, 2004, and increased as
a percentage of total revenues by 2.3 percent to 9.4 percent. Real estate expenses for the year
ended December 31, 2004, increased primarily due to the August 2003 acquisition of the DC Office
Properties. The DC Office Properties lease and the revenues related to such real estate expenses
are included in real estate expense reimbursement from tenants. Real estate expenses related to
the DC Office Properties were 59.6 and 51.3 percent, respectively, of total real estate expenses
for the years ended December 31, 2004 and 2003, respectively. In addition, real estate expenses on
vacant properties increased for the year ended December 31, 2004.
Depreciation and amortization expense increased 29.7 percent for the year ended December 31, 2004,
and increased 0.5 percent to 13.3 percent of total revenues for the year ended December 31, 2004.
The increase in depreciation and amortization expense for the year ended December 31, 2004, is
primarily attributable (i) the depreciation on the acquisition of 36 additional Investment
Properties and the tenant improvements on four Investment Properties since December 31, 2003, and
(ii) the amortization of additional lease costs. The increase is partially offset by a decrease in
the amortization of debt costs and the decrease in depreciation resulting from the disposition of
21 and 14 investment properties during each of the years ended December 31, 2004 and 2003,
respectively.
During the year ended December 31, 2003, the Company recorded a dissenting shareholders settlement
expense of $2,413,000 related to the lawsuit that arose as a result of the merger with Captec in
December 2001. (See Results of Operations Merger Transactions).
During the year ended December 31, 2004, the Company recorded transition costs of $3,741,000,
including severance, accelerated vesting of restricted stock and recruitment costs in connection
with the appointment of Craig Macnab as Chief Executive Officer in February 2004, and the
resignation of Gary M. Ralston as President and Chief Operating Officer in May 2004.
Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002
. Operating expenses
increased 34.9 percent for the year ended December 31, 2003 over the year ended December 31, 2002,
and increased as a percentage of total revenues by 3.8 percent to 43.2 percent.
General and administrative expenses increased 32.9 percent for the year ended December 31, 2003,
and increased as a percentage of total revenues by 1.5 percent to 20.9 percent. General and
administrative expenses increased for the year ended December 31, 2003 primarily as a result of (i)
increases in expenses related to personnel costs, (ii) increases in expenses related to
professional services provided to the Company, and (iii) increases in state taxes.
Real estate expenses increased 69.4 percent for the year ended December 31, 2003 primarily due to
the August 2003 acquisition of the DC Office Properties, increasing as a percentage of total
revenues by 1.9 percent to 7.1 percent. The DC Office Properties lease and the revenues related to
such real estate expenses are included in real estate expense reimbursements from tenants. Real
estate expenses related to the DC Office Properties were 51.3 percent of total real estate expenses
for the year ended December 31,
37
2003. The increase in real estate expenses was partially offset by an increase in the Companys
occupancy rate to 97 percent at December 31, 2003 from 94 percent at December 31, 2002.
Depreciation and amortization expense increased 21.9 percent for the year ended December 31, 2003,
but decreased as a percentage of total revenues by 0.1 percent to 12.8 percent for the year ended
December 31, 2003. The increase in depreciation and amortization expense for the year ended
December 31, 2003 is primarily attributable to (i) the depreciation on acquisition of and tenant
improvements on additional Investment Properties in 2003, (ii) the amortization of loan costs
related to the amended Credit Facility and the Term Note, and (iii) the amortization of additional
lease costs.
The Company recorded no loss on impairment of real estate during 2003. The Company recorded a
provision for loss on impairment of real estate of $1,613,000 and $1,672,000 in continuing
operations and discontinued operations, respectively, in the year ended December 31, 2002. The
Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Generally, the Company
makes a provision for impairment loss if estimated future operating cash flows plus estimated
disposition proceeds are less than the current book value. Impairment losses are measured as the
amount by which the current book value of the asset exceeds the estimated fair value of the asset.
During the year ended December 31, 2003, the Company recorded a dissenting shareholders settlement
expense of $2,413,000 related to the Appraisal Action that arose as a result of the merger with
Captec in December 2001. (See Results of Operations Merger Transactions).
Analysis of Other Expenses and Revenues
General.
During the year ended December 31, 2004, interest and other income and interest expense
increased with the acquisition of additional properties but remained generally proportionate to the
Companys total revenue and expenses. The following summarizes the Companys other expenses
(revenues) from continuing operations (dollars in thousands):
Comparison of Year Ended
December 31, 2004 to Year Ended December 31, 2003.
In
general, other expenses (revenues) increased 22.5 percent for the year ended December 31, 2004, over the
year ended December 31, 2003, but decreased as a percentage of total revenues by 0.4 percent to
22.2 percent.
Interest expense increased 21.3 percent for the year ended December 31, 2004, but decreased as a
percentage of total revenues by 0.7 percent to 25.1 percent for the year ended December 31, 2004.
The increase in interest expense for the year ended December 31, 2004, was primarily attributable
to an increase in the long-term fixed rate average debt outstanding of $475,802,000 as of December
31, 2004, including the addition of the $95,000,000 fixed rate mortgage loan entered into in
November 2003. However, the increase in interest expense was partially offset by a lower average
debt outstanding of $39,869,000 as of December 31, 2004 on the Companys short-term variable
interest rate debt.
38
Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002.
In general, other
expenses (revenues) increased 10.0 percent for the year ended December 31, 2003, over the year
ended December 31, 2002, but decreased as a percentage of total revenues by 2.7 percent to 22.6
percent.
Interest and other income decreased 14.0 percent for the year ended December 31, 2003, and
decreased as a percentage of total revenues by 1.3 percent to 3.2 percent. Interest and other
income decreased for the year ended December 31, 2003, primarily as a result of a decrease of
interest earned on a note receivable and a related party line of credit.
Interest expense increased 6.3 percent for the year ended December 31, 2003, but decreased as a
percentage of total revenues by 4.2 percent to 25.8 percent for the year ended December 31, 2003.
The increase in interest expense for the year ended December 31, 2003, was primarily as a result of
refinancing a portion of the Companys Credit Facility and Term Note to long-term fixed rate debt,
including the 2012 Notes and the $21,000,000 fixed rate mortgage loan, both entered into in June
2002 and the addition of the $95,000,000 fixed rate mortgage loan entered into in November 2003, as
a means to reduce floating interest rate risk. However, the increase in interest expense was
partially offset by a decrease in the average interest rates on the Companys variable interest
rate debt.
Unconsolidated Affiliates
For details on each of the
Companys unconsolidated affiliates, see Capital Resources
Investments in Unconsolidated Affiliates.
During the years ended December 31, 2004, 2003 and 2002, the Company recognized equity in earnings
of unconsolidated affiliates of $4,724,000, $4,341,000 and $1,800,000, respectively. The increase
in equity in earnings of unconsolidated affiliates was primarily attributable to the income earned
on investments in mortgage loans.
Earnings from Discontinued Operations
The Company has recorded discontinued operations by the defined Company segments: (i) real estate
held for investment and (ii) real estate held for sale. As a result, in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company classified the
revenues and expenses related to its investment properties that were sold and expired leasehold
interests subsequent to December 31, 2001, as discontinued operations. The Company also classified
the revenues and expenses of its held for sale properties that were sold and generated rental
revenues as discontinued operations. In addition, the Company also classified the revenues and
expenses related to its 21 Inventory Properties held for sale as of December 31, 2004, as
discontinued operations.
During the years ended December 31, 2004, 2003 and 2002, the Company recognized earnings from
discontinued operations of (dollars in thousands):
Real estate, held for investment
(1)
(1)
2004 includes one expired leasehold interest.
The Company occasionally sells investment properties and may reinvest the proceeds of the
sales to purchase new properties. The Company evaluates its ability to pay dividends to
stockholders by considering the combined effect of income from continuing and discontinued
operations.
39
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest changes primarily as a result of its variable rate Credit
Facility and its long-term, fixed rate debt used to finance the Companys development and
acquisition activities and for general corporate purposes. The Companys interest rate risk
management objective is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objectives, the Company borrows at both fixed
and variable rates on its long-term debt.
The Company entered into a forward starting interest rate swap in February 2004 and terminated the
swap effective June 2004 for a swap gain of $4,148,000. The Company had no outstanding derivatives
as of December 31, 2004 and 2003.
The information in the table below summarizes the Companys market risks associated with its debt
obligations outstanding as of December 31, 2004 and 2003. The table presents principal cash flows
and related interest rates by year of expected maturity for debt obligations outstanding as of
December 31, 2004. The variable interest rates shown represent the weighted average rates for the
Credit Facility and Term Note at the end of the periods. As the table incorporates only those
exposures that exist as of December 31, 2004, it does not consider those exposures or positions
which could arise after those dates. Moreover, because firm commitments are not presented in the
table below, the information presented therein has limited predictive value. As a result, the
Companys ultimate realized gain or loss with respect to interest rate fluctuations will depend on
the exposures that arise during the period, the Companys hedging strategies at that time and
interest rates.
Total
Fair Value:
December 31, 2003
40
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of Commercial Net Lease Realty, Inc.
and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
earnings, stockholders equity, and cash flows for each of the years in the three-year period ended
December 31, 2004. In connection with our audits of the consolidated financial statements, we also
have audited financial statement schedules III and IV. These consolidated financial statements and
financial statement schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Commercial Net Lease Realty, Inc. and subsidiaries as
of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Effective January 1, 2004, the Company implemented Financial Accounting Standards Board
Interpretation No. 46, revised December 2003, Consolidation of Variable Interest Entities (FIN
46R) and has restated all prior period consolidated financial statements to reflect its adoption.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Commercial Net Lease
Realty, Inc.s
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 9, 2005 expressed an unqualified opinion on
managements assessment of, and the effective operation of, internal control over financial
reporting.
41
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
We have audited managements assessment, included in Managements Report on Internal Control Over
Financial Reporting, that Commercial Net Lease Realty, Inc. maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Commercial Net Lease Realty, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Commercial Net Lease Realty, Inc. maintained effective
internal control over financial reporting as of December 31, 2004, is fairly stated, in all
material respects, based on criteria established in Internal
Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion,
Commercial Net Lease Realty, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Commercial Net Lease Realty, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings,
stockholders equity and cash flows for each of the years in the three-year period ended December
31, 2004, and the related financial statement schedules III and IV and our report dated March 9,
2005 expressed an unqualified opinion on those consolidated financial statements and the related
financial statement schedules III and IV.
42
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED BALANCE SHEETS
Real estate, held for investment:
LIABILITIES AND STOCKHOLDERS EQUITY
Line of credit payable
Minority interest
Stockholders equity:
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Revenues:
Operating expenses:
Other expenses (revenues):
Earnings from continuing operations before provision for
income taxes, minority interest and equity in earnings of
unconsolidated affiliates
Provision for income taxes
Earnings from continuing operations before minority
interest and equity in earnings of unconsolidated
affiliates
Minority interest
Earnings from continuing operations before equity in
earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates
Earnings from continuing operations
Earnings from discontinued operations:
Net earnings
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF EARNINGS CONTINUED
Net earnings per share of common stock:
Diluted:
Weighted average number of common shares outstanding:
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Balance at December
21, 2001
Net earnings
Net earnings
Balances at
December 31, 2003
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY - CONTINUED
Balances at December
31, 2003
Net earnings
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Cash flows from investing activities:
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
Cash flows from financing activities:
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information interest paid, net of amount
capitalized
Supplemental disclosure of non-cash investing and financing activities:
See accompanying notes to consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC.
CONSOLIDATED QUARTERLY FINANCIAL DATA
Gross revenues
2003
Gross revenues
50
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
51
accounting to investments in partnerships and joint ventures that are not subject
to control by the Company due to the significance of rights held by other parties.
The Company holds a variable interest in, but is not the primary beneficiary of, CNL Plaza
Ltd., a variable interest entity. The Companys maximum exposure to loss as a result of its
involvement with CNL Plaza Ltd. as of December 31, 2004, is $6,076,000. As of December 31,
2004, CNL Plaza, Ltd. had total assets and liabilities of $58,913,000 and $62,473,000,
respectively.
A wholly-owned subsidiary of Services, CNLRS Equity Ventures, Inc. (Equity Ventures),
develops real estate through various joint venture development affiliate agreements. Equity
Ventures consolidates the joint venture development entities listed in the table below,
eliminating significant intercompany balances and transactions and recording a minority
interest for its other partners ownership percentage. The following table summarizes each
of the investments as of December 31, 2004:
Real Estate Held for Investment
The Company records the acquisition of real
estate at cost, including acquisition and closing costs. The cost of properties developed
by the Company includes direct and indirect costs of construction, property taxes, interest
and other miscellaneous costs incurred during the development period until the project is
substantially complete and available for occupancy.
Real estate is generally leased to tenants on a net lease basis, whereby the tenant is
responsible for all operating expenses relating to the property, including property taxes,
insurance, maintenance and repairs. The leases are accounted for using either the operating
or the direct financing method. Such methods are described below:
Operating method
Leases accounted for using the operating method are recorded at the
cost of the real estate. Revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations as incurred. Buildings are
depreciated on the straight-line method over their estimated useful lives (generally
35 to 40 years). Leasehold interests are amortized on the straight-line method over
the terms of their respective leases. When scheduled rentals vary during the lease
term, income is recognized on a straight-line basis so as to produce a constant
periodic rent over the term of the lease. Accrued rental income is the aggregate
difference between the scheduled rents which vary during the lease term and the income
recognized on a straight-line basis.
Direct financing method
Leases accounted for using the direct financing method are
recorded at their net investment (which at the inception of the lease generally
represents the
52
cost of the property). Unearned income is deferred and amortized into
income over the lease terms so as to produce a constant periodic rate of return on the
Companys net investment in the leases.
When real estate is disposed of, the related cost, accumulated depreciation or amortization
and any accrued rental income for operating leases and the net investment for direct
financing leases are removed from the accounts and gains and losses from the dispositions
are reflected in income. Gains from disposition of real estate are generally recognized
using the full accrual method in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 66 Accounting for Real Estate Sales, provided that
various criteria relating to the terms of the sale and any subsequent involvement by the
Company with the real estate sold are met. Lease termination fees are recognized when the
related leases are cancelled and the Company no longer has a continuing obligation to
provide services to the former tenants.
Management reviews its real estate for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset, including accrued rental
income, may not be recoverable through operations. Management determines whether an
impairment in value has occurred by comparing the estimated future cash flows (undiscounted
and without interest charges), including the residual value of the real estate, with the
carrying cost of the individual asset. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the asset exceeds its fair value.
Purchase Accounting for Acquisition of Real Estate For purchases of real estate that were
consummated subsequent to June 30, 2001, the effective date of SFAS No. 141, Business
Combinations, the fair value of the real estate acquired is allocated to the acquired
tangible assets, consisting of land, building and tenant improvements, and identified
intangible assets and liabilities, consisting of the value of above-market and below-market
leases, other value of in-place leases and value of tenant relationships, based in each case
on their relative fair values.
The fair value of the tangible assets of an acquired property is determined by valuing the
property as if it were vacant, and the as-if-vacant value is then allocated to land,
building and tenant improvements based on the determination of the relative fair values of
these assets. Management uses the as-if-vacant fair value of a property provided by a
qualified appraiser.
In allocating the fair value of the identified intangible assets and liabilities of an
acquired property, above-market and below-market in-place lease values are recorded as other
assets based on the present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between (i) the contractual amounts
to be paid pursuant to the in-place leases and (ii) managements estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal to the
remaining non-cancelable term of the lease. The capitalized above-market lease values are
amortized as a reduction of rental income over the remaining non-cancelable terms of the
respective leases. The capitalized below-market lease values are amortized as an increase
to rental income over the initial term and any fixed rate renewal periods in the respective
leases. The Companys leases do not currently include fixed-rate renewal periods.
The aggregate value of other acquired intangible assets, consisting of in-place leases, is
measured by the excess of (i) the purchase price paid for a property after adjusting
existing in-place leases to market rental rates over (ii) the estimated fair value of the
property as-if-vacant, determined as set forth above. The value of in-place leases
exclusive of the value of above-market and below-market in-place leases is amortized to
expense over the remaining non-cancelable periods of the
respective leases. If a lease were to be terminated prior to its stated expiration, all
unamortized amounts relating to that lease would be written off.
53
Real Estate Held for Sale
Services acquires, develops and currently owns
properties that it intends to sell. The properties that are classified as held for sale at
any given time may consist of properties that have been acquired in the marketplace with the
intent to resell the properties that have been, or are currently being, constructed by
Services. Services records the acquisition of the real estate at cost, including the
acquisition and closing costs. The cost of the real estate developed by Services includes
direct and indirect costs of construction, interest and other miscellaneous costs incurred
during the development period until the project is substantially complete and available for
occupancy. The asset is not depreciated. In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, Services classifies its real estate held
for sale as discontinued operations for each property in which rental revenues are generated
(see Note 3). When real estate held for sale is disposed of, the related costs are removed
from the accounts and gains and losses from the dispositions are reflected in earnings.
Investment in Unconsolidated Affiliates
The Company accounts for each of its
investments in unconsolidated affiliates under the equity method of accounting (see Note 4).
The Company exercises influence over these unconsolidated affiliates, but does not control
them.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. Cash and cash
equivalents consist of cash and money market accounts. Cash equivalents are stated at cost
plus accrued interest, which approximates fair value.
Cash accounts maintained on behalf of the Company in demand deposits at commercial banks and
money market funds may exceed federally insured levels; however, the Company has not
experienced any losses in such accounts. The Company limits investment of temporary cash
investments to financial institutions with high credit standing; therefore, management
believes it is not exposed to any significant credit risk on cash and cash equivalents.
Debt Costs
Debt costs incurred in connection with the Companys $225,000,000 line
of credit and mortgages payable have been deferred and are being amortized over the term of
the respective loan commitment using the straight-line method which approximates the
effective interest method. Debt costs incurred in connection with the term note payable,
which matured in November 2004, were amortized over the term using the straight-line method
which approximated the effective interest rate. Debt costs incurred in connection with the
issuance of the Companys notes payable have been deferred and are being amortized over the
term of the respective debt obligation using the effective interest method.
54
Earnings Per Share
Basic net earnings per share is computed by dividing net
earnings available to common stockholders by the weighted average number of common shares
outstanding during each period. Diluted net earnings per common share is computed by
dividing net earnings available to common stockholders for the period by the number of
common shares that would have been outstanding assuming the issuance of common shares for
all potentially dilutive common shares outstanding during the periods.
The following is a reconciliation of the denominator of the basic net earnings per common
share computation to the denominator of the diluted net earnings per common share
computation for each of the years ended December 31:
Weighted average number of common shares outstanding
Weighted average number of common shares outstanding
The following represents the number of shares of potentially issuable common stock
which were not included in computing diluted earnings per common share because their effects
were antidilutive:
Stock-Based Compensation
At December 31, 2004, the Company had one
stock-based compensation plan, which is described more fully in Note 19. Prior to 2003, the
Company accounted for the plan under the recognition and measurement provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based compensation costs are reflected in 2002 net earnings, as all options granted
under the plan had an exercise price equal to the market value of the underlying common
stock at the date of grant. Effective January 1, 2003, the Company adopted the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
prospectively to all employee and director awards granted, modified, or settled after
January 1, 2003. Therefore, the cost related to stock-based employee compensation included
in the determination of net earnings for 2004 and 2003 is less than that which would have
been recognized if the fair value based method had been applied to all awards since the
original effective date of SFAS No. 123.
55
The following table illustrates the effect on net earnings available to common stockholders
and earnings per share if the fair value based method had been applied to all outstanding
and unvested awards in each period (dollars in thousands, except per share data):
Net earnings available to common
stockholders basic, as reported:
Net earnings available to common
stockholders diluted, as reported:
Earnings available to common stockholders
per common share as reported:
Pro forma earnings available to common
stockholders per common share:
There were no options granted in 2004. The fair value of each option grant in 2003 and
2002 is estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (i) risk free rate of 5.5% for the 2003 grant and 5.4% and 5.5% for
the 2002 grants, (ii) expected volatility of 18.0% and 18.0%, respectively, (iii) dividend
yields of 9.3% and 9.3%, respectively, and (iv) expected lives of 10 years for each of the
2003 and 2002 grants.
Income Taxes
The Company has made an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations.
The Company generally will not be subject to federal income taxes on amounts distributed to
stockholders, providing it distributes at least 90 percent of its real estate investment
trust taxable income and meets certain other requirements for qualifying as a REIT. For
each of the years in the three-year period ended December 31, 2004, the Company believes it
has qualified as a REIT. Not withstanding the Companys qualification for taxation as a
real estate investment trust, the Company is subject to certain state taxes on its income
and real estate.
Effective January 1, 2001, Commercial Net Lease Realty, Inc. elected for Services to be
treated as a TRS pursuant to the provisions of the REIT Modernization Act. As a TRS,
Services is able to engage in activities resulting in income that previously would have been
disqualified from being eligible REIT income under the federal income tax regulations. As a
result, certain activities of the Company which occur within Services are subject to federal
and state income taxes (See Real Estate Held for Sale). All provisions for federal income
taxes in the accompanying consolidated financial statements are attributable to Services.
56
57
contingent rentals and/or scheduled rent increases over the terms of the leases. Generally,
the tenant is also required to pay all property taxes and assessments, substantially
maintain the interior and exterior of the building and carry property and liability
insurance coverage. Certain of the Companys Investment Properties are subject to leases
under which the Company retains responsibility for certain costs and expenses of the
property. As of December 31, 2004, the weighted average remaining lease term was
approximately 10 years. Generally, the leases of the Investment Properties provide the
tenant with one or more multi-year renewal options subject to generally the same terms and
conditions as the initial lease.
Accounted for Using the Operating Method
Real estate subject to operating leases
consisted of the following as of December 31 (dollars in thousands):
Land and improvements
In August 2003, the Company acquired two office buildings and a related parking garage
located in the Washington, D.C. metropolitan area (DC Office Properties) for $142,800,000.
In addition, pursuant to the lease agreement, the Company has agreed to fund an additional
$27,322,000 for building and tenant improvements, of which $23,850,000 had been funded as of
December 31, 2004. The Company anticipates the remaining building and improvements to be
substantially completed and funded by June 30, 2005.
Some leases provide for scheduled rent increases throughout the lease term. Such amounts
are recognized on a straight-line basis over the terms of the leases. For the years ended
December 31, 2004, 2003 and 2002, the Company recognized collectively in continuing and
discontinued operations, $3,452,000, $6,756,000 and $3,223,000, respectively, of such
income. At December 31, 2004 and 2003, the balance of accrued rental income, net of
allowances of $1,620,000 and $1,320,000, respectively, was $28,619,000 and $25,322,000,
respectively.
The following is a schedule of future minimum lease payments to be received on
noncancellable operating leases at December 31, 2004 (dollars in thousands):
Since lease renewal periods are exercisable at the option of the tenant, the above
table only presents future minimum lease payments due during the initial lease terms. In
addition, this table does not include amounts for potential variable rent increases that are
based on the Consumer Price Index (CPI) or future contingent rents which may be received
on the leases based on a percentage of the tenants gross sales.
58
Accounted for Using the Direct Financing Method
The following lists the components
of net investment in direct financing leases at December 31 (dollars in thousands):
Minimum lease payments to be received
The following is a schedule of future minimum lease payments to be received on direct
financing leases at December 31, 2004 (dollars in thousands):
Inventory:
Under construction:
In connection with the development of seven Inventory Properties by Services, the
Company has agreed to fund construction commitments of $26,409,000, of which $12,248,000 has
been funded as of December 31, 2004.
59
The following table summarizes the number of inventory properties sold and the corresponding
gain recognized on the disposition of real estate held for sale included in earnings from
continuing and discontinued operations for the years ended December 31 (dollars in
thousands):
Continuing operations
Discontinued operations:
Minority interest
Total discontinued operations
60
The Company has entered into five limited liability company (LLC) agreements
(collectively, CCMH LLCs) with Orange Avenue Mortgage Investments, Inc. (OAMI), formerly
known as CNL Commercial Finance, Inc. Each of the LLCs holds an interest in mortgage loans
and is 100 percent equity financed. The Company holds a non-voting and non-controlling
interest in each of the LLCs and accounts for its investment under the equity method of
accounting. The following table summarizes each of the investments as of December 31, 2004:
During the years ended December 31, 2004 and 2003, the Company received $10,562,000 and
$4,211,000, respectively, in distributions from the CCMH LLCs. In 2003, in connection with
a loan to OAMI, the Company pledged a portion of its interest in two of the LLCs as partial
collateral for the loan.
The following presents the combined condensed financial information of the CCMH LLCs
(dollars in thousands):
Mortgage assets
Total liabilities
Revenues/net earnings
For the years ended December 31, 2004, 2003 and 2002, the Company recognized earnings
of $5,042,000, $4,583,000 and $2,445,000, respectively, from the CCMH LLCs.
In May 2002, the Company purchased a combined 25 percent partnership interest in CNL Plaza,
Ltd. and CNL Plaza Venture, Ltd. (collectively, Plaza) for $750,000. The remaining
partnership interests in Plaza are owned by affiliates of James M. Seneff, Jr. and Robert A.
Bourne, both members of the Companys board of directors. Plaza owns a 346,000 square foot
office building and an interest in an adjacent parking garage. The Company has severally
guaranteed 41.67 percent of a $15,500,000 unsecured promissory note on behalf of Plaza. The
maximum obligation of the Company under this guarantee is $6,458,000, plus interest.
Interest accrues at a rate of LIBOR plus 200 basis points per annum on the unpaid principal
amount. This guarantee shall continue through the loan maturity, which was extended from
the original maturity of November 2004 to May 2005. The fair value of the Companys
guarantee is $73,000. During the years ended December 31, 2004, 2003 and 2002 the Company
received $446,000, $372,000 and $411,000, respectively, in distributions from Plaza. For
the years ended December 31, 2004, 2003 and 2002, the Company recognized a loss from Plaza
of $276,000, $306,000 and $159,000, respectively.
61
Since November 1999, the Company has leased its office space from Plaza. The Companys
lease expires in October 2014. In addition, other affiliates of James M. Seneff, Jr. also
lease office space from Plaza. The Company and other affiliates lease an aggregate of 66
percent of the 346,000 square foot office building. During the years ended December 31,
2004, 2003 and 2002, the Company incurred rental expenses in connection with the lease of
$1,018,000, $1,001,000 and $1,222,000, respectively. In May 2000, the Company subleased a
portion of its office space to affiliates of James M. Seneff, Jr. During the years ended
December 31, 2004, 2003 and 2002, the Company earned $345,000, $338,000 and $270,000,
respectively, in rental and accrued rental income from these affiliates.
The following is a schedule of the Companys future minimum lease payments and the future
minimum sublease income from the affiliates related to the office space leased from Plaza at
December 31, 2004 (dollars in thousands):
2005
Since lease renewal periods are exercisable at the option of the tenant, the above
table only presents future minimum lease payments due during the initial lease terms. The
Company has the option to renew its lease with Plaza for three successive five-year periods
subject to similar terms and conditions as the initial lease.
In 1999, a wholly-owned subsidiary of the Company entered into a membership arrangement,
WXI/SMC Real Estate LLC (WXI), with Whitehall Street Real Estate Limited Partnership XI.
The Company is the sole managing member and holds a 33 1/3 percent interest in WXI. WXI was
organized for the purpose of owning, developing, redeveloping, operating, leasing and
selling a portfolio of real estate. The Company accounts for its interest under the equity
method of accounting. During the years ended December 31, 2004, 2003, and 2002, the Company
recognized a loss of $68,000, 570,000, and $1,438,000, respectively. The Company provides
certain management services for WXI on behalf of Services pursuant to WXIs Limited
Liability Company Agreement and Property Management and Development Agreement. WXI paid the
Company $14,000, $52,000 and $86,000 in fees during the years ended December 31, 2004, 2003
and 2002, respectively.
The following presents a reconciliation of investments in and receivables from
unconsolidated affiliates at December 31 (dollars in thousands):
CCMH LLCs
investments
62
The following presents a reconciliation of equity in earnings of unconsolidated
affiliates for the years ended December 31 (dollars in thousands):
CCMH LLCs
63
64
In November 2003, the Company entered into a long-term, fixed rate interest-only loan for
$95,000,000. The loan bears interest at a rate of 5.42% per annum with monthly interest
payments of $435,000 and the principal balance due in November 2013. The loan is secured by
a first mortgage lien on the DC Office Properties. As of December 31, 2004, the aggregate
carrying value of these properties totaled $155,601,000. As of December 31, 2004 and 2003,
the outstanding principal balance was $95,000,000.
In February 2004, the Company acquired a property subject to a mortgage securing a loan for
$6,952,000. The loan bears interest at a rate of 6.90% per annum with monthly principal and
interest payments of $68,000 and the balance due in January 2017. As of December 31, 2004,
the aggregate carrying value of the property was $12,358,000. The outstanding principal
balance as of December 31, 2004, was $6,665,000.
In December 2004, the Company acquired a property subject to a mortgage securing loan for
$408,000. The loan bears interest at a rate of 9.375% per annum with monthly principal and
interest payments of $5,000 and the balance due in September 2014. As of December 31, 2004,
the aggregate carrying value of this property was $697,000. The outstanding principal
balance as of December 31, 2004, was $406,000.
The following is a schedule of the annual maturities of the Companys mortgages payable
(dollars in thousands):
65
66
67
Ordinary income
68
The components of the net income tax asset (liability) consist of the following at December
31 (dollars in thousands):
In assessing the ability to realize a deferred tax asset, management considers whether
it is more likely than not that some portion or all of the deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize all of the benefits of these deductible
differences that existed as of December 31, 2004.
The income tax (expense) benefit has been allocated to earnings (loss) from continuing
operations and to earnings (loss) from discontinued operations for the years ended December
31, 2004, 2003 and 2002. The income tax (expense) benefit consists of the following
components for the years ended December 31, 2004, 2003 and 2002 (dollars in thousands):
Net loss from continuing operations of Services
before income taxes
Net earnings from discontinued operations of
Services before income taxes
69
Revenues:
Operating expenses:
Other expenses (revenues):
Earnings before gain on disposition of real estate
Gain on disposition of real estate, net of losses
on disposition of $544,000, $969,000 and
$1,806,000, respectively
Earnings from discontinued operations from real
estate held for investment
70
Other expenses (revenues):
Earnings before provision for income taxes and
minority interest
Provision for income taxes
Earnings from discontinued operations from real
estate held for sale
82
83
84
85
86
87
88
89
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
90
Item 9A. Controls and Procedures
Process for Assessment and Evaluation of Disclosure Controls and Procedures and Internal
Control over Financing Reporting.
The Company carried out an assessment as of December 31, 2004 of the effectiveness of the design
and operation of its disclosure controls and procedures and its internal control over financial
reporting. This assessment was done under the supervision and with the participation of
management, including the Companys Chief Executive Officer and Chief Financial Officer. Rules
adopted by the Commission require the Company to present the conclusions of the Chief Executive
Officer and Chief Financial Officer about the effectiveness of the Companys disclosure controls
and procedures and the conclusions of the Companys management about the effectiveness of the
Companys internal control over financial reporting as of the end of the period covered by this
annual report.
CEO and CFO Certifications.
Included as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K
are forms of Certification of the Companys Chief Executive Officer and Chief Financial Officer.
The forms of Certification are required in accordance with Section 302 of the Sarbanes-Oxley Act of
2002. This section of the Annual Report on Form 10-K that you are currently reading is the
information concerning the assessment referred to in the Section 302 certifications and this
information should be read in conjunction with the Section 302 certifications for a more complete
understanding of the topics presented.
Disclosure Controls and Procedures and Internal Control over Financial Reporting.
Disclosure
controls and procedures are designed with the objective of ensuring that information required to be
disclosed in the Companys reports filed or submitted under the Exchange Act, such as this Annual
Report on Form 10-K, is recorded, processed, summarized and reported within the time periods
specified in the Commissions rules and forms. Disclosure controls and procedures are also
designed with the objective of ensuring that such information is accumulated and communicated to
the Companys management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Internal control over financial reporting is a process designed by, or under the supervision of,
the Companys Chief Executive Officer and Chief Financial Officer, and affected by the Companys
board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles (GAAP) and includes those
policies and procedures that:
Scope of the Assessments.
The assessment by the Companys Chief Executive Officer and Chief
Financial Officer of the Companys disclosure controls and procedures and the assessment by the
Companys management, including the Companys Chief Executive Officer and Chief Financial Officer,
of the Companys internal control over financial reporting included a review of procedures and
discussions with the Companys management and others at the Company. In the course of the
assessments, the Company
91
sought to identify data errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken.
The Companys internal control over financial reporting is also assessed on an ongoing basis by
personnel in the Companys Accounting department and by the Companys internal auditors in
connection with their internal audit activities. The overall goals of these various assessment
activities are to monitor the Companys disclosure controls and procedures and the Companys
internal control over financial reporting and to make modifications as necessary. The Companys
intent in this regard is that the disclosure controls and procedures and the internal control over
financial reporting will be maintained and updated (including with improvements and corrections) as
conditions warrant. Among other matters, management sought in its assessment to determine whether
there were any significant deficiencies or material weaknesses in the Companys internal
control over financial reporting, or whether management had identified any acts of fraud involving
personnel who have a significant role in the Companys internal control over financial reporting.
In the Public Company Accounting Oversight Boards Auditing Standard No. 2, a significant
deficiency is a control deficiency, or a combination of control deficiencies, that adversely
affects the ability to initiate, authorize, record, process or report external financial data
reliably in accordance with GAAP such that there is more than a remote likelihood that a
misstatement of the annual or interim financial statements that is more than inconsequential will
not be prevented or detected. A control deficiency exists when the design or operation of a
control does not allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis. A material weakness is defined
in Auditing Standard No. 2 as a significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. Management also sought
to deal with other control matters in the assessment, and in each case if a problem was identified,
management considered what revision, improvement and/or correction was necessary to be made in
accordance with the Companys on-going procedures. The assessments of the Companys disclosure
controls and procedures and the Companys internal control over financial reporting is done on a
quarterly basis so that the conclusions concerning effectiveness of those controls can be reported
in the Companys Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.
Assessment of Effectiveness of Disclosure Controls and Procedures.
Based upon the assessments, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2004, the Companys disclosure controls and procedures were
effective.
Managements Report on Internal Control Over Financial Reporting.
Management, including the Companys Chief Executive Officer and Chief Financial Officer, are
responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. Management used the criteria issued by the Committee of Sponsoring Organizations of
the Treadway Commission in Internal Control Integrated Framework to assess the effectiveness of
the Companys internal control over financial reporting. Based upon the assessments, the Companys
Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2004,
the Companys internal control over financial reporting was effective. The Companys independent
registered public accounting firm has audited the consolidated financial statements in this Annual
Report on Form 10-K and have issued an attestation report on managements assessment of the
Companys internal control over financial reporting and its opinion on the effectiveness of
internal control over financial reporting, which appears on page 42 of this Annual Report on Form
10-K.
92
Changes in Internal Control Over Financial Reporting.
During the three months ended December 31, 2004, there were no changes in the Companys internal
control over financial reporting that has materially affected, or are reasonably likely to
materially affect, the Companys internal control for financial reporting.
Limitations on the Effectiveness of Controls.
Management, including the Companys Chief Executive Officer and Chief Financial Officer, do not
expect that the Companys disclosure controls and procedures or the Companys internal control over
financial reporting will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by managements override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
93
Item 9B. Other Information.
None.
94
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); information responsive to this Item is contained in the sections
thereof captioned Proposal I: Election of Directors Nominees, Proposal I: Election of
Directors Executive Officers, Proposal I: Election of Directors Code of Business Conduct and
Security Ownership, and the information in such sections is incorporated herein by reference.
95
Item 11. Executive Compensation
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); information responsive to this Item is contained in the section
thereof captioned Proposal I: Election of Directors Compensation of Directors, Executive
Compensation, Compensation Committee Report and Performance Graph, and the information in such
sections is incorporated herein by reference.
96
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); information responsive to this Item is contained in the section
thereof captioned Executive Compensation Equity Compensation Plan Information, Security
Ownership, and the information in such section is incorporated herein by reference.
97
Item 13. Certain Relationships and Related Transactions
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); information responsive to this Item is contained in the section
thereof captioned Certain Transactions, and the information in such section is incorporated
herein by reference.
98
Item 14. Principal Accounting Fees and Services
Reference is made to the Registrants definitive proxy statement to be filed with the Commission
pursuant to Regulation 14(a); information responsive to this Item is contained in the section
thereof captioned Audit Committee Report, and the information in such section is incorporated
herein by reference.
99
PART IV
Item 15. Exhibits and Financial Statement Schedules
100
101
102
103
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 14
th
day of March, 2005.
COMMERCIAL NET LEASE REALTY, INC.
105
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Each person whose signature appears below hereby constitutes and appoints each of Craig
Macnab and Kevin B. Habicht as his attorney-in-fact and agent, with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments to this report and
to file same, with exhibits thereto and other documents in connection therewith, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying and confirming all
that such attorney-in-fact and agent or his substitutes may do or cause to be done by virtue
hereof.
106
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
See accompanying report of independent registered public accounting firm.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
(a) The following shows the changes in the carrying amounts of mortgage loans during the years:
(b) Principal and interest is payable at level amounts over the life of the loan.
(c) Interest only payments are due quarterly. Principal is due at maturity.
(d) Interest only payments are due monthly. Principal is due at maturity.
(e) Mortgages held by the Company and its subsidiaries for federal income tax purposes for the
years ended December 31, 2004, 2003 and 2002, were $11,527,558, $13,194,972, and $7,064,659,
respectively.
(f) Mortgages totaling $17,122,868 and $4,344,460 were accepted in connection with real estate
transactions for the years ended December 31, 2003 and 2002, respectively.
(g) The mortgages are affiliates of certain members of the Companys board of directors.
(h) In January 2005, the mortgagee became current with all delinquent amounts.
See accompanying report of independent registered public accounting firm.
First
Second
Third
Fourth
2004
Quarter
Quarter
Quarter
Quarter
Year
$
19.750
$
20.080
$
18.340
$
21.250
$
21.250
17.530
14.800
16.400
18.210
14.800
19.750
17.200
18.220
20.600
20.600
0.320
0.320
0.325
0.325
1.290
$
15.840
$
17.440
$
18.380
$
18.000
$
18.380
14.350
15.100
16.000
17.040
14.350
15.100
17.240
17.030
17.800
17.800
0.320
0.320
0.320
0.320
1.280
2004
2003
70.99%
75.71%
3.13%
-
-
0.37%
3.21%
2.88%
22.67%
21.04%
100.00%
100.00%
(dollars in thousands, except per share data)
2004
2003
2002
2001
2000
$
157,277
$
124,248
$
109,812
$
85,554
$
83,495
50,624
42,866
34,431
24,372
34,778
64,934
53,473
48,058
28,963
38,251
1,300,048
1,213,778
958,300
1,010,009
769,295
524,241
467,419
386,912
435,333
360,381
756,998
730,754
549,141
564,640
393,901
66,272
55,473
51,178
38,637
37,760
4,008
4,008
4,010
-
-
1,675
502
-
-
-
51,312,434
43,108,213
40,383,405
31,539,857
30,387,371
51,742,518
43,896,800
40,588,957
31,717,043
30,407,507
0.870
0.890
0.750
0.770
1.140
0.870
0.890
0.750
0.770
1.140
1.150
1.140
1.090
0.920
1.260
1.150
1.130
1.090
0.910
1.260
1.290
1.280
1.270
1.260
1.245
2.250
2.250
2.250
-
-
167.500
50.250
-
-
-
74,792
48,531
111,589
112,267
14,551
(58,955
)
(251,186
)
(15,142
)
(2,700
)
17,195
(19,225
)
205,965
(101,654
)
(8,878
)
(28,929
)
73,065
61,749
54,595
32,034
42,061
(1)
Gross revenues include revenues from the Companys continuing and discontinued operations.
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and broadens the presentation of discontinued operations in the income
statement to include a component of an entity. Accordingly, the results of operations related
to these certain properties that have been classified as held for sale or have been disposed
of subsequent to December 31, 2001, the effective date of SFAS No. 144, have been reclassified
as earnings from discontinued operations.
(2)
Funds from Operations, commonly referred to as FFO, is a relative non-GAAP financial measure
of operating performance of an equity REIT in order to recognize that income-producing real
estate historically has not depreciated on the basis determined under GAAP. FFO is defined by
the National Association of Real Estate Investment Trusts and is used by the Company as
follows: net earnings (computed in accordance with GAAP) plus depreciation and amortization
of assets unique to the real estate industry, excluding gains (or including losses) on the disposition of real estate held for
investment, and the Companys share of these items from the Companys unconsolidated partnerships.
FFO is generally considered by industry analysts to be the most appropriate measure of operating
performance of real estate companies. FFO does not necessarily represent cash provided by
operating activities in accordance with GAAP and should not be considered an alternative to net
income as an indication of the Companys operating performance or to cash flow as a measure of
liquidity or ability to make distributions. Management considers FFO an appropriate measure of
operating performance of an equity REIT because it primarily excludes the assumption that the value
of the real estate assets diminishes predictably over time, and because industry analysts have
accepted it as an operating performance measure. The Companys computation of FFO may differ from
the methodology for calculating FFO used by other equity REITs, and therefore, may not be
comparable to such other REITs.
The Company has earnings from discontinued operations in each of its segments, real estate held for
investment and real estate held for sale. All property dispositions from the Companys held for
investment segment are classified as discontinued operations. In addition, certain properties in
the Companys held for sale segment that have generated revenues before disposition are classified
as discontinued operations. These held for sale properties have not historically been classified
as discontinued operations, therefore, prior period comparable consolidated financial statements
have been restated to include these properties in its earnings from discontinued operations. These
adjustments resulted in a decrease in the Companys reported total revenues and total and per share
earnings from continuing operations and an increase in the Companys earnings from discontinued
operations. However, the Companys total and per share net earnings available to common
stockholders are not affected.
The following table reconciles FFO to their most directly comparable GAAP measure, net earnings for
the years ended December 31:
2004
2003
2002
2001
2000
$
64,934
$
53,473
$
48,058
$
28,963
$
38,251
15,459
11,290
9,259
7,051
7,354
256
582
1,069
605
484
622
699
479
63
63
(2,523
)
(287
)
(260
)
(4,648
)
(4,091
)
78,748
65,757
58,605
32,034
42,061
(4,008
)
(4,008
)
(4,010
)
-
-
(1,675
)
(502
)
-
-
-
73,065
61,247
54,595
32,034
42,061
-
502
-
-
-
$
73,065
$
61,749
$
54,595
$
32,034
$
42,061
For a discussion of material events affecting the comparability of the information reflected
in the selected financial data, refer to the Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
the ability of tenants to make payments under their respective leases, including the
Companys reliance on certain major tenants and the ability of the Company to re-lease
properties that are currently vacant or that become vacant;
the ability of the Company to locate suitable tenants for its properties; changes in
real estate market conditions; changes in general economic conditions;
the ability of the Company to repay debt financing obligations;
the ability of the Company to refinance amounts outstanding under its credit facilities
at maturity on terms favorable to the Company;
continued availability of proceeds from the
Companys debt or equity capital;
the ability of the Company to maintain internal controls
and processes to ensure all transactions are accounted for properly, all relevant
disclosures and filings are timely made in accordance with all rules and regulations, and
any potential fraud or embezzlement is thwarted or detected;
the availability of other debt and equity financing alternatives; market conditions
affecting the Companys equity capital;
ability to sell properties at an attractive return;
changes in interest rates under the Companys current credit facilities and under any
additional variable rate debt arrangements that the Company may enter into in the future;
the ability of the Company to be in compliance with certain debt covenants; the inherent
risks associated with owning real estate (including: local real estate market conditions,
governing laws and regulations and illiquidity of real estate investments);
the ability of the Company to integrate office properties into existing operations that
historically have been primarily focused on retail properties;
the loss of any member of the Companys management team;
the ability of the Company to successfully implement its selective acquisition strategy
or fully realize the anticipated benefits of renovation or development projects;
the ability of the Company to integrate acquired properties and operations into existing
operations;
recent changes in tax legislation provide favorable treatment for dividends for regular
companies, but not generally dividends from real estate investment trusts; and
the ability of the Company to qualify as a real estate investment trust for federal
income tax purposes.
Expected Maturity Date
(dollars in thousands)
Total
2005
2006
2007
2008
2009
Thereafter
$
521,109
$
4,070
$
40,276
$
8,776
$
101,156
$
964
$
365,867
13,095
1,165
1,200
1,236
1,273
1,311
6,910
$
534,204
$
5,235
$
41,476
$
10,012
$
102,429
$
2,275
$
372,777
(1)
Includes amounts outstanding under the revolving credit facility, mortgages and notes payable and financing lease
obligation and excludes unamortized note discounts and unamortized interest rate hedge gain. Excludes $4,334,000 of accrued interest payable
due in 2005.
(2)
As of December 31, 2004, the Company does not have any other contractual cash obligations, such as purchase
obligations, financing lease obligations or other long-term liabilities other than those reflected in the table. In addition to items
reflected in the table, the Company has two series of preferred stock with cumulative preferential cash distributions (see Liquidity
Dividends).
2004
2003
2002
70.99%
75.71%
92.41%
3.13%
-
0.47%
-
0.37%
-
3.21%
2.88%
0.41%
22.67%
21.04%
6.71%
100.00%
100.00%
100.00%
Commencement
Discounted
Day of Semi-
Purchase
Purchase
Stated
Effective
Annual Interest
Maturity
Issue Date
Price
Discount
(3)
Price
Rate
Rate
(4)
Payments
Date
March 1998
$
100,000
$
271
$
99,729
7.125
%
7.163
%
September 1998
March 2008
June 1999
100,000
392
99,608
8.125
%
7.547
%
December 1999
June 2004
September 2000
20,000
126
19,874
8.500
%
8.595
%
March 2001
September 2010
June 2002
50,000
287
49,713
7.750
%
7.833
%
December 2002
June 2012
2014 Notes
(1)(2)(6)
June 2004
150,000
440
149,560
6.250
%
5.910
%
June 2004
June 2014
(1)
The proceeds from the note issuance were used to pay down outstanding indebtedness of the Companys Credit Facility.
(2)
The proceeds from the note issuance were used to repay the obligation of the 2004 Notes.
(3)
The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest method.
(4)
Includes the effects of the discount, treasury lock gain and swap gain (as applicable).
(5)
The Company entered into a treasury rate lock agreement which fixed a treasury rate of 5.1854% on a notional amount of $92,000,000. Upon issuance of the 2004 Notes, the Company terminated
the treasury rate lock agreement resulting in a gain of $2,679,000. The gain was deferred and amortized as an adjustment to interest expense over the term of the 2004 Notes using the effective interest
method.
(6)
The Company entered into a forward starting interest rate swap agreement which fixed a swap rate of 4.61% on a notional amount of $94,000,000. Upon issuance of the 2014 Notes, the Company
terminated the forward starting interest rate swap agreement resulting in a gain of $4,148,000. The gain has been deferred and is being amortized as an adjustment to interest expense over the term of the
2014 Notes using the effective interest method.
Investment
Date of Agreement
LLC Agreement
Interest
CCMH I, LLC
42.7
%
CCMH II, LLC
44.0
%
CCMH III, LLC
36.7
%
CCMH IV, LLC
38.3
%
CCMH V, LLC
38.4
%
2004
2003
2002
362
348
350
8,542,000
7,907,000
6,655,000
351
337
330
8,322,000
7,669,000
6,293,000
97%
97%
94%
10
11
12
2004
2003
2002
36
23
9
825,000
1,439,000
267,000
-
1
1
-
14,000
14,000
4
9
7
$
139,303,000
$
212,317,000
$
45,541,000
2004
2003
2002
20
14
19
155,000
345,000
408,000
$
32,444,000
$
25,023,000
$
29,928,000
$
2,452,000
$
161,000
$
256,000
2004
2003
2002
10
6
15
7
5
3
4
4
1
21
15
19
2004
2003
2002
33
23
13
$
48,318,000
$
38,836,000
$
11,672,000
8
8
9
$
26,366,000
$
23,169,000
$
23,178,000
$
76,647,000
$
63,469,000
$
30,875,000
2004
2003
2002
# of
# of
# of
Properties
Gain
Properties
Gain
Properties
Gain
7
$
4,700
3
$
3,247
4
$
1,290
17,885
7,891
4,489
817
1,037
1,966
18,702
8,928
6,455
(6,422
)
(986
)
-
17
12,280
26
7,942
21
6,455
24
$
16,980
29
$
11,189
25
$
7,745
2004
2003
2002
Percent
Percent
Percent
of Total
of Total
of Total
$
111,135
85.9%
$
92,929
89.7%
$
78,036
92.9%
5,756
4.5%
5,048
4.9%
2,932
3.5%
4,700
3.6%
3,247
3.1%
1,290
1.5%
7,718
6.0%
2,390
2.3%
1,773
2.1%
$
129,309
100.0%
$
103,614
100.0%
$
84,031
100.0%
(1)
Includes rental income from operating leases, earned income from direct financing leases and contingent rental income from continuing operations (Rental Income).
2004
2003
2002
Percent
Percent
Percent
of Total
of Total
of Total
$
124,374
96.2%
$
99,760
96.3%
$
82,171
97.8%
4,935
3.8%
3,854
3.7%
1,860
2.2%
$
129,309
100.0%
$
103,614
100.0%
$
84,031
100.0%
2004
2003
2002
Percent
Percent
Percent
of Total
of Total
of Total
$
22,996
41.0%
$
21,696
48.5%
$
16,324
49.2%
12,161
21.7%
7,394
16.5%
4,365
13.2%
17,138
30.6%
13,217
29.6%
10,843
32.7%
-
-
-
-
1,613
4.9%
-
-
2,413
5.4%
-
-
3,741
6.7%
-
-
-
-
$
56,036
100.0%
$
44,720
100.0%
$
33,145
100.0%
2004
2003
2002
Percent
Percent
Percent
of Total
of Total
of Total
$
(3,779
)
(13.2)%
$
(3,346
)
(14.3)%
$
(3,890
)
(18.3)%
32,463
113.2%
26,754
114.3%
25,179
118.3%
$
28,684
100.0%
$
23,408
100.0%
$
21,289
100.0%
# of Sold
# of Sold
# of Sold
Properties
2004
Properties
2003
Properties
2002
21
$
4,766
14
$
4,330
19
$
8,023
17
9,544
26
6,277
21
5,604
38
$
14,310
40
$
10,607
40
$
13,627
Debt Obligations (dollars in thousands)
(1)
Variable Rate Credit
Financing Lease
Facility
Fixed Rate Mortgages
Fixed Rate Notes
Obligation
(3)
Weighted
Weighted
Weighted
Weighted
Average
Average
Average
Average
Debt
Interest
Debt
Interest
Debt
Interest
Debt
Interest
Obligation
Rate
(2)
Obligation
Rate
Obligation
(4)
Rate
Obligation
Rate
$
-
-
$
4,070
6.20%
$
-
6.77%
$
-
5.00%
17,900
2.72%
22,376
6.00%
-
6.77%
-
5.00%
-
-
8,776
5.92%
-
6.77%
-
5.00%
-
-
1,156
5.86%
99,892
6.64%
-
5.00%
-
-
964
5.83%
-
6.59%
-
5.00%
-
-
119,826
7.08%
223,240
6.25%
26,041
5.00%
$
17,900
$
157,168
$
323,132
$
26,041
$
17,900
2.72%
$
157,168
6.27%
$
353,647
7.04%
$
26,041
5.00%
$
27,800
2.41%
$
149,861
6.68%
$
295,139
7.54%
$
-
-
(1)
The $20,000,000 variable rate term note matured in 2004. As of December 31, 2003, the term note had a weighted average interest rate of 3.01% and a fair value of $20,000,000.
(2)
Interest rate varies based upon a tiered rate structure ranging from 70 basis points above LIBOR to 135 basis points above LIBOR based upon the debt rating of the Company.
(3)
In July 2004, the Company sold five investment properties for $26,041,000 and subsequently leased back the properties under a 10-year financing lease obligation. The Company may repurchase one or more of the properties subject to put and call options included in the financing lease.
(4)
Net of unamortized note discounts and unamortized interest rate hedge gain.
Commercial Net Lease Realty, Inc. and Subsidiaries:
Orlando, Florida
March 9, 2005
Commercial Net Lease Realty, Inc. and Subsidiaries:
Orlando, Florida
March 9, 2005
and SUBSIDIARIES
(dollars in thousands, except per share data)
December 31,
ASSETS
2004
2003
$
1,009,397
$
887,124
102,311
102,970
58,049
45,822
29,307
39,606
-
16,530
45,564
68,423
1,947
5,335
6,636
4,740
28,619
25,322
3,926
3,776
14,292
11,596
-
2,534
$
1,300,048
$
1,213,778
$
17,900
$
27,800
157,168
149,861
323,132
289,758
26,041
-
4,334
3,820
11,745
11,508
702
-
541,022
482,747
2,028
277
44,540
44,541
25,000
25,000
521
500
-
-
725,337
691,704
(35,188
)
(28,167
)
(3,212
)
(2,824
)
756,998
730,754
$
1,300,048
$
1,213,778
and SUBSIDIARIES
(dollars in thousands, except per share data)
Year Ended December 31,
2004
2003
2002
$
99,863
$
81,854
$
66,765
10,861
10,670
10,864
5,756
5,048
2,932
411
405
407
4,700
3,247
1,290
7,718
2,390
1,773
129,309
103,614
84,031
22,996
21,696
16,324
12,161
7,394
4,365
17,138
13,217
10,843
-
-
1,613
-
2,413
-
3,741
-
-
56,036
44,720
33,145
73,273
58,894
50,886
(3,779
)
(3,346
)
(3,890
)
32,463
26,754
25,179
28,684
23,408
21,289
44,589
35,486
29,597
2,542
2,902
3,042
47,131
38,388
32,639
(1,231
)
137
(8
)
45,900
38,525
32,631
4,724
4,341
1,800
50,624
42,866
34,431
4,766
4,330
8,023
9,544
6,277
5,604
14,310
10,607
13,627
64,934
53,473
48,058
(4,008
)
(4,008
)
(4,010
)
(1,675
)
(502
)
-
59,251
48,963
44,048
-
502
-
$
59,251
$
49,465
$
44,048
and SUBSIDIARIES
(dollars in thousands, except per share data)
Year Ended December 31,
2004
2003
2002
$
0.87
$
0.89
$
0.75
0.28
0.25
0.34
$
1.15
$
1.14
$
1.09
$
0.87
$
0.89
$
0.75
028
0.24
0.34
$
1.15
$
1.13
$
1.09
51,312,434
43,108,213
40,383,405
51,742,518
43,896,800
40,588,957
and SUBSIDIARIES
Years Ended December 31, 2004, 2003 and 2002
(dollars in thousands, except per share data)
Series B
Accumulated
Deferred
Accumulated
Series A
Convertible
Capital in
Dividends in
Compensation
Other
Preferred
Preferred
Common
Excess of Par
Excess of Net
on Restricted
Comprehensive
Stock
Stock
Stock
Value
Earnings
Stock
Income
Total
$
50,000
$
-
$
406
$
531,677
$
(14,527
)
$
(2,916
)
$
-
$
564,640
-
-
-
-
48,058
-
-
48,058
-
-
-
-
(4,010
)
-
-
(4,010
)
-
-
-
-
(51,178
)
-
-
(51,178
)
(5,449
)
-
(5
)
(6,509
)
-
-
-
(11,963
)
-
-
2
2,752
-
-
-
2,754
-
-
1
982
-
(983
)
-
-
-
-
-
(14
)
-
-
-
(14
)
-
-
-
-
-
854
-
854
44,551
-
404
528,888
(21,657
)
(3,045
)
-
549,141
-
-
-
-
53,473
-
-
53,473
-
-
-
-
(4,008
)
-
-
(4,008
)
-
-
-
-
(502
)
-
-
(502
)
-
-
-
-
(55,473
)
-
-
(55,473
)
(10
)
-
-
(11
)
-
-
-
(21
)
-
-
95
168,512
-
-
-
168,607
-
25,000
-
-
-
-
-
25,000
-
-
1
1,140
-
(1,141
)
-
-
-
-
-
(91
)
-
91
-
-
-
-
-
(6,734
)
-
-
-
(6,734
)
-
-
-
-
-
1,271
-
1,271
44,541
25,000
500
691,704
(28,167
)
(2,824
)
-
730,754
and SUBSIDIARIES
Years Ended December 31, 2004, 2003 and 2002
(dollars in thousands, except per share data)
Accumulated
Deferred
Accumulated
Series B
Capital in
Dividends in
Compensation
Other
Series A
Convertible
Excess of Par
Excess of Net
on Restricted
Comprehensive
Preferred Stock
Preferred Stock
Common Stock
Value
Earnings
Stock
Income
Total
44,541
25,000
500
691,704
(28,167
)
(2,824
)
-
730,754
-
-
-
-
64,934
-
-
64,934
-
-
-
-
(4,008
)
-
-
(4,008
)
-
-
-
-
(1,675
)
-
-
(1,675
)
-
-
1
1,056
(66,272
)
-
-
(65,215
)
-
-
-
-
-
-
(4,148
)
(4,148
)
(1
)
-
-
-
-
-
-
(1
)
-
-
9
12,129
-
-
-
12,138
-
-
9
17,440
-
-
-
17,449
-
-
2
3,487
-
(3,489
)
-
-
-
-
-
(473
)
-
473
-
-
-
-
-
(6
)
-
-
-
(6
)
-
-
-
-
-
2,628
-
2,628
-
-
-
-
-
-
4,148
4,148
$
44,540
$
25,000
$
521
$
725,337
$
(35,188
)
$
(3,212
)
$
-
$
756,998
and SUBSIDIARIES
(dollars in thousands)
Year Ended December 31,
2004
2003
2002
$
64,934
$
53,473
$
48,058
978
1,905
1,682
17,398
13,799
12,640
-
-
3,285
123
146
128
(457
)
(596
)
(555
)
(5,064
)
(4,674
)
(1,992
)
1,828
341
8
(2,523
)
(287
)
(260
)
3,236
941
1,467
1,929
-
-
(74,024
)
(58,612
)
(27,229
)
87,321
72,262
88,494
(23,402
)
(12,175
)
(7,745
)
2,770
2,368
2,165
(2,093
)
(2,679
)
(3,694
)
6,243
(9,798
)
(1,070
)
(1,642
)
(2,614
)
263
(3,438
)
(6,548
)
(3,172
)
(1,456
)
(1,682
)
(493
)
485
246
442
1,646
2,715
(833
)
74,792
48,531
111,589
32,639
25,024
29,329
(134,565
)
(215,730
)
(41,236
)
-
-
(3,201
)
(4
)
(9,362
)
(14,500
)
11,008
5,684
5,785
(6,857
)
(48,328
)
(25
)
23,301
1,785
7,642
(115,600
)
(119,700
)
(80,900
)
132,200
125,900
81,818
1,068
-
1,319
(1,491
)
(3,127
)
-
-
(13,278
)
-
(654
)
(54
)
(1,173
)
(58,955
)
(251,186
)
(15,142
)
and SUBSIDIARIES
(dollars in thousands)
Year Ended December 31,
2004
2003
2002
350,900
352,800
111,500
(360,800
)
(363,900
)
(180,000
)
406
95,000
23,340
(9,163
)
(2,944
)
(2,547
)
26,041
-
-
149,560
-
49,713
4,148
-
-
(120,000
)
-
(50,000
)
(1,450
)
(1,900
)
(1,197
)
-
25,000
-
13,230
168,579
2,725
(4,008
)
(4,010
)
(4,007
)
(1,675
)
(502
)
-
(66,272
)
(55,472
)
(51,177
)
(140
)
(6,686
)
(4
)
(2
)
-
-
(19,225
)
205,965
(101,654
)
(3,388
)
3,310
(5,207
)
5,335
2,025
7,232
$
1,947
$
5,335
$
2,025
$
33,855
$
28,948
$
27,313
$
3,016
$
1,050
$
983
$
-
$
(1
)
$
4
$
-
$
(2
)
$
3
$
-
-
$
13,278
$
-
$
17,123
$
4,344
$
7,357
$
-
$
-
$
17,449
$
-
$
-
$
2,251
$
-
$
-
$
-
$
-
$
25
and SUBSIDIARIES
(unaudited)
(dollars in thousands, except for per share data)
First
Second
Third
Fourth
2004
Quarter
Quarter
Quarter
Quarter
Year
$
35,952
$
34,983
$
43,374
$
42,968
$
157,277
4,265
4,265
4,419
4,449
17,398
7,731
7,973
8,744
8,672
33,120
-
3,200
52
489
3,741
8,925
8,812
8,798
9,112
35,647
16,268
12,735
17,005
18,926
64,934
0.29
0.22
0.30
0.34
1.15
0.29
0.22
0.30
0.34
1.15
$
26,370
$
28,090
$
31,236
$
38,551
$
124,247
3,102
3,275
3,330
4,092
13,799
6,523
6,910
6,814
7,658
27,905
2,413
-
-
-
2,413
5,503
5,902
8,048
9,905
29,358
10,154
12,344
15,384
15,591
53,473
0.23
0.28
0.32
0.30
1.14
0.23
0.28
0.32
0.30
1.13
(1)
The consolidated quarterly financial data above includes revenues and expenses from the
Companys continuing and discontinued operations. The Financial Accounting Standard Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and broadens the
presentation of discontinued operations in the income statement to include a component of an
entity. Accordingly, the results of operations related to these certain properties that have
been classified as held for sale or have been disposed of in 2004 and 2003 have been
reclassified as earnings from discontinued operations for each period reported above. As
reported in the current Form 10-K, earnings from discontinued operations for the years ended
December 31, 2004 and 2003, were $14,310,000 and $10,607,000, respectively.
(2)
Calculated independently for each period, and consequently, the sum of the quarters may
differ from the annual amount.
and SUBSIDIARIES
Years Ended December 31, 2004, 2003 and 2002
1.
Organization and Summary of Significant Accounting Policies
:
Organization and Nature of Business
Commercial Net Lease Realty, Inc., a Maryland
corporation, is a fully integrated real estate investment trust (REIT) formed in 1984.
The term Company refers to Commercial Net Lease Realty, Inc. and its majority owned and
controlled subsidiaries. These subsidiaries include the wholly-owned qualified REIT
subsidiaries of Commercial Net Lease Realty, Inc., as well as the taxable REIT subsidiary
(TRS), Commercial Net Lease Realty Services, Inc. and its majority owned and controlled
subsidiaries (collectively, Services). The Company holds a 98.7 percent, non-controlling
interest in Services and is entitled to receive 98.7 percent of the dividends paid by
Services. James M. Seneff, Jr., a director of the Company, Kevin B. Habicht, an officer and
director of the Company, and Gary M. Ralston, a former officer and director of the Company,
collectively own the remaining 1.3 percent interest, which is 100 percent of the voting
interest in Services. Effective January 1, 2005, the Company acquired the remaining 1.3
percent voting interest in Services increasing the Companys ownership in Services to 100
percent.
The Companys operations are divided into two primary business segments: real estate held
for investment and real estate held for sale. The real estate held for investment is
operated through Commercial Net Lease Realty, Inc. and its wholly owned qualified REIT
subsidiaries. The Company directly and indirectly, through investment interests, acquires,
owns, invests in, manages and develops primarily single-tenant retail properties that are
generally leased to established tenants under long-term commercial net leases (Investment
Properties). As of December 31, 2004, the Company owned 362 properties, located in 38
states, that are leased to established tenants, including Academy, Barnes & Noble, Best Buy,
Borders, CVS, Eckerd, OfficeMax, The Sports Authority, United Rentals and the United States
of America. The real estate held for sale is operated through Services. Services acquires
and develops real estate directly and indirectly, through investment interests, primarily
for the purpose of selling the real estate to purchasers who are looking for replacement
like-kind exchange property or to other purchasers with different investment objectives. As
of December 31, 2004, Services owned 21 properties that were held for sale (Inventory
Properties).
Principles of Consolidation
In January 2003, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities (FIN 46R). This Interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business
enterprises of variable interest entities. A variable interest entity refers to certain
entities subject to consolidation according to the provisions of this interpretation. This
interpretation required existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the variable interest entities do not
effectively disperse risks among parties involved. Effective January 1, 2004, the Company
implemented FIN 46R and under the guidelines of this interpretation, Services met the
criteria of a variable interest entity which required consolidation by the Company.
Accordingly, effective January 1, 2004, the Company consolidated Services and all prior
period comparable condensed consolidated financial statements have been restated to include
Services as a consolidated subsidiary. The adoption of this interpretation did not have a
significant impact on the financial position or results of operations of the Company.
Therefore, the Companys consolidated financial statements include the accounts of each of
the respective majority owned and controlled affiliates. All significant intercompany
account balances and transactions have been eliminated. The Company applies the equity
method of
Date of
Equity Ventures
Agreement
Entity Name
Agreement Type
Ownership %
WG Grand Prairie TX, LLC
Limited Liability Company
60
%
KK-Seminole FL, LLC
Limited Liability Company
40
%
Gator Pearson, LLC
Limited Liability Company
50
%
MAC Boise ID, LLC
Limited Liability Company
60
%
CNLRS WG Grapevine TX, LLC
Limited Liability Company
60
%
CNLRS WG Crowley TX, LLC
Limited Liability Company
60
%
CNLRS Yosemite Park CO, LLC
Limited Liability Company
50
%
CNLRS Bismarck ND, LLC
Limited Liability Company
50
%
CNLRS WG Ennis TX, LLC
Limited Liability Company
60
%
CNLRS WG Dallas TX, LLC
Limited Liability Company
60
%
CNLRS WG Long Beach MS, LLC
Limited Liability Company
50
%
CNLRS Arcadian Commons, LLC
Limited Liability Company
50
%
2004
2003
2002
51,546,814
43,167,433
40,419,876
(234,380
)
(59,220
)
(36,471
)
51,312,434
43,108,213
40,383,405
51,546,814
43,167,433
40,419,876
192,370
229,495
169,081
-
499,872
-
3,334
-
-
51,742,518
43,896,800
40,588,957
2004
2003
2002
-
398,500
454,500
2004
2003
2002
$
59,251
$
48,963
$
44,048
20
3
-
(65
)
(74
)
(27
)
$
59,206
$
48,892
$
44,021
$
59,251
$
49,465
$
44,048
20
3
-
(65
)
(74
)
(27
)
$
59,206
$
49,394
$
44,021
$
1.15
$
1.14
$
1.09
$
1.15
$
1.13
$
1.09
$
1.15
$
1.13
$
1.09
$
1.14
$
1.13
$
1.08
Income taxes are accounted for under the asset and liability method as required by SFAS No.
109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for
the temporary differences based on estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
New Accounting Standards
In December 2004, FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets. This statement is effective for the fiscal years beginning after June
15, 2005. This statement addresses financial accounting and reporting obligations
associated with the exchange of nonmonetary assets. The statement eliminates the exception
to fair value for exchanges of similar productive assets issued in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with a general exception for
exchange transactions that do not have commercial substance, that is, transactions that are
not expected to result in significant changes in the cash flows of the reporting entity.
The adoption of this interpretation is not expected to have a significant impact on the
financial position or results of operations of the Company.
In December 2004, FASB revised SFAS No. 123, Accounting for Stock-Based Compensation.
This revision, SFAS No. 123R, is effective for the first interim or annual reporting period
beginning after June 15, 2005. This revision to the statement eliminates the alternative to
use APB Opinion No. 25, Accounting for Stock Issued to Employees, intrinsic value method
of accounting that was provided in Statement 123 as originally issued. An enterprise will
initially measure the cost of employee services received in exchange for an award of
liability instruments based on its current fair value; the fair value of that award will be
remeasured subsequently at each reporting date through the settlement date. Changes in fair
value during the requisite service period will be recognized as compensation cost over that
period. The adoption of this interpretation is not expected to have a significant impact on
the financial position or results of operations of the Company.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the United States
of America. Significant estimates include provision for impairment and allowances for
certain assets, accruals, useful lives of assets and capitalization of costs. Actual
results could differ from those estimates.
Reclassification
Certain items in the prior years consolidated financial
statements and notes to consolidated financial statements have been reclassified to conform
with the 2004 presentation. These reclassifications had no effect on stockholders equity
or net earnings.
2.
Real Estate Held for Investment
:
Leases
The Company generally leases its Investment Properties to established
tenants. As of December 31, 2004, 302 of the Investment Property leases have been
classified as operating leases and 69 leases have been classified as direct financing
leases. For the Investment Property leases classified as direct financing leases, the
building portions of the property leases are accounted for as direct financing leases while
the land portions of 46 of these leases are accounted for as operating leases.
Substantially all leases have initial terms of 10 to 20 years (expiring between 2005 and
2025) and provide for minimum rentals. In addition, the majority of the leases provide for
2004
2003
$
431,867
$
384,134
631,306
544,246
2,532
3,381
1,065,705
931,761
(61,720
)
(48,863
)
1,003,985
882,898
7,025
6,482
1,011,010
889,380
(1,613
)
(2,256
)
$
1,009,397
$
887,124
$
105,235
105,333
104,579
102,673
98,336
612,181
$
1,128,337
2004
2003
$
166,849
$
175,236
32,623
32,354
(97,161
)
(104,620
)
$
102,311
$
102,970
$
13,559
13,580
13,631
13,635
13,738
98,706
$
166,849
The above table does not include future minimum lease payments for renewal periods,
potential variable CPI rent increases or for contingent rental payments that may become due
in future periods (See Real Estate Accounted for Using the Operating Method).
3.
Real Estate Held for Sale
:
As of December 31, 2004, the portfolio of Inventory Properties consisted of 10 completed
inventory properties, seven properties under construction and four land parcels.
Real estate held for sale consisted of the following at December 31 (dollars in thousands):
2004
2003
$
16,449
$
13,644
17,660
17,129
(81
)
(246
)
34,028
30,527
13,826
7,226
10,195
8,069
24,021
15,295
$
58,049
$
45,822
2004
2003
2002
# of
# of
# of
Properties
Gain
Properties
Gain
Properties
Gain
7
$
4,700
3
$
3,247
4
$
1,290
17,885
7,891
4,489
817
1,037
1,966
18,702
8,928
6,455
(6,422
)
(986
)
-
17
12,280
26
7,942
21
6,455
24
$
16,980
29
$
11,189
25
$
7,745
4.
Investments in Unconsolidated Affiliates
:
In September 1997, the Company entered into a partnership, Net Lease Institutional Realty,
L.P. (the Partnership), with the Northern Trust Company, as Trustee of the Retirement Plan
for Chicago Transit Authority Employees (CTA). Under the terms of the limited partnership
agreement of the Partnership, CTA had the option to convert its 80 percent limited
partnership interest into shares of the Companys common stock. In October 2003, CTA
exercised that right, and based on the terms of and calculation defined in the limited
partnership agreement, the Company issued 953,551 shares of common stock to CTA in a private
transaction in February 2004 in exchange for CTAs 80 percent limited partnership interest,
increasing the Companys ownership in the Partnership to 100 percent. Prior to CTAs
exercise, the Company accounted for its 20 percent interest in the Partnership under the
equity method of accounting. Net income and losses of the Partnership were allocated to the
partners in accordance with their respective percentage interest during the Partnerships
term.
The Company received $116,000 in distributions from the Partnership for the year ended
December 31, 2003. For the years ended December 31, 2004, 2003 and 2002, the Company
recognized earnings of $26,000, $280,000 and $270,000, respectively, from the Partnership.
The Company managed the Partnership and pursuant to a management agreement, the Partnership
paid the Company $17,000, $193,000 and $193,000 in asset management fees during the years
ended December 31, 2004, 2003 and 2002, respectively. The Company did not recognize earnings
or receive asset management fees from the Partnership subsequent to increasing its ownership
in the Partnership to 100 percent in February 2004.
Date of Agreement
LLC Agreement
Investment Interest
CCMH I, LLC
42.7%
CCMH II, LLC
44.0%
CCMH III, LLC
36.7%
CCMH IV, LLC
38.3%
CCMH V, LLC
38.4%
December 31,
2004
2003
$
59,840
$
70,472
-
1
$
59,840
$
70,473
$
-
$
-
59,840
70,473
$
59,840
$
70,473
Year Ended December 31,
2004
2003
2002
$
9,898
$
9,110
$
5,035
Lease
Sublease
Payments
Income
Net
$
1,165
$
522
$
643
1,200
538
662
1,236
554
682
1,273
571
702
1,311
588
723
6,910
3,099
3,811
$
13,095
$
5,872
$
7,223
2004
2003
$
29,672
$
35,193
(365
)
4,396
-
17
$
29,307
$
39,606
2004
2003
2002
$
5,042
$
4,583
$
2,445
(318
)
(242
)
(645
)
$
4,724
$
4,341
$
1,800
5.
Note Receivable
:
Structured finance agreements are typically loans secured by a pledge of ownership interests
in the borrowers (or their subsidiaries) that own the underlying real estate. These
agreements are typically subordinated to senior loans secured by first mortgages encumbering
the underlying real estate. Subordinated positions are generally subject to a higher risk
of nonpayment of principal and interest than the more senior loans.
In 2004 and 2003, the Company made structured finance investments of $6,857,000 and
$43,433,000, respectively. As of December 31, 2004, the structured finance investments bear
a weighted average interest rate of 14.3% per annum, of which 12.5% is payable monthly and
the remaining 1.8% accrues and is due at maturity. The principal balance of each structured
finance investment is due in full at maturity, which range between November 2006 and
November 2007. The structured finance investments are secured by the borrowers pledge of
their respective membership interests in the certain subsidiaries which own real estate. In
December 2004, the Company received $20,900,000 in principal payments and a $418,000
prepayment fee. As of December 31, 2004 and 2003, the outstanding receivable balance of the
structured finance investments was $29,390,000 and $43,433,000, respectively.
6.
Line of Credit Payable
:
In May 2003, the Company entered into an amended and restated loan agreement for a
$225,000,000 revolving credit facility (the Credit Facility) which amended the Companys
existing loan agreement by (i) increasing the borrowing capacity to $225,000,000 from
$200,000,000, (ii) lowering the interest rates of the tiered rate structure to a maximum
rate of 135 basis points above LIBOR (based upon the debt rating of the Company, the current
interest rate is 100 basis points above LIBOR), (iii) requiring the Company to pay a
commitment fee based on a tiered rate structure to a maximum of 30 basis points per annum
(based upon the debt rating of the Company), (iv) providing for a competitive bid option for
up to 50 percent of the facility amount, (v) extending the expiration date to May 9, 2006
and (vi) amending certain of the financial covenants of the Company. The principal balance
is due in full upon expiration of the Credit Facility in May 2006, which the Company may
request to be extended for an additional 12-month period with the consent of the lender. As
of December 31, 2004 and 2003, $17,900,000 and $27,800,000, respectively, was outstanding
under the Credit Facility. The Credit Facility had a weighted average interest rate of
2.72% and 2.41% for the years ended December 31, 2004 and 2003, respectively. In accordance
with the terms of the Credit Facility, the Company is required to meet certain restrictive
financial covenants, which, among other things, require the Company to maintain certain (i)
maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage. At
December 31, 2004, the Company was in compliance with those covenants.
For the years ended December 31, 2004, 2003 and 2002, interest cost incurred was $1,084,000,
$2,103,000 and $2,562,000, respectively, of which $369,000, $177,000 and $1,000,
respectively, was capitalized by the Company as a cost of buildings constructed for its own
use, and $813,000, $2,001,000 and $3,162,000, respectively, was charged to operations.
7.
Mortgages Payable
:
In January 1996, the Company entered into a long-term, fixed rate loan for $39,450,000. The
loan bears interest at a rate of 7.435% per annum and provides for a ten-year term with
monthly principal and interest payments of $330,000 and the balance due in February 2006.
The loan is secured by a first mortgage lien on certain of the Companys properties. As of
December 31, 2004, the aggregate carrying value of these properties totaled $58,049,000.
The outstanding principal balance as of December 31, 2004 and 2003 was $22,466,000 and
$26,118,000, respectively.
In February 2004, the Company increased its ownership in the Partnership to 100 percent (see
Note 4). In October 1997, the Partnership entered into a long-term, fixed rate loan for
$12,000,000. The loan bears interest at a rate of 7.37% per annum with monthly principal
and interest payments of $103,000 and the principal balance due in September 2007. The loan
is secured by a first mortgage lien on certain of the Partnerships properties. As of
December 31, 2004, the aggregate carrying value of the properties totaled $28,893,000 and
the outstanding principal balance was $8,606,000.
The Company has acquired four properties subject to mortgages securing loans in the
aggregate original principal balance of $7,214,000 (collectively the Mortgages) with
maturities between December 2007 and December 2009. In December 2004, the Company sold one
of the properties and the related mortgage was simultaneously paid, which accounted for
$2,455,000 of the original principal balance. The remaining Mortgages bear interest at a
weighted average rate of 8.45% per annum and have a weighted average maturity of 2.4 years,
with an aggregate monthly payment of principal and interest of $60,000. In addition to the
Mortgages, the Company has letters of credit that also secure two of the loans, which
collectively total $2,426,000. As of December 31, 2004, the aggregate carrying value of
these three properties and letters of credit totaled $10,751,000. As of December 31, 2004
and 2003, the outstanding principal balances secured by the Mortgages totaled $2,189,000 and
$4,244,000, respectively.
In connection with the acquisition of Captec Net Lease Realty, Inc. (Captec) in December
2001, the Company acquired three properties subject to mortgages securing loans with an
aggregate principal balance of $1,806,000 (collectively, the Captec Mortgages) with
maturities between March 2014 and March 2019. The Captec Mortgages bear interest at a
weighted average rate of 9.0% per annum and have a weighted maturity of 7.4 years, with an
aggregate monthly payment of principal and interest of $25,000. As of December 31, 2004,
the aggregate carrying value of these three properties totaled $4,003,000. As of December
31, 2004 and 2003, the outstanding principal balances of the loans secured by the Captec
Mortgages totaled $1,328,000 and $1,497,000, respectively.
In June 2002, the Company entered into a long-term, fixed rate loan for $21,000,000. The
loan bears interest at a rate of 6.9% per annum and provides for a 10-year term, with
monthly principal and interest payments of $138,000 and the balance due in July 2012. The
loan is secured by a first mortgage lien on five of the Companys properties. As of
December 31, 2004, the aggregate carrying value of these properties totaled $27,111,000. As
of December 31, 2004 and 2003, the outstanding principal balance was $20,508,000 and
$20,721,000, respectively.
In July 2002, Services entered into a long-term, fixed rate loan for $2,340,000. The loan
bore interest at a rate of 7.42% per annum with monthly principal and interest payments of
$18,000 and the principal balance due in July 2012. The loan was secured by a first
mortgage lien on one of Services properties. As of December 31, 2003, the outstanding
principal balance was $2,281,000. In August 2004, the Company disposed of the property, at
which time the buyer assumed the loan.
$
4,070
22,376
8,776
1,156
964
119,826
$
157,168
8.
Notes Payable
:
The Company filed a prospectus supplement to its shelf registration for each issuance of
notes outlined in the table below (dollars in thousands).
Commencement
Discounted
Day of Semi-
Purchase
Purchase
Stated
Effective
Annual Interest
Maturity
Issue Date
Price
Discount
(3)
Price
Rate
Rate
(4)
Payments
Date
March 1998
$
100,000
$
271
$
99,729
7.125
%
7.163
%
September 1998
March 2008
June 1999
100,000
392
99,608
8.125
%
7.547
%
December 1999
June 2004
September 2000
20,000
126
19,874
8.500
%
8.595
%
March 2001
September 2010
June 2002
50,000
287
49,713
7.750
%
7.833
%
December 2002
June 2012
June 2004
150,000
440
149,560
6.250
%
5.910
%
June 2004
June 2014
(1)
The proceeds from the note issuance were used to pay down outstanding indebtedness of the Companys Credit Facility.
(2)
The proceeds from the note issuance were used to repay the obligation of the 2004 Notes.
(3)
The note discounts are amortized to interest expense over the respective term of each debt obligation using the effective interest method.
(4)
Includes the effects of the discount, treasury lock gain and swap gain (as applicable).
(5)
The Company entered into a treasury rate lock agreement which fixed a treasury rate of 5.1854% on a notional amount of $92,000,000. Upon issuance of the 2004 Notes, the Company terminated the treasury rate lock agreement resulting in a gain of $2,679,000. The gain was deferred and
amortized as an adjustment to interest expense over the term of the 2004 Notes using the effective interest method.
(6)
The Company entered into a forward starting interest rate swap agreement which fixed a swap rate of 4.61% on a notional amount of $94,000,000. Upon issuance of the 2014 Notes, the Company terminated the forward starting interest rate swap agreement resulting in a gain of $4,148,000.
The gain has been deferred and is being amortized as an adjustment to interest expense over the term of the 2014 Notes using the effective interest method.
Each issuance of notes is redeemable at the option of the Company, in whole or in part,
at a redemption price equal to the sum of (i) the principal amount of the notes being
redeemed plus accrued interest thereon through the redemption date and (ii) the make-whole
amount, as defined in the respective supplemental indenture notes.
In connection with the debt offerings, the Company incurred debt issuance costs totaling
$4,193,000 consisting primarily of underwriting discounts and commissions, legal and
accounting fees, rating agency fees and printing expenses. Debt issuance costs have been
deferred and are being amortized over the term of the respective notes using the effective
interest method.
In accordance with the terms of the indenture, pursuant to which the Companys notes have
been issued, the Company is required to meet certain restrictive financial covenants, which,
among other things, require the Company to maintain (i) certain leverage ratios and (ii)
certain interest coverage. At December 31, 2004, the Company was in compliance with those
covenants.
In November 2001, the Company entered into an unsecured $70,000,000 term note (Term Note),
due November 30, 2004, to finance the acquisition of Captec and for the repayment of
indebtedness and related expenses in connection therewith. As of December 31, 2003, the
Term Note had an outstanding principal balance of $20,000,000. The Term Note bore interest
at a rate of 175 basis points above LIBOR. In November 2004, the Company used proceeds from
the Credit Facility to repay the obligation of the Term Note. In connection with the Term
Note, the Company incurred debt costs of $376,000 consisting primarily of bank commitment
fees. The Term Note costs were deferred and amortized over the term of the loan commitment
using the straight-line method which approximated the effective interest method.
9.
Financing Lease Obligation:
In July 2004, the Company sold five investment properties for approximately $26,041,000 and
subsequently leased back the properties under a 10-year financing lease obligation. The
Company may repurchase one or more of the properties subject to put and call options
included in the financing lease. In accordance with the provisions of SFAS No. 66,
Accounting for Sales of Real Estate, the Company has recorded this transaction as a
financing transaction. The 10-year financing lease bears an interest rate of 5% annually
with monthly interest payments of $109,000 and expires in June 2014 unless either the put or
call option is exercised.
10.
Preferred Stock:
In December 2001, the Company issued 1,999,974 shares of 9% Non-Voting Series A Preferred
Stock (the Series A Preferred Stock) in connection with the acquisition of Captec.
Holders of the Series A Preferred Stock are entitled to receive, when and as authorized by
the board of directors, cumulative preferential cash distributions at a rate of nine percent
of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of $2.25
per share). The Series A Preferred Stock ranks senior to the Companys common stock with
respect to distribution rights and rights upon liquidation, dissolution or winding up of the
Company. The Company may redeem the Series A Preferred Stock on or after December 31, 2006,
in whole or from time to time in part, for cash, at a redemption price of $25.00 per share,
plus all accumulated and unpaid distributions.
In 2004, 2003 and 2002, as a result of a legal action in connection with the merger of
Captec, the Company reduced the number of Series A Preferred Stock shares issued and
outstanding by 56, 379 and 217,950, respectively.
In August 2003, the Company filed a prospectus supplement to its shelf registration
statement and issued 10,000 shares of 6.70% Non-Voting Series B Cumulative Convertible
Perpetual Preferred
Stock (the Series B Convertible Preferred Stock) and received gross proceeds of
$25,000,000. In connection with this offering, the Company incurred stock issuance costs
totaling approximately $687,000, consisting primarily of placement fees and legal and
accounting fees. The Series B Convertible Preferred Stock is convertible at the option of
the holder, into 1,293,996 shares of the Companys common stock on and after the first
anniversary from the date on which the shares were issued. Holders of the Series B
Convertible Preferred Stock are entitled to receive, when and as authorized by the board of
directors, cumulative preferential cash distributions at the rate of 6.70 percent of the
$2,500.00 liquidation preference per annum (equivalent to a fixed annual amount of $167.50
per share). The Series B Convertible Preferred Stock ranks pari passu with the Series A
Preferred Stock and ranks senior to the Companys common stock with respect to distribution
rights and rights upon liquidation, dissolution or winding up of the Company. The Company
may redeem the Series B Convertible Preferred Stock on or after August 13, 2008, in whole or
from time to time in part, for cash, at a redemption price of $2,500.00 per share, plus all
accumulated and unpaid distributions.
11.
Common Stock
:
In 2004, 2003 and 2002, as a result of a legal action in connection with the merger of
Captec, the Company reduced the number of common stock issued and outstanding by 51, 823 and
474,037, respectively.
In July 2003, the Company filed a prospectus supplement to its shelf registration statement
and issued 5,600,000 shares of common stock and received gross proceeds of $100,800,000. In
connection with this offering, the Company incurred stock issuance costs totaling
approximately $5,374,000, consisting primarily of underwriters commissions and fees, legal
and accounting fees and printing expenses.
In December 2003, the Company filed a prospectus supplement to its shelf registration
statement and issued 3,250,000 shares of common stock and received gross proceeds of
$56,517,000. Subsequently, the Company issued an additional 487,500 shares in connection
with the underwriters over-allotment option and received gross proceeds of $8,478,000. In
connection with these offerings, the Company incurred stock issuance costs totaling
approximately $671,000, consisting primarily of underwriters commissions and fees, legal
and accounting fees and printing expenses.
Under the terms of the limited partnership agreement of the Partnership, CTA had the right
to convert its 80 percent limited partnership interest into shares of the Companys common
stock (see Note 4). In February 2004, CTA exercised its right to convert and the Company
issued 953,551 shares of common stock to CTA in a private transaction in exchange for CTAs
80 percent limited partnership interest.
12.
Employee Benefit Plan
:
Effective January 1, 1998, the Company adopted a defined contribution retirement plan (the
Retirement Plan) covering substantially all of the employees of the Company. The
Retirement Plan permits participants to defer up to a maximum of 15 percent of their
compensation, as defined in the Retirement Plan, subject to limits established by the
Internal Revenue Code. The Company matches 50 percent of the participants contributions up
to a maximum of six percent of a participants annual compensation. The Companys
contributions to the Retirement Plan for the years ended December 31, 2004, 2003 and 2002
totaled $140,000, $150,000 and $113,000, respectively.
13.
Dividends
:
The following presents the characterization for tax purposes of common stock dividends paid
to stockholders for the years ended December 31:
2004
2003
2002
$
0.916
$
0.969
$
1.174
0.040
-
0.006
-
0.005
-
0.041
0.037
0.005
0.293
0.269
0.085
$
1.290
$
1.280
$
1.270
The Series A Preferred Stock dividends of $2.25 per share paid in each of the years ended
December 31, 2004, 2003 and 2002, were characterized as ordinary income for tax purposes.
The Series B Convertible Preferred Stock dividends of $167.50 and $50.25 per share paid
during the years ended December 31, 2004 and 2003, respectively, were characterized as
ordinary income for tax purposes.
14.
Dissenting Shareholders Settlement
:
During the year ended December 31, 2003, the Company recorded a dissenting shareholders
settlement expense of $2,413,000 related to the appraisal rights litigation disclosed in
Item 3 of the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2002, that arose as a result of the merger with Captec in December 2001 (the Appraisal
Action). In February 2003, the Company entered into a settlement agreement with the
beneficial owners of the alleged 1,037,946 dissenting shares (including the petitioners in
the Appraisal Action) which required the Company to pay $15,569,000, which approximated the
value of the original merger consideration (which included cash, common stock and Series A
Preferred Stock shares) at the time of the litigation settlement plus the dividends that
would have been paid if the shares had been issued at the time of the merger. In February
2003, the parties filed a stipulation and order of dismissal and the Court entered the order
of dismissal, dismissing the Appraisal Action with prejudice.
15.
Transition Costs
:
During the year ended December 31, 2004, the Company recorded a transition cost of
$3,741,000 including severance, accelerated vesting of restricted stock, and recruitment
costs in connection with the appointment of Craig Macnab as Chief Executive Officer in
February 2004, and the resignation of Gary M. Ralston as President and Chief Operating
Officer in May 2004.
16.
Income Taxes
:
For income tax purposes, the Company has one TRS, Services, in which certain real estate
activities are conducted. Services treats depreciation expense and certain other items
differently for tax than for financial reporting purposes. The principal differences
between Services effective tax rates for the years ended December 31, 2004, 2003 and 2002,
and the statutory rates relate to state taxes and nondeductible expenses such as meals and
entertainment expenses.
2004
2003
$
(211
)
$
(249
)
59
13
(40
)
(97
)
-
2,867
$
(192
)
$
2,534
(510
)
-
$
(702
)
$
2,534
2004
2003
2002
$
(8,092
)
$
(7,644
)
$
(8,025
)
-
-
-
-
-
-
2,141
2,443
2,561
401
459
481
2,542
2,902
3,042
$
(5,550
)
$
(4,742
)
$
(4,983
)
$
15,383
$
10,118
$
9,033
(420
)
-
-
(90
)
-
-
(4,497
)
(3,234
)
(2,887
)
(832
)
(607
)
(542
)
(5,839
)
(3,841
)
(3,429
)
$
9,544
$
6,277
$
5,604
$
3,994
$
1,535
$
621
17.
Earnings from Discontinued Operations:
Real Estate, Held for Investment In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company has classified the revenues and
expenses related all investment properties that were sold and leasehold interests that
expired as discontinued operations. The following is a summary of the earnings from
discontinued operations from real estate held for investment for each of the years ended
December 31 (dollars in thousands):
2004
2003
2002
$
2,198
$
4,226
$
10,302
246
455
578
3
10
119
-
12
72
236
85
3
2,683
4,788
11,074
(5
)
24
28
119
95
403
256
582
1,069
-
-
1,672
370
701
3,172
(56
)
(100
)
(19
)
126
144
158
70
44
139
2,243
4,043
7,763
2,523
287
260
$
4,766
$
4,330
$
8,023
Real Estate, Held for Sale During the years ended December 31, 2004, 2003 and 2002,
the Company has classified the revenues and expenses related to its held for sale
properties, which generated rental revenues, as discontinued operations. In addition, the
Company also classified revenues and expenses related to the Inventory Properties that were
held for sale as of December 31, 2004, as discontinued operations. The following is a
summary of the earnings from discontinued operations from real estate held for sale for each
of the years ended December 31 (dollars in thousands):
2004
2003
2002
$
2,313
$
3,294
$
4,868
183
123
102
18,702
8,928
6,455
224
54
(100
)
21,422
12,399
11,325
33
3
-
343
146
89
4
-
728
380
149
817
(28
)
-
-
531
1,007
1,475
503
1,007
1,475
20,539
11,243
9,033
(5,839
)
(3,841
)
(3,429
)
(5,156
)
(1,125
)
-
$
9,544
$
6,277
$
5,604
18.
Derivatives:
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and
interpreted, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging
activities. As required by SFAS No. 133, the Company records all derivatives on the balance
sheet at fair value. The accounting for changes in the fair value of derivatives depends on
the intended use of the derivative and the resulting designation. Derivatives used to hedge
the exposure to changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives used to hedge the exposure to variability in expected future cash
flows, or other types of forecasted transactions, are considered cash flow hedges.
The Companys objective in using derivatives is to add stability to interest expense and to
manage its exposure to interest rate movements or other identified risks. To accomplish
this objective, the Company primarily uses interest rate swaps as part of its cash flow
hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of
variable rate amounts in exchange for fixed-rate payments over the life of the agreements
without exchange of the underlying principal amount. To date, such derivatives have been
used to hedge the variable cash flows associated with floating rate debt and forecasted
interest payments of a forecasted issuance of debt.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair
value of the derivative is initially reported in other comprehensive income (outside of
earnings) and subsequently reclassified to earnings when the hedged transaction affects
earnings, and the ineffective portion of changes in the fair value of the derivative is
recognized directly in earnings. The Company had no outstanding derivatives as of December
31, 2004. Additionally, the Company does not use derivatives for trading or speculative
purposes or currently have any derivatives that are not designated as hedges.
The Company discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the cash flows of the hedged
item, the derivative expires or is sold, terminated, or exercised, the derivative is
re-designated as a hedging instrument or management determines that designation of the
derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued, the Company continues to carry the derivative at its
fair value on the balance sheet, and recognizes any changes in its fair value in earnings or
may choose to cash settle the derivative at that time.
In June 2004, the Company terminated its forward-starting interest rate swaps with a
notional amount of $94,000,000 that were hedging the risk of changes in forecasted interest
payments on a forecasted issuance of long-term debt. The fair value of the interest rate
swaps when terminated was an asset of $4,148,000, which had been deferred in other
comprehensive income. The hedged forecasted interest payments that were designated in the
hedging relationships are still probable of occurring and therefore, the Company
reclassified the $4,148,000 gain that was deferred in other comprehensive income as the
hedged forecasted interest payments affect earnings. During the year ended December 31,
2004, the Company amortized $169,000 to interest expense from unamortized interest rate
hedge gain. During the year ended December 31, 2005, the Company expects to reclassify
$326,000 to interest expense. The Company has no derivative financial instruments
outstanding at December 31, 2004.
19.
Performance Incentive Plan
:
The Companys 2000 Performance Incentive Plan (2000 Plan) allows the Company to award or
grant to key employees, directors and persons performing consulting or advisory services for
the Company or its affiliates stock options, stock awards, stock appreciation rights,
Phantom Stock Awards, Performance Awards and Leveraged Stock Purchase Awards, each as
defined in the 2000 Plan. The following summarizes the stock-based compensation activity
for the years December 31:
Number of Shares
2004
2003
2002
1,608,144
1,747,851
1,692,158
-
15,000
359,300
(886,962
)
(132,357
)
(180,640
)
(81,417
)
(22,350
)
(122,967
)
205,579
76,407
64,000
(205,579
)
(76,407
)
(64,000
)
(29,926
)
(5,950
)
-
29,926
5,950
-
639,765
1,608,144
1,747,851
537,244
1,372,184
1,293,284
1,460,636
1,561,192
1,628,809
The 205,579, 76,407 and 64,000 shares of restricted stock granted during the years
ended December 31, 2004, 2003 and 2002, respectively, had a weighted average grant price of
$16.97, $14.94 and $15.35, respectively, per share. The following represents the weighted
average option exercise price information for the years ended December 31:
2004
2003
2002
$
14.51
$
14.44
$
15.79
-
14.57
15.25
13.69
13.51
12.17
15.33
14.51
14.44
15.36
14.40
14.58
The following summarizes the outstanding options and the exercisable options at
December 31, 2004:
Option Price Range
$10.1875
$14.5700
to
to
$13.6875
$17.8750
Total
144,435
495,330
639,765
$
12.13
$
16.27
$
15.33
3.3
5.1
4.7
141,096
396,148
537,244
$
12.10
$
16.52
$
15.36
One-third of the grant to each individual becomes exercisable at the end of each of the
first three years of service following the date of the grant and the options maximum term
is 10 years.
Pursuant to the 2000 Plan, the Company has granted and issued shares of restricted stock to
certain officers and directors of the Company. The following is a summary of the restricted
stock grants during the years ended December 31, 2004, 2003 and 2002:
Number of Years for
Shares are 100%
Shares
Annual Vesting Rate
Vesting
Vested on
June 2002
58,000
15% - 30%
5
January 1, 2007
40,407
25%
4
January 1, 2007
30,000
15% - 30%
5
January 1, 2008
100,000
20%
4
January 1, 2008
35,000
20%
5
January 1, 2009
50,211
14.3%
6
January 1, 2010
15,000
14.3%
6
January 1, 2011
328,618
June 2002
6,000
50%
2
January 1, 2004
6,000
50%
2
January 1, 2005
4,500
50%
2
January 1, 2006
868
50%
2
January 1, 2006
17,368
During 2004 and 2003, the Company cancelled 29,926 and 5,950, respectively, shares of
restricted stock. Compensation expense for the restricted stock is determined based upon
the fair value at the date of grant and is recognized as the greater of the amount amortized
over a straight lined basis or the amount vested over the vesting periods. For the years
ended December 31, 2004, 2003 and 2002, the Company recognized $1,113,000, $1,151,000 and
$853,000, respectively, of such expense. In addition, in 2004, the Company recognized
$1,397,000 of transition cost related to the vesting of restricted stock.
20.
Fair Value of Financial Instruments
:
The Company believes the carrying value of its Credit Facility approximates fair value based
upon its nature, terms and variable interest rate. The Company believes the carrying value
of its financing lease obligation approximates fair value based upon its nature, terms and
interest rate. The Company believes that the carrying value of its cash and cash
equivalents, line of credit, note and accrued interest receivable from related party,
mortgages, notes and accrued interest receivable, receivables, mortgages payable, accrued
interest payable and other liabilities at December 31, 2004 and 2003 approximate fair value,
based upon current market prices of similar issues. At December 31, 2004 and 2003, the fair value of the Companys notes payable was
$353,647,000 and $295,139,000, respectively, based upon the quoted market price.
21.
Related Party Transactions
:
For additional related party disclosures see Note 4.
The Company has revolving lines of credit with Services that allow for an aggregate
borrowing capacity of $105,000,000. The lines of credit each bear interest at prime rate
plus 0.25% per annum and expire on May 9, 2006 and are secured by a pledge of the real
estate and/or the other
assets owned by the respective borrower. The outstanding aggregate
principal balance of the lines of credit at December 31, 2004 and 2003 was $42,473,000 and
$55,234,000, respectively, and bore interest at a rate of 5.50% and 4.25%, respectively, per
annum. In connection with the lines of credit from Services, the Company earned $3,819,000,
$3,327,000, and $6,018,000 in interest and fees during the years ended December 31, 2004,
2003 and 2002, respectively, each of which was eliminated in consolidation.
In 2004, the Company provided disposition and development services to an affiliate of James
M. Seneff Jr. and Robert A. Bourne, each a member of the Companys board of directors. In
connection therewith, the Company received an aggregate of $175,000 in fees.
In September 2000, a wholly-owned subsidiary of Services entered into a $6,000,000
promissory note with an affiliate in which James M. Seneff, Jr., a director of the Company,
and Kevin B. Habicht, a director and officer of the Company, own a majority equity interest.
The note was secured by the affiliates common stock in OAMI, formerly know as CNL
Commercial Finance, Inc. In July 2003, the promissory note was paid in full. In addition,
the wholly-owned subsidiary of Services has an option with the affiliate to purchase up to
approximately 79 percent of all the common shares of OAMI equal to the purchase price paid
by the affiliate for such common stock. The option expires on December 31, 2010.
In September 2000, a wholly-owned subsidiary of the Services entered into a $15,000,000 line
of credit agreement with OAMI. Interest is payable monthly and the principal balance was
due in full upon termination of the line of credit. In March 2004, the maturity date of the
line of credit agreement was extended to March 31, 2005. In December 2003, the line of
credit was amended to have a borrowing capacity of $35,000,000. In May 2004, the line of
credit agreement was amended to temporarily increase the available credit to $45,000,000
until September 2004, at which time the available credit decreased to $35,000,000. In
December 2004, the credit agreement was terminated. During the years ended December 31,
2004, 2003 and 2002, the Company recognized $1,732,000, $927,000 and $1,898,000,
respectively of interest and fee income related to the line of credit.
An affiliate of James M. Seneff, Jr., a director of the Company, provides certain
administrative, tax and technology services to the Company. In connection therewith, the
Company paid $999,000, $1,363,000 and $1,258,000 in fees relating to these services during
the years ended December 31, 2004, 2003 and 2002, respectively.
In 2002, the Company extended the maturity dates to dates between June and December 2007 on
four mortgages securing an original aggregate principal indebtedness totaling $8,514,000
from affiliates of James M. Seneff, Jr. and Robert A. Bourne, each members of the Companys
board of directors. The mortgage loans bear interest at a weighted average of 8.9%, per
annum with interest payable monthly or quarterly. As of December 31, 2004 and 2003, the
aggregate principal balance of the four mortgages, included in mortgages, notes and accrued
interest receivable on the balance sheet, was $2,482,000 and $2,935,000, respectively. In
connection therewith, the Company recorded $243,000, $281,000 and $663,000 as interest from
unconsolidated affiliates and other mortgage receivables during the years ended December 31,
2004, 2003 and 2002, respectively.
22.
Segment Information
:
The Company has identified two primary financial segments: (i) real estate held for
investment and (ii) real estate held for sale. The following tables represent the segment
data and a reconciliation to the Companys condensed consolidated totals for the years ended
December 31, 2004, 2003 and 2002 (dollars in thousands):
Real Estate
Condensed
Held for
Real Estate
Eliminations
Consolidated
Investment
Held for Sale
(Intercompany)
Totals
$
116,895
$
4,695
$
-
$
121,590
3,819
-
(3,819
)
-
8,056
2,096
-
10,152
1,027
319
-
1,346
33,001
2,295
(2,833
)
32,463
16,974
164
-
17,138
28,387
10,679
(168
)
38,898
8,733
(68
)
(3,941
)
4,724
-
2,542
-
2,542
-
(1,179
)
(52
)
(1,231
)
60,168
(4,733
)
(4,811
)
50,624
4,766
9,544
-
14,310
$
64,934
$
4,811
$
(4,811
)
$
64,934
$
1,294,755
$
70,980
$
(65,687
)
$
1,300,048
$
134,565
$
74,024
$
-
$
208,589
Real Estate
Condensed
Held for
Real Estate
Eliminations
Consolidated
Investment
Held for Sale
(Intercompany)
Totals
$
97,978
$
3,247
$
-
$
101,225
3,327
471
(3,798
)
-
2,820
1,922
-
4,742
702
291
-
993
27,587
1,263
(2,096
)
26,754
12,987
230
-
13,217
21,264
10,986
(747
)
31,503
6,154
(216
)
(1,597
)
4,341
-
2,902
-
2,902
-
157
(20
)
137
49,143
(3,705
)
(2,572
)
42,866
4,330
6,277
-
10,607
$
53,473
$
2,572
$
(2,572
)
$
53,473
$
1,208,310
$
80,945
$
(75,477
)
$
1,213,778
$
215,730
$
58,612
$
-
$
274,342
Real Estate
Condensed
Held for
Real Estate
Eliminations
Consolidated
Investment
Held for Sale
(Intercompany)
Totals
$
80,968
$
1,290
$
-
$
82,258
6,018
-
(6,018
)
-
1,852
3,182
-
5,034
629
-
-
629
26,562
2,518
(3,901
)
25,179
10,673
170
-
10,843
15,412
7,087
(197
)
22,302
3,215
(756
)
(659
)
1,800
-
3,042
-
3,042
-
-
(8
)
(8
)
40,035
(3,017
)
(2,587
)
34,431
8,023
5,604
-
13,627
$
48,058
$
2,587
$
(2,587
)
$
48,058
$
954,108
$
77,320
$
(73,128
)
$
958,300
$
44,437
$
27,229
$
-
$
71,666
23.
Major Tenants
:
For the years ended December 31, 2004, the Company recorded rental and earned income from
one of the Companys tenants, the United States of America, of $18,181,000. During the
years ended December 31, 2003 and 2002, the Company recorded rental and earned income from
Eckerd Corporation, of $11,278,000 and $12,467,000, respectively. The rental and earned
income from Eckerd Corporation and the United States of America represents more than 10
percent of the Companys rental and earned income for each of the respective years.
24.
Commitments and Contingencies
:
In January 2002, Calapasas Investment Partnership No. 1 Limited Partnership (Calapasas), a
Captec stockholder, filed a class action complaint against Captec, certain former Captec
directors, and the Company (as successor in interest to Captec). In its complaint Calapasas
alleged that Captec and certain of its directors violated provisions of the Securities and
Exchange Act of 1934 by misrepresenting the value of certain Captec assets on certain of its
financial statements in 2000 and 2001. In July 2004, the parties entered into a Stipulation
of Settlement which was filed with the court. Pursuant to the Stipulation of Settlement,
the total settlement amount paid to the plaintiffs was $225,000, which included payment of
attorneys fees and costs to plaintiffs counsel. In July 2004, a final judgment of
dismissal was entered by the court.
In the ordinary course of its business, the Company is a party to various other legal
actions which management believes is routine in nature and incidental to the operation of
the business of the Company. Management believes that the outcome of the proceedings will
not have a material adverse effect upon its operations, financial condition or liquidity.
25.
Subsequent Events:
In January 2005, the Company entered into a purchase agreement with James M. Seneff, Jr., a
director of the Company, Kevin B. Habicht, an officer and director of the Company, and Gary
M. Ralston, a former officer and director of the Company, which provided that the Company
would acquire their collective 1.3 percent voting interest in Services. Effective, January
1, 2005, the Company acquired the remaining interest in Services increasing the Companys
ownership in Services to 100 percent.
In January 2005, the Company entered into an agreement with National Properties Corporation
(NAPE), which provided that NAPE would merge with and into a subsidiary of the Company.
At the time of the merger agreement, NAPE owned 43 properties located in 12 states which
were leased to 17 tenants. If the acquisition is consummated, the Company will issue
approximately 1,637,000 shares of common stock to holders of NAPE common stock. Total
consideration for the merger transaction is estimated to be approximately $61,000,000 based
on the Companys closing stock price on the date of the merger agreement. Completion of the
merger is subject to customary closing conditions, including the approval of the holders of
a majority of the outstanding shares of NAPE common stock. The Company has entered into a
shareholders agreement with the holders of approximately 53 percent of the outstanding NAPE
common stock whereby these holders have agreed to vote in favor of the merger. However, the
Company may terminate the merger agreement if a majority of the NAPE shareholders who are
not bound by the shareholders agreement do not approve the merger. The merger does not
require approval by the Companys shareholders. The Company anticipates that the merger
will be completed not later than the second quarter of 2005.
pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the Companys assets;
provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that the Companys receipts and expenditures are being made
in accordance with authorizations of management or the board of directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a
material adverse effect on the Companys financial statements.
(a)
The following documents are filed as part of this report.
(a)
The following exhibits are filed as a part of this report.
2.
Plan of Acquisition, Reorganization, Arrangement, Liquidation
or Succession.
2.1
Agreement and Plan of Merger, dated January 14,
2005, among Commercial Net Lease Realty, Inc., NAPE Acquisition, Inc.,
National Properties Corporation and Raymond Di Paglia (filed as Exhibit
99.1 to the Registrants Current Report on Form 8-K dated January 19,
2005, and incorporated herein by reference).
3.
Articles of Incorporation and By-laws
3.1
First Amended and Restated Articles of
Incorporation of the Registrant, as amended (filed herewith).
3.2
Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Preferred Stock (9% Series A
Non-Voting Preferred Stock, par value $0.01 per share (the Series A
Preferred Stock) (filed as Exhibit 3 to the Registrants Form 8-A
dated November 26, 2001 and filed with the Securities and Exchange
Commission on November 27, 2001, and incorporated herein by reference).
3.3
Articles Supplementary Classifying and
Designating 10,000 Preferred Shares as the Series B Preferred Stock
(filed as Exhibit 3 to the Registrants Form 8-A dated August 12, 2003
and filed with the Securities and Exchange Commission on August 13,
2003, and incorporated herein by reference).
3.4
Second Amended and Restated Bylaws of the
Registrant (filed as Exhibit 3.5 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004, and incorporated
herein by reference).
4.
Instruments Defining the Rights of Security Holders, Including Indentures
4.1
Specimen Certificate of Common Stock, par value
$0.01 per share, of the Registrant (filed as Exhibit 3.4 to the
Registrants Registration Statement No. 1-11290 on Form 8-B and
incorporated herein by reference).
4.2
Form of Indenture dated March 25, 1998, by and
among Registrant and First Union National Bank, Trustee, relating to
$100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.1 to the
Registrants Current Report on Form 8-K dated March 20, 1998, and
incorporated herein by reference).
4.3
Form of Supplemental Indenture No. 1 dated
March 25, 1998, by and among Registrant and First Union National Bank,
Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as
Exhibit 4.2 to the Registrants Current Report on Form 8-K dated March
20, 1998, and incorporated herein by reference).
4.4
Form of 7.125% Note due 2008 (filed as Exhibit
4.3 to the Registrants Current Report on Form 8-K dated March 20,
1998, and incorporated herein by reference).
4.5
Form of Supplemental Indenture No. 3 dated
September 20, 2000, by and among Registrant and First Union National
Bank, Trustee, relating to $20,000,000 of 8.5% Notes due 2010 (filed as
Exhibit 4.2 to the Registrants Current Report on Form 8-K dated
September 20, 2000, and incorporated herein by reference).
4.6
Form of 8.5% Notes due 2010 (filed as Exhibit
4.3 to the Registrants Current Report on Form 8-K dated September 20,
2000, and incorporated herein by reference).
4.7
Form of Supplemental Indenture No. 4 dated as
of May 30, 2002, by and among Registrant and Wachovia Bank, National
Association, Trustee, relating to $50,000,000 of 7.75% Notes due 2012
(filed as Exhibit 4.2 to the Registrants Current Report on Form 8-K
dated June 4, 2002, and incorporated herein by reference).
4.8
Form of 7.75% Notes due 2012 (filed as Exhibit
4.3 to the Registrants Current Report on Form 8-K dated June 4, 2002,
and incorporated herein by reference).
4.9
Form of Supplemental Indenture No. 5 dated as
of June 18, 2004, by and among Registrant and Wachovia Bank, National
Association, Trustee, relating to $150,000,000 of 6.25% Notes due 2014
(filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K
dated June 15, 2004, and incorporated herein by reference).
4.10
Form of 6.25% Notes due 2014 (filed as Exhibit
4.2 to the Registrants Current Report on Form 8-K dated June 15, 2004,
and incorporated herein by reference).
4.11
Articles Supplementary Establishing and Fixing
the Rights and Preferences of a Series of Preferred Stock (the Series A
Preferred Stock) (filed as Exhibit 3 to the Registrants Form 8-A dated
November 26, 2001 and filed with the Securities and Exchange Commission
on November 27, 2001, and incorporated herein by reference).
4.12
Specimen Stock Certificate relating to the
Series A Preferred Stock (filed as Exhibit 4 to the Registrants Form
8-A dated November 26, 2001 and filed with the Securities and Exchange
Commission on November 27, 2001, and incorporated herein by reference).
4.13
Articles Supplementary Classifying and
Designating 10,000 Preferred Shares as the Series B Preferred Stock
(filed as Exhibit 3 to the Registrants Form 8-A dated August 12, 2003
and filed with the Securities and Exchange Commission on August 13,
2003, and incorporated herein by reference).
4.14
Specimen Stock Certificate relating to the
Series B Preferred Stock (filed as Exhibit 4 to the Registrants Form
8-A dated August 12, 2003 and filed with the Securities and Exchange
Commission on August 13, 2003, and incorporated herein by reference).
10.
Material Contracts
10.1
2000 Performance Incentive Plan (filed as
Exhibit 99 to the Registrants Registration Statement No. 333-64794 on
Form S-8 and incorporated herein by reference).
10.2
Form of Restricted Stock Agreement between the
Company and the Participant of the Company (filed herewith).
10.3
Employment Agreement dated February 16, 2004,
between the Registrant and Craig Macnab (filed herewith).
10.4
Employment Agreement dated February 1, 2003,
between the Registrant and Julian E. Whitehurst (filed herewith).
10.5
Employment Agreement dated January 1, 2003, as
amended, between the Registrant and Kevin B. Habicht (filed herewith).
10.6
Employment Agreement dated January 1, 2003,
between the Registrant and Dennis E. Tracy (filed herewith).
10.7
Third Renewal Promissory Note dated as of April
1, 2001, by Commercial Net Lease Realty Services, Inc. in favor of
Registrant relating to an $85,000,000 line of credit (filed as Exhibit
10.13 to the Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001, and incorporated herein by reference).
10.8
Separation Agreement and General Release, dated
as of April 23, 2004, by and between Gary M. Ralston and the
Registrant, as amended (filed herewith).
10.9
Third Modification of Amended and Restated
Secured Revolving Line of Credit and Security Agreement and Other Loan
Documents effective as of April 1, 2001, by and between Registrant as
lender and Commercial Net Lease Realty Services, Inc., as borrower,
relating to an $85,000,000 line of credit (filed as Exhibit 10.14 to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001, and incorporated herein by reference).
10.10
Fourth Modification of Amended and Restated
Secured Revolving Line of Credit and Security Agreement and Other Loan
Documents effective as of July 1, 2001, by and between Registrant as
lender and Commercial Net Lease Realty Services, Inc., as borrower,
relating to an $85,000,000 line of credit (filed as Exhibit 10.15 to
the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001, and incorporated herein by reference).
10.11
Seventh Amended and Restated Line of Credit
and Security Agreement, dated May 9, 2003, by and among Registrant,
certain lenders and Wachovia Bank, N.A., as the Agent, relating to a
$225,000,000 loan (filed as Exhibit 10.11 to the Registrants Current
Report on Form 8-K dated July 11, 2003, and incorporated herein by
reference).
10.12
Real Estate Purchase Contract, dated as of
July 23, 2003, by an between MCI WorldCom Network Services, Inc. and
the Company (filed as Exhibit 10.1 to the Registrants Current Report
on Form 8-K dated July 25, 2003, and incorporated herein by reference).
10.13
U.S. Government Lease for Real Property, dated
as of December 17, 2002, between MCI WorldCom Network Services, Inc.
and the United States of America (filed as Exhibit 10.2 to the
Registrants Current Report on Form 8-K dated July 25, 2003, and
incorporated herein by reference).
12.
Statement of Computation of Ratios of Earnings to Fixed Charges (filed herewith).
21.
Subsidiaries of the Registrant (filed herewith).
23.
Consent of Independent Accountants dated March 9, 2005 (filed
herewith).
24.
Power of Attorney (included on signature page).
31.
Section 302 Certifications
31.1
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.
Section 906 Certifications
32.1
Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.2
Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
99.
Additional Exhibits
99.1
Certification of Chief Executive Officer pursuant to
Section 303A.12(a) of the New York Stock Exchange Listed Company Manual
(filed herewith).
/s/ Craig Macnab
Craig Macnab
Director, President, and Chief Executive Officer
Signature
Title
Date
James M. Seneff, Jr.
Chairman of the Board of Directors
March 14, 2005
Robert A. Bourne
Vice Chairman of the Board of
Directors
March 14, 2005
Clifford R. Hinkle
Director
March 14, 2005
Richard B. Jennings
Director
March 14, 2005
Ted B. Lanier
Director
March 14, 2005
Robert C. Legler
Director
March 14, 2005
Robert Martinez
Director
March 14, 2005
Craig Macnab
Director, President and Chief
Executive Officer
March 14, 2005
Kevin B. Habicht
Director, Chief Financial Officer
(Principal Financial and
Accounting Officer), Executive
Vice President, Assistant
Secretary and Treasurer
March 14, 2005
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
$
-
$
1,074,232
$
-
$
-
$
-
$
1,074,232
$
(c)
$
1,074,232
(c)
1994
05/95
(c)
-
699,165
-
-
-
699,165
(c)
699,165
(c)
1995
06/95
(c)
-
1,307,655
-
-
-
1,307,655
(c)
1,307,655
(c)
1996
08/95
(f)
(c)
-
2,098,895
-
-
-
2,098,895
(c)
2,098,895
(c)
1996
02/96
(f)
(c)
-
795,005
-
-
-
795,005
(c)
795,005
(c)
1996
06/96
(f)
(c)
-
1,547,501
-
-
-
1,547,501
(c)
1,547,501
(c)
1997
08/96
(f)
(c)
-
2,310,845
1,627,872
-
-
2,310,845
1,627,872
3,938,717
235,702
1976
03/99
40 years
-
899,768
2,180,574
-
-
899,768
2,180,574
3,080,342
315,729
1994
03/99
40 years
-
1,423,700
2,449,261
-
-
1,423,700
2,449,261
3,872,961
354,633
1992
03/99
40 years
831,369
(t)
973,123
-
-
-
973,123
(c)
973,123
(c)
1996
09/97
(c)
-
298,192
1,329,492
-
-
298,192
1,329,492
1,627,684
121,672
1997
11/98
37.4 years
-
866,927
-
-
-
866,927
-
866,927
-
(e)
12/04
(e)
-
587,782
1,620,311
-
-
587,782
1,620,311
2,208,093
48,947
1984
03/99
40 years
-
3,762,030
-
3,006,391
-
3,762,030
3,006,391
6,768,421
510,460
1998
03/98
(g)
40 years
-
969,156
-
-
-
969,156
-
969,156
-
(e)
05/03
(e)
-
949,185
-
-
-
949,185
-
949,185
-
(e)
05/03
(e)
-
1,496,173
1,403,581
-
-
1,496,173
1,403,581
2,899,754
106,731
1995
12/01
40 years
-
205,957
533,540
-
-
205,957
533,540
739,497
40,571
1998
12/01
40 years
-
267,842
503,550
-
-
267,842
503,550
771,392
38,291
1997
12/01
40 years
-
170,515
468,916
-
-
170,515
468,916
639,431
35,657
1993
12/01
40 years
-
442,991
507,790
-
-
442,991
507,790
950,781
38,613
1993
12/01
40 years
-
250,881
513,970
-
-
250,881
513,970
764,851
39,083
1988
12/01
40 years
-
450,358
341,960
-
-
450,358
341,960
792,318
26,003
1998
12/01
40 years
-
156,875
545,841
-
-
156,875
545,841
702,716
41,507
1998
12/01
40 years
-
2,906,409
4,877,225
315,000
-
2,906,409
5,192,225
8,098,634
909,246
1997
09/97
40 years
-
830,689
2,611,867
-
-
830,689
2,611,867
3,442,556
555,566
1996
06/96
40 years
-
1,678,794
2,301,909
-
-
1,678,794
2,301,909
3,980,703
175,041
1996
12/01
40 years
1,048,316
(j)
1,476,407
1,527,150
-
-
1,476,407
1,527,150
3,003,557
380,950
1995
08/94
(f)
40 years
-
3,244,785
2,722,087
-
-
3,244,785
2,722,087
5,966,872
697,647
1994
09/94
40 years
-
3,307,562
2,396,024
-
-
3,307,562
2,396,024
5,703,586
554,089
1995
10/94
(f)
40 years
5,002,757
(p)
3,616,357
-
-
-
3,616,457
(c)
3,616,457
(c)
1996
05/95
(f)
(c)
(r
)
-
2,917,219
2,260,663
-
-
2,917,219
2,260,663
5,177,882
504,253
1995
01/96
40 years
-
1,412,614
3,223,467
-
-
1,412,614
3,223,467
4,636,081
614,473
1996
05/97
40 years
-
497,179
1,625,702
-
-
497,179
1,625,702
2,122,881
306,513
1997
06/97
40 years
-
2,831,370
4,318,554
-
-
2,831,370
4,318,554
7,149,924
661,279
1998
11/98
40 years
1,206,303
(t)
1,573,875
2,241,639
-
-
1,573,875
2,241,639
3,815,514
51,363
1997
09/97
40 years
1,615,585
(t)
1,077,802
1,795,173
-
-
1,077,802
1,795,173
2,872,975
43,054
1996
09/97
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
79,983
(u)
40,200
110,531
-
-
40,200
110,531
150,731
2,418
2001
02/04
40 years
2,867,434
(p)
1,184,144
2,842,759
-
-
1,184,144
2,842,759
(o)
4,026,903
183,595
1997
06/98
33 years
-
6,318,023
3,089,396
-
-
6,318,023
3,089,396
9,407,419
473,064
1975
11/98
40 years
-
1,082,092
-
2,758,452
-
1,082,092
2,758,452
3,840,544
376,414
1999
12/98
(g)
40 years
-
226,366
1,159,833
7,830
-
226,366
817,667
1,044,033
83,888
1998
11/98
40 years
(r
)
-
921,200
697,298
-
-
921,200
697,298
1,618,498
53,024
1988
12/01
40 years
-
1,088,282
924,425
-
-
1,088,282
924,425
2,012,707
70,295
1988
12/01
40 years
-
2,064,964
1,311,190
-
-
2,064,964
1,311,190
3,376,154
99,705
1988
12/01
40 years
-
818,611
1,107,418
-
-
818,611
1,107,418
1,926,029
84,210
1993
12/01
40 years
-
2,985,156
2,772,137
-
-
2,985,156
2,772,137
5,757,293
545,764
1996
02/97
40 years
-
1,850,996
-
-
-
1,850,996
(c)
1,850,996
(c)
1994
02/97
(c)
-
3,708,980
2,359,377
-
-
3,708,980
2,359,377
6,068,357
444,841
1970
06/97
40 years
-
6,233,342
3,418,783
-
-
6,233,342
3,418,783
9,652,125
637,460
1995
07/97
40 years
-
3,052,477
3,218,018
-
-
3,052,477
3,218,018
6,270,495
593,322
1995
08/97
40 years
4,575,692
(p)
4,031,744
2,610,980
-
-
4,031,744
2,610,980
(o)
6,642,724
387,165
1997
09/97
33 years
-
2,330,847
2,292,932
-
-
2,330,847
2,292,932
4,623,779
374,990
1997
06/98
40 years
-
8,881,890
4,372,684
-
-
8,881,890
4,372,684
13,254,574
192,715
1991
06/01
40 years
-
64,916
180,538
80,809
-
64,916
261,347
326,263
16,627
1997
12/01
40 years
6,192,000
(u)
3,137,500
8,626,657
-
-
3,137,500
8,626,657
11,764,157
189,066
2001
02/04
40 years
-
320,029
556,282
-
-
320,029
556,282
876,311
104,882
1997
06/97
40 years
-
491,453
498,488
-
-
491,453
498,488
989,941
37,906
1997
12/01
40 years
-
843,121
562,498
-
-
843,121
562,498
1,405,619
42,773
1997
12/01
40 years
-
294,882
611,570
-
-
294,882
611,570
906,452
46,505
1997
12/01
40 years
-
302,859
560,904
-
-
302,859
560,904
863,763
42,652
1997
12/01
40 years
-
318,285
578,268
-
-
318,285
578,268
896,553
43,973
1995
12/01
40 years
-
498,849
457,695
-
-
498,849
457,695
956,544
34,804
1995
12/01
40 years
-
4,433,613
4,080,186
-
-
4,433,613
4,080,186
8,513,799
310,264
1984
12/01
40 years
-
244,607
1,166,045
-
-
244,607
791,808
1,036,415
82,570
1997
11/98
37.4 years
3,173,813
(j)
3,030,769
6,061,538
-
-
2,994,400
6,061,538
9,055,938
1,519,458
1994
12/94
40 years
1,667,451
(j)
2,177,310
2,599,587
-
-
2,177,310
2,599,587
4,776,897
621,374
1995
06/95
40 years
4,819,730
(p)
3,164,984
3,319,234
-
-
3,164,984
3,319,234
(o)
6,484,218
259,839
1995
02/96
33 years
-
1,546,915
2,486,761
-
-
1,546,915
2,486,761
4,033,676
530,164
1996
06/96
40 years
-
1,947,198
-
-
-
1,947,198
(c)
1,947,198
(c)
1997
09/97
(c)
-
1,125,347
1,036,952
-
-
1,125,347
893,485
2,018,832
70,323
1996
12/01
40 years
-
562,384
556,201
-
-
562,384
377,244
939,628
31,655
1995
12/01
40 years
-
1,115,457
1,014,184
-
-
1,115,457
872,736
1,988,193
68,711
1995
12/01
40 years
-
619,778
707,242
-
-
619,778
707,242
1,327,020
53,780
1997
12/01
40 years
-
835,669
651,108
-
-
835,669
297,567
1,133,236
28,494
1995
12/01
40 years
-
601,800
460,521
-
-
601,800
389,065
990,865
30,771
1996
12/01
40 years
-
562,446
467,592
-
-
562,446
467,592
1,030,038
35,556
1997
12/01
40 years
-
162,538
492,007
-
-
162,538
492,007
654,545
37,413
1996
12/01
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
662,345
609,787
-
-
662,345
609,787
1,272,132
46,369
1997
12/01
40 years
-
439,076
1,363,447
-
-
439,076
1,363,447
1,802,523
103,679
2000
12/01
40 years
-
1,369,836
1,018,659
-
-
1,369,836
1,018,659
2,388,495
77,460
1994
12/01
40 years
-
1,007,432
1,205,512
-
-
1,007,432
1,205,512
2,212,944
91,669
1995
12/01
40 years
-
10,197,135
-
8,128,062
-
10,197,135
8,128,062
18,325,197
25,400
2004
04/04
(f)
40 years
-
1,112,876
-
-
-
1,112,876
-
1,112,876
-
(e)
04/04
(e)
-
3,032,965
1,641,820
-
-
3,032,965
1,641,820
4,674,785
124,847
1999
12/01
40 years
-
1,760,020
1,724,220
-
-
1,760,020
1,724,220
3,484,240
131,112
2000
12/01
40 years
-
286,834
423,837
-
-
286,834
423,837
710,671
6,477
1979
05/04
40 years
-
256,568
-
-
-
256,568
(c)
256,568
(c)
1988
07/92
(c)
-
1,418,158
1,140,080
-
-
1,418,158
1,140,080
2,558,238
86,693
1999
12/01
40 years
-
2,548,040
3,879,911
-
-
2,547,163
3,874,009
6,421,172
4,042
2004
12/04
40 years
-
2,530,892
2,920,575
-
-
2,530,892
2,920,575
5,451,467
222,085
2000
12/01
40 years
-
1,556,732
2,013,650
-
-
1,556,732
2,013,650
3,570,382
153,121
2001
12/01
40 years
(r
)
-
609,069
913,603
-
-
609,069
913,603
1,522,672
205,622
1995
12/95
40 years
1,598,675
(j)
2,713,192
1,866,676
-
-
2,713,192
1,866,676
4,579,868
499,464
1994
04/94
40 years
159,966
(u)
80,400
221,063
-
-
80,400
221,063
301,463
4,836
2001
02/04
40 years
-
223,998
2,158,955
-
-
223,998
2,158,955
2,382,953
312,599
1983
03/99
40 years
427,591
(j)
440,985
-
-
-
440,985
(c)
440,985
(c)
1993
12/93
(c)
411,959
(j)
541,493
-
-
-
541,493
(c)
541,493
(c)
1994
01/94
(c)
350,823
(j)
368,964
-
-
-
368,964
(c)
368,964
(c)
1994
02/94
(c)
402,520
(j)
329,231
-
-
-
329,231
(c)
329,231
(c)
1994
12/94
(c)
523,141
(j)
650,864
-
-
-
650,864
(c)
650,864
(c)
1994
12/94
(c)
578,142
(j)
715,480
-
-
-
715,480
(c)
715,480
(c)
1995
04/95
(c)
-
604,683
-
-
-
604,683
(c)
604,683
(c)
1995
12/95
(c)
-
967,528
-
-
-
967,528
(c)
967,528
(c)
1995
01/96
(c)
-
414,738
-
-
-
414,738
(c)
414,738
(c)
1995
01/96
(c)
-
673,369
1,103,351
-
-
673,369
1,103,351
1,776,720
243,434
1996
03/96
40 years
-
1,000,222
-
-
-
1,000,222
(c)
1,000,222
(c)
1996
12/96
(c)
-
291,147
-
-
-
291,147
(c)
291,147
(c)
1994
01/97
(c)
-
622,403
-
-
-
622,403
(c)
622,403
(c)
1995
01/97
(c)
-
1,016,062
1,448,911
-
-
1,016,062
1,448,911
2,464,973
273,180
1997
06/97
40 years
-
1,065,562
-
-
-
1,065,562
(c)
1,065,562
(c)
1997
06/97
(c)
-
2,078,542
-
1,396,508
-
2,078,542
1,396,508
3,475,050
222,568
1998
11/97
(g)
40 years
-
726,438
-
1,330,830
-
726,438
1,330,830
2,057,268
217,646
1998
11/97
(g)
40 years
-
789,237
-
1,335,426
-
789,237
1,335,426
2,124,663
210,051
1998
04/98
(g)
40 years
-
692,165
-
1,174,549
-
692,165
1,174,549
1,866,714
187,194
1998
04/98
(g)
40 years
-
1,387,362
-
-
-
1,387,362
(c)
1,387,362
(c)
1998
05/98
(c)
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
414,568
-
-
-
414,568
(c)
414,568
(c)
1998
05/98
(c)
-
522,461
-
1,418,531
-
522,461
1,418,531
1,940,992
214,257
1998
06/98
(g)
40 years
-
1,476,838
-
1,400,278
-
1,476,838
1,400,278
2,877,116
214,418
1998
06/98
(g)
40 years
-
1,581,480
-
1,471,105
-
1,581,480
1,471,105
3,052,585
219,133
1999
08/98
(g)
40 years
-
2,617,656
-
2,570,569
-
2,617,656
2,570,569
5,188,225
77,653
2003
06/99
40 years
210,025
1,851,374
-
1,739,568
-
1,851,374
1,739,568
3,590,942
190,265
2000
12/99
(g)
40 years
464,968
(t)
616,289
921,173
-
-
616,289
921,173
1,537,462
21,104
1996
09/97
40 years
469,783
(t)
932,233
881,448
-
-
932,233
881,448
1,813,681
20,194
1996
09/97
40 years
570,753
(t)
558,657
-
-
-
558,657
-
558,657
(c)
1996
09/97
(c)
-
3,776,169
-
-
-
3,776,169
(c)
3,776,169
(c)
1998
06/98
(c)
-
516,154
1,123,471
147,214
-
516,154
1,270,685
1,786,839
163,027
1983
03/99
40 years
-
428,429
816,644
-
-
428,429
816,644
1,245,073
62,099
1997
12/01
40 years
-
1,920,032
3,526,868
-
-
1,920,032
3,526,868
5,446,900
731,446
1996
08/96
40 years
-
2,680,532
3,916,889
-
-
2,680,532
3,916,889
6,597,421
812,333
1996
08/96
40 years
-
239,014
626,170
-
-
239,014
626,170
865,184
54,790
1994
02/94
40 years
-
241,650
511,624
194,167
-
241,650
705,791
947,441
90,645
1972
11/98
40 years
-
405,113
463,582
-
-
405,113
463,582
868,695
35,252
1996
12/01
40 years
435,126
(j)
417,603
-
-
-
417,603
(c)
417,603
(c)
1994
03/94
(c)
388,853
(j)
445,593
-
-
-
445,593
(c)
445,593
(c)
1994
03/94
(c)
452,361
(j)
344,022
-
-
-
344,022
(c)
344,022
(c)
1994
06/94
(c)
496,281
(j)
534,243
-
-
-
534,243
(c)
534,243
(c)
1994
12/94
(c)
-
413,438
995,209
-
-
413,438
995,209
1,408,647
221,987
1996
01/96
40 years
-
574,666
998,900
-
-
574,666
998,900
1,573,566
188,334
1997
06/97
40 years
-
474,267
-
-
-
457,659
(c)
457,659
(c)
1997
09/97
(c)
-
568,606
1,326,748
-
-
568,606
1,326,748
1,895,354
233,563
1997
12/97
40 years
-
1,088,896
1,707,448
-
-
1,088,896
1,707,448
2,796,344
300,582
1997
12/97
40 years
-
707,488
-
1,227,330
-
707,488
1,227,330
1,934,818
182,821
1999
03/98
(g)
40 years
471,020
(j)
2,068,089
-
-
-
2,068,089
(c)
2,068,089
(c)
1999
09/98
(c)
-
3,127,139
-
2,424,664
-
3,127,139
2,412,036
(q)
5,539,175
165,827
2002
10/01
40 years
-
1,401,632
2,043,862
-
-
1,401,632
2,043,862
3,445,494
146,903
2002
02/02
40 years
-
2,742,194
1,796,508
-
-
2,742,194
1,796,508
4,538,702
129,124
2002
02/02
40 years
-
2,260,618
2,472,039
-
-
2,260,618
2,472,039
4,732,657
177,678
2002
02/02
40 years
-
218,126
327,329
-
-
218,126
327,329
545,455
24,891
1995
12/01
40 years
-
95,644
515,502
-
-
95,644
515,502
611,146
3,759
1994
09/04
40 years
-
51,055
379,789
-
-
51,055
379,789
430,844
2,769
1993
09/04
40 years
-
64,916
180,538
80,809
-
64,916
261,347
326,263
16,627
1997
12/01
40 years
-
647,055
633,899
-
-
647,055
633,899
1,280,954
48,203
1997
12/01
40 years
-
3,695,816
-
-
-
3,695,816
(c)
3,695,816
(c)
1996
07/95
(f)
(c)
-
3,568,862
-
-
-
3,568,862
(c)
3,568,862
(c)
1995
11/98
(c)
-
1,513,714
5,781,294
-
-
1,513,714
5,781,294
7,295,008
18,067
2004
11/04
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
73,318
(u)
36,850
101,320
-
-
36,850
101,320
138,170
2,216
2001
02/04
40 years
-
2,037,392
1,661,577
257,414
-
2,037,392
1,918,991
3,956,383
279,513
1995
12/95
40 years
-
73,660
306,642
-
-
73,660
306,642
380,302
180,789
1984
12/84
35 years
-
88,457
368,317
-
-
88,457
368,317
456,774
216,781
1985
01/85
35 years
-
98,577
362,416
-
-
98,577
362,416
460,993
209,684
1985
04/85
35 years
-
115,113
305,074
43,797
-
115,113
348,871
463,984
176,744
1985
05/85
35 years
-
1,187,614
1,339,000
-
-
1,187,614
1,339,000
2,526,614
101,820
1997
12/01
40 years
-
1,329,793
1,390,502
-
-
1,329,793
1,390,502
2,720,295
105,736
1998
12/01
40 years
-
1,138,129
1,024,747
-
-
1,138,129
1,024,747
2,162,876
77,923
1994
12/01
40 years
-
1,456,113
2,505,022
-
-
1,456,113
2,505,022
3,961,135
501,341
1995
12/96
40 years
-
2,271,634
3,404,843
-
-
2,271,634
3,404,843
5,676,477
492,993
1999
12/98
(f)
40 years
-
203,908
431,715
171,477
-
203,908
603,192
807,100
76,998
1972
11/98
40 years
-
45,842
132,440
69,029
-
45,842
201,469
247,311
14,099
1997
12/01
40 years
-
2,911,111
-
2,250,620
-
2,911,111
2,250,620
5,161,731
321,182
1999
10/98
(g)
40 years
-
317,838
1,680,428
242,483
-
317,838
1,922,911
2,240,749
314,616
1996
06/96
40 years
-
397,074
1,257,402
-
-
397,074
1,257,402
1,654,476
192,540
1997
11/98
40 years
-
1,184,438
2,526,207
44,005
-
1,184,438
2,570,212
3,754,651
737,322
1992
05/93
40 years
(r
)
1,048,984
(j)
820,397
2,184,721
-
-
820,397
2,184,721
3,005,118
633,345
1992
05/93
40 years
934,546
633,125
1,595,405
-
-
603,111
1,595,405
2,198,516
339,467
1994
06/96
40 years
-
1,965,508
4,221,074
-
-
1,965,508
4,221,074
6,186,582
598,442
1997
12/97
38.5 years
-
469,781
813,073
-
-
469,781
813,073
1,282,854
124,502
1968
11/98
40 years
-
631,712
931,931
-
-
631,712
931,931
1,563,643
142,655
1968
11/98
40 years
-
282,200
520,623
261,238
-
543,438
520,623
1,064,061
39,589
1998
12/01
40 years
-
245,462
732,477
-
-
245,462
732,477
977,939
55,699
1998
12/01
40 years
-
5,148,657
-
-
-
5,148,657
-
5,148,657
-
(e)
05/03
40 years
-
977,839
1,414,261
937,301
-
977,839
2,351,562
3,329,401
108,326
1995
12/95
40 years
-
783,923
504,768
-
-
783,923
504,768
1,288,691
38,383
1993
12/01
40 years
-
800,271
252,717
-
-
800,271
252,717
1,052,988
3,890
1984
05/04
40 years
-
1,579,583
2,849,246
-
-
1,579,583
2,849,246
4,428,829
163,244
2002
09/02
40 years
332,979
(j)
382,084
-
-
-
331,756
(c)
331,756
(c)
1992
10/93
(c)
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
351,927
(j)
271,853
-
-
-
271,853
(c)
271,853
(c)
1993
10/93
(c)
395,676
(j)
519,947
-
-
-
519,947
(c)
519,947
(c)
1993
12/93
(c)
368,103
(j)
430,896
-
-
-
430,896
(c)
430,896
(c)
1993
12/93
(c)
353,479
(j)
404,512
-
-
-
404,512
(c)
404,512
(c)
1993
12/93
(c)
361,531
(j)
380,043
-
-
-
380,043
(c)
380,043
(c)
1993
12/93
(c)
363,964
(j)
483,374
-
-
-
483,374
(c)
483,374
(c)
1993
12/93
(c)
-
407,268
-
-
-
407,268
-
407,268
-
(i)
03/96
(i)
-
955,134
1,336,152
-
-
955,134
1,336,152
2,291,286
101,603
1998
12/01
40 years
-
1,196,900
1,182,150
-
-
1,196,900
1,182,150
2,379,050
77,656
2002
05/02
40 years
-
1,270,517
1,215,818
-
-
1,270,517
1,215,818
2,486,335
79,867
2002
05/02
40 years
-
1,675,739
1,439,597
-
-
1,675,739
1,439,597
3,115,336
73,479
2002
12/02
40 years
-
818,448
896,395
12,222
-
818,448
908,617
1,727,065
252,117
1967
11/93
40 years
-
793,017
876,727
-
-
793,017
876,727
1,669,744
66,668
1993
12/01
40 years
-
335,851
1,925,276
-
-
335,851
1,925,276
2,261,127
58,159
1983
03/99
40 years
3,242,641
(p)
322,476
1,221,661
-
-
322,476
1,221,661
1,544,137
36,904
1983
03/99
40 years
-
470,600
1,343,746
-
-
470,600
1,343,746
1,814,346
40,592
1983
03/99
40 years
(r
)
-
397,443
455,605
-
-
397,443
455,605
853,048
34,645
1981
12/01
40 years
-
1,255,513
649,236
-
-
1,255,513
649,236
1,904,749
49,369
1992
12/01
40 years
-
526,792
794,722
-
-
526,792
794,722
1,321,514
60,432
1981
12/01
40 years
-
646,779
545,592
-
-
646,779
545,592
1,192,371
41,488
1996
12/01
40 years
-
516,508
496,092
-
-
516,508
496,092
1,012,600
37,724
1996
12/01
40 years
-
1,956,579
4,045,196
-
-
1,956,579
4,045,196
6,001,775
712,123
1997
12/97
40 years
-
3,214,835
9,169,885
-
-
3,214,835
9,169,885
12,384,720
583,249
2002
06/02
40 years
79,983
(u)
40,200
110,531
-
-
40,200
110,531
150,731
2,418
2001
02/04
40 years
-
549,309
539,643
364,460
-
549,309
904,103
1,453,412
105,743
1998
11/98
40 years
1,425,276
(s)
222,721
1,088,680
-
-
222,721
1,088,680
1,311,401
38,557
1982
08/03
40 years
-
73,290
520,950
-
-
73,290
520,950
594,240
39,614
1986
12/01
40 years
-
805,056
1,648,934
-
-
805,056
1,648,934
2,453,990
49,812
1984
03/99
40 years
-
986,131
1,426,254
706,501
-
986,131
2,132,755
3,118,886
246,669
1995
12/95
40 years
-
1,017,934
2,066,715
-
-
1,017,934
2,066,715
3,084,649
337,994
1998
06/98
40 years
-
91,709
264,956
-
-
91,709
264,956
356,665
20,162
1997
12/01
40 years
-
850,625
1,059,430
-
-
850,625
1,059,430
1,910,055
80,561
1986
12/01
40 years
-
176,656
674,253
-
-
176,656
674,253
850,909
51,271
1998
12/01
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
700,734
(j)
596,024
1,411,432
-
-
596,024
1,411,432
2,007,456
385,123
1991
01/94
40 years
-
888,772
1,948,036
-
-
888,772
1,948,036
2,836,808
418,278
1996
05/96
40 years
2,038,174
(t)
4,508,753
2,327,448
4,508,753
2,327,448
6,836,201
53,329
1996
09/97
40 years
-
893,270
978,344
76,664
-
893,270
1,055,008
1,948,278
292,987
1967
11/93
40 years
987,295
(j)
1,118,500
1,709,891
-
-
1,118,500
1,709,891
2,828,391
470,337
1993
12/93
40 years
739,335
(j)
543,489
1,574,551
-
-
543,489
1,574,551
2,118,040
412,645
1994
07/94
40 years
1,265,520
(j)
1,867,831
1,757,618
-
-
1,867,831
1,757,618
3,625,449
420,119
1995
06/95
40 years
-
1,689,793
3,050,160
-
-
1,689,793
3,050,160
4,739,953
677,014
1995
01/96
40 years
-
989,370
1,479,119
-
-
989,370
1,479,119
2,468,489
314,621
1995
06/96
40 years
-
1,144,167
2,961,206
-
-
1,144,167
2,961,206
4,105,373
592,438
1996
12/96
40 years
-
1,353,217
1,829,325
-
-
1,353,217
1,829,325
3,182,542
360,148
1995
02/97
40 years
-
667,174
2,181,563
-
-
667,174
2,181,563
2,848,737
411,315
1997
06/97
40 years
-
868,003
-
1,805,539
-
868,003
1,805,539
2,673,542
314,089
1998
09/97
(g)
40 years
-
561,509
-
1,851,326
-
561,509
1,851,326
2,412,835
291,198
1998
02/98
40 years
-
640,019
-
1,929,028
-
640,019
1,929,028
2,569,047
291,364
1998
08/98
40 years
-
1,539,873
2,247,321
-
-
1,539,873
2,247,321
3,787,194
344,121
1995
11/98
40 years
-
1,138,296
3,238,083
-
-
1,138,296
3,238,083
4,376,379
495,831
1995
11/98
40 years
-
685,470
-
1,801,905
-
685,470
1,801,905
2,487,375
257,147
1999
11/98
(g)
40 years
-
817,311
108,294
-
-
817,311
108,294
925,605
8,235
1993
12/01
40 years
-
266,383
-
1,136,334
-
266,383
1,136,334
1,402,717
157,430
1999
12/98
40 years
-
61,517
122,142
-
-
61,517
122,142
183,659
9,295
1997
12/01
40 years
-
306,629
909,671
-
-
306,629
909,671
1,216,300
160,164
1996
12/97
40 years
-
2,724,138
3,565,721
-
-
2,724,138
3,565,721
6,289,859
560,850
1998
09/98
40 years
-
1,167,618
1,903,810
-
-
1,167,618
1,903,810
3,071,428
45,549
1996
09/97
40 years
-
928,321
1,662,584
-
-
928,321
1,662,584
2,590,905
367,393
1995
02/96
40 years
-
713,319
821,770
-
-
713,319
821,770
1,535,089
154,938
1997
09/96
(f)
40 years
-
738,051
803,082
-
-
738,051
803,082
1,541,133
136,357
1998
06/97
(f)
40 years
-
467,169
734,833
-
-
467,169
734,833
1,202,002
109,459
1999
01/98
(f)
40 years
-
593,571
885,047
-
-
593,571
885,047
1,478,618
122,616
1999
06/98
(f)
40 years
-
316,640
756,406
-
-
316,640
756,406
1,073,046
98,490
1999
11/98
(f)
40 years
-
390,838
805,912
-
-
390,838
805,912
1,196,750
103,257
1999
01/99
(f)
40 years
-
547,300
44,237
-
-
547,300
44,237
591,537
3,364
1996
12/01
40 years
-
16,396
88,372
-
-
16,396
88,372
104,768
644
1994
09/04
40 years
-
642,169
436,512
-
-
642,169
436,512
1,078,681
33,193
1995
12/01
40 years
-
75,736
210,628
94,277
-
75,736
304,905
380,641
19,287
1997
12/01
40 years
-
48,566
96,428
13,398
-
48,566
109,826
158,392
7,921
1997
12/01
40 years
-
125,882
319,770
-
-
125,882
319,770
445,652
103,112
1989
07/92
38.8 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
27,327
147,286
-
-
27,327
147,286
174,613
1,074
1994
09/04
40 years
-
2,078,777
13,877,631
-
-
2,078,777
13,877,631
15,956,408
153,995
1975
05/04
40 years
-
145,698
289,284
40,193
-
145,698
329,477
475,175
24,082
1997
12/01
40 years
-
1,136,618
1,694,187
-
-
1,136,618
1,694,187
2,830,805
128,829
2000
12/01
40 years
-
1,409,980
1,996,043
-
-
1,409,980
1,996,043
3,406,023
151,782
2000
12/01
40 years
-
24,707
867,257
-
-
24,707
867,257
891,964
6,324
1994
09/04
40 years
-
33,794
823,923
-
-
33,794
823,923
857,717
6,008
1992
09/04
40 years
-
107,451
579,237
-
-
107,451
579,237
686,688
4,224
1994
09/04
40 years
-
56,737
780,091
-
-
56,737
780,091
836,828
5,688
1990
09/04
40 years
-
762,303
590,978
-
-
762,303
590,978
1,353,281
4,309
1980
09/04
40 years
-
88,867
688,622
-
-
88,867
688,622
777,489
5,021
1993
09/04
40 years
-
1,596,197
934,236
-
-
1,596,197
934,236
2,530,433
2,919
1970
11/04
40 years
-
689,040
386,251
-
-
689,040
386,251
1,075,291
29,371
1994
12/01
40 years
-
2,188,440
6,225,401
-
-
2,188,440
6,225,401
8,413,841
1,108,398
1997
12/97
40 years
-
1,917,606
3,431,364
-
-
1,917,606
3,431,363
5,348,969
670,861
1992
02/97
40 years
-
1,550,202
-
-
-
1,550,202
-
1,550,202
-
(e)
10/04
(e)
-
1,782,346
1,661,174
-
-
1,782,346
1,661,174
3,443,520
297,282
1994
06/96
40 years
-
613,710
1,414,592
-
-
613,710
1,414,592
2,028,302
42,732
1984
03/99
40 years
-
706,306
315,469
-
-
706,306
315,469
1,021,775
23,989
1995
12/01
40 years
-
717,138
310,610
-
-
717,138
310,610
1,027,748
23,619
1995
12/01
40 years
-
1,076,572
-
816,944
-
1,076,572
816,944
1,893,516
121,691
1999
10/98
(g)
40 years
-
1,080,670
-
917,432
-
1,080,670
917,432
1,998,102
132,837
1999
12/98
(g)
40 years
-
1,441,777
2,335,475
-
-
1,441,777
2,335,475
3,777,252
440,334
1997
06/97
40 years
-
1,139,419
-
-
-
1,139,419
(c)
1,139,419
(c)
1994
02/97
(c)
-
247,600
813,514
-
-
247,600
813,514
1,061,114
61,861
1997
12/01
40 years
-
555,951
735,651
-
-
555,951
735,651
1,291,602
55,940
1996
12/01
40 years
-
470,840
530,289
-
-
470,840
530,289
1,001,129
40,324
1996
12/01
40 years
-
1,925,129
5,034,846
-
-
1,925,129
5,034,846
6,959,975
57,691
2004
07/04
40 years
79,983
(u)
40,200
110,531
-
-
40,200
110,531
150,731
2,418
2001
02/04
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
341,713
982,429
-
-
341,713
982,429
1,324,142
133,619
1999
12/98
(g)
40 years
-
1,311,440
-
-
-
1,311,440
(c)
1,311,440
(c)
1994
03/94
(c)
-
2,127,503
1,521,730
-
-
2,127,503
1,521,730
3,649,233
323,685
1994
06/96
40 years
854,466
(t)
1,427,840
1,702,852
-
-
1,427,840
1,702,852
3,130,692
39,012
1996
09/97
40 years
-
1,526,340
4,139,363
-
-
1,526,340
4,139,363
5,665,703
99,172
1997
01/04
40 years
-
820,340
-
2,573,264
-
820,340
2,573,264
3,393,604
399,392
1998
12/97
(g)
40 years
-
3,113,375
2,660,206
-
-
3,113,375
2,660,206
5,773,581
418,428
1998
09/98
40 years
-
3,749,990
5,982,660
-
-
3,749,990
5,982,660
9,732,650
292,901
1994
01/03
40 years
-
986,565
855,523
-
-
986,565
855,523
1,842,088
65,055
1996
12/01
40 years
-
253,603
1,086,792
-
-
253,603
1,086,792
1,340,395
101,434
1998
11/98
37.5 years
-
3,027,056
4,685,189
-
-
3,027,056
4,685,189
7,712,245
43,924
2004
08/04
40 years
-
421,254
684,568
-
-
421,254
684,568
1,105,822
52,056
1986
12/01
40 years
-
399,988
692,190
-
-
399,988
692,190
1,092,178
52,635
1985
12/01
40 years
-
54,097
150,449
67,341
-
54,097
217,790
271,887
13,967
1997
12/01
40 years
-
21,862
117,829
-
-
21,862
117,829
139,691
860
1994
09/04
40 years
-
1,254,238
760,602
-
-
1,254,238
760,602
2,014,840
149,744
1971
02/97
40 years
-
1,699,330
-
-
-
1,699,330
(c)
1,699,330
(c)
1992
02/97
(c)
-
1,034,758
2,874,414
-
-
1,034,758
2,874,414
3,909,172
565,900
1985
02/97
40 years
-
45,815
132,365
-
-
45,815
132,365
178,180
10,067
1997
12/01
40 years
-
275,023
754,990
-
-
275,023
754,990
1,030,013
57,411
2001
12/01
40 years
-
632,337
525,616
-
-
632,337
525,616
1,157,953
39,969
2001
12/01
40 years
-
593,718
282,777
-
-
593,718
282,777
876,495
21,503
1995
12/01
40 years
-
827,002
305,209
17,814
-
844,816
305,209
1,150,025
25,792
1974
12/01
40 years
-
1,269,272
4,213,165
-
-
1,269,272
4,213,165
5,482,437
127,273
1983
03/99
40 years
-
1,908,815
4,029,669
-
-
1,908,815
4,029,669
5,938,484
121,730
1983
03/99
40 years
-
2,672,390
4,270,693
-
-
2,672,390
4,270,693
6,943,083
129,011
1984
03/99
40 years
-
584,237
920,143
-
-
584,237
920,143
1,504,380
69,969
1997
12/01
40 years
-
598,556
1,019,164
-
-
598,556
1,019,164
1,617,720
77,499
1998
12/01
40 years
-
1,209,702
1,532,125
-
-
1,209,702
1,532,125
2,741,827
116,505
1995
12/01
40 years
-
1,266,527
2,405,629
-
-
1,266,527
2,405,629
3,672,156
27,565
2004
07/04
40 years
-
2,777,449
7,082,150
-
-
2,777,449
7,082,150
9,859,599
1,394,298
1992
02/97
40 years
-
477,893
534,807
-
-
477,893
534,807
1,012,700
557
1981
12/04
40 years
-
535,091
829,241
-
-
535,091
829,241
1,364,332
864
1990
12/04
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
1,173,292
1,810,665
-
-
1,173,292
1,810,665
2,983,957
1,886
2001
12/04
40 years
-
2,057,322
977,971
-
-
2,057,322
977,971
3,035,293
1,019
1975
12/04
40 years
-
708,389
910,786
-
-
708,389
910,786
1,619,175
949
1984
12/04
40 years
-
1,114,553
2,125,426
-
-
1,114,553
2,125,426
3,239,979
2,214
2000
12/04
40 years
-
1,743,092
1,943,650
-
-
1,743,092
1,943,650
3,686,742
2,024
2002
12/04
40 years
-
744,145
1,264,885
-
-
744,145
1,264,885
2,009,030
1,317
1997
12/04
40 years
-
641,867
1,119,085
-
-
641,867
1,119,085
1,760,952
1,166
1979
12/04
40 years
-
1,030,426
1,148,065
-
-
1,030,426
1,148,065
2,178,491
1,196
1996
12/04
40 years
-
1,159,775
1,360,379
-
-
1,159,775
1,360,379
2,520,154
1,417
1998
12/04
40 years
93,574,724
(s)
24,077,279
117,691,770
16,825,046
-
24,077,279
134,516,816
158,594,095
4,265,631
1982
08/03
40 years
-
673,238
744,154
-
-
673,238
744,154
1,417,392
56,587
1997
12/01
40 years
-
105,798
328,943
-
-
105,798
328,943
434,741
190,317
1985
03/85
35 years
-
435,002
2,299,881
334,059
-
435,002
2,633,940
3,068,942
422,713
1996
06/96
40 years
1,044,505
1,454,908
2,045,833
-
-
1,454,908
2,045,833
3,500,741
435,308
1992
06/96
40 years
-
317,386
1,248,404
-
-
317,386
1,248,404
1,565,790
37,712
1982
03/99
40 years
-
242,896
528,692
69,277
242,896
597,969
840,865
76,719
1983
03/99
40 years
-
195,652
512,566
-
-
195,652
512,566
708,218
38,976
1997
12/01
40 years
-
639,584
1,015,173
-
-
639,584
1,015,173
1,654,757
77,195
1996
12/01
40 years
-
654,765
765,164
7,500
-
654,765
772,664
1,427,429
62,084
1997
12/01
40 years
-
1,032,008
1,107,250
-
-
1,032,008
1,107,250
2,139,258
84,197
1998
12/01
40 years
-
366,448
643,759
38,660
-
405,108
643,759
1,048,867
54,558
1976
12/01
40 years
-
132,821
672,413
-
-
132,821
672,413
805,233
12,059
1979
04/04
40 years
-
54,999
202,085
-
-
54,999
202,085
257,084
2,316
1984
07/04
40 years
-
2,734
66,667
-
-
2,734
66,667
69,401
486
1992
09/04
40 years
-
2,490,210
2,937,449
-
-
2,490,210
2,937,449
5,427,659
125,454
1996
04/03
40 years
-
1,957,974
1,400,970
-
-
1,957,974
1,400,970
3,358,944
56,914
1994
05/03
40 years
-
1,344,244
1,483,362
-
-
1,344,244
1,483,362
2,827,606
214,778
1982
03/99
40 years
-
190,505
2,640,175
-
-
190,505
2,640,175
2,830,680
382,275
1983
03/99
40 years
-
419,811
1,684,505
-
-
419,811
1,684,505
2,104,316
243,902
1983
03/99
40 years
-
507,231
2,315,424
-
-
507,231
2,315,424
2,822,655
335,254
1983
03/99
40 years
-
630,043
3,131,407
-
-
630,043
3,131,407
3,761,450
453,402
1983
03/99
40 years
-
3,135,036
5,470,606
-
-
3,135,036
5,470,606
8,605,642
1,077,026
1965
02/97
40 years
-
192,830
278,892
83,773
-
192,830
362,665
555,495
15,942
1995
12/95
40 years
-
307,068
496,410
-
-
307,068
496,410
803,478
188,424
1985
07/92
33 years
-
585,872
-
-
-
585,872
-
585,872
-
(i)
02/98
(i)
-
501,136
333,445
-
-
501,136
333,445
834,581
25,356
1980
12/01
40 years
-
624,318
418,975
-
-
624,318
418,975
1,043,293
31,860
1995
12/01
40 years
-
1,031,974
696,950
-
-
1,031,974
696,950
1,728,924
52,997
1997
12/01
40 years
-
1,287,630
1,952,791
-
-
1,287,630
1,952,791
3,240,421
79,332
1997
05/03
40 years
-
1,937,017
1,284,901
-
-
1,937,017
1,284,901
3,221,918
52,199
1997
05/03
40 years
-
1,023,371
1,874,875
-
-
1,023,371
1,874,875
2,898,246
68,355
1984
07/03
40 years
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
2,532,133
-
-
-
2,532,133
-
2,532,133
912,232
(n)
(m)
$
152,109,562
$
434,215,343
$
563,573,672
$
68,068,415
$
-
$
434,398,959
$
629,692,740
$
1,064,091,700
61,720,322
$
-
$
-
$
1,924,740
$
-
$
-
$
-
$
(c)
$
(c)
$
(c)
1994
05/95
(c)
-
-
1,867,519
-
-
-
(c)
(c)
(c)
1995
06/95
(c)
-
-
2,253,408
-
-
-
(c)
(c)
(c)
1996
08/95
(f)
(c)
-
-
2,112,335
-
-
-
(c)
(c)
(c)
1996
02/96
(f)
(c)
-
-
1,910,697
-
-
-
(c)
(c)
(c)
1996
06/96
(f)
(c)
-
-
2,405,466
-
-
-
(c)
(c)
(c)
1997
08/96
(f)
(c)
-
-
1,961,017
-
-
-
(c)
(c)
(c)
1996
09/97
(f)
(c)
-
-
3,498,559
-
-
-
(c)
(c)
(c)
1996
05/95
(c)
-
-
3,400,057
-
-
-
(c)
(c)
(c)
1994
02/97
(c)
-
-
3,267,579
-
-
-
(c)
(c)
(c)
1997
09/97
(c)
-
-
286,910
-
-
-
(c)
(c)
(c)
1988
07/92
(c)
-
-
783,974
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
-
638,684
-
-
-
(c)
(c)
(c)
1994
01/94
(c)
-
-
636,070
-
-
-
(c)
(c)
(c)
1994
02/94
(c)
-
-
849,071
-
-
-
(c)
(c)
(c)
1994
12/94
(c)
-
-
869,846
-
-
-
(c)
(c)
(c)
1994
12/94
(c)
341,888
(j)
158,851
855,348
-
-
(d)
(d)
(d)
(d)
1994
12/94
(d)
-
-
933,852
-
-
-
(c)
(c)
(c)
1995
04/95
(c)
-
-
1,090,532
-
-
-
(c)
(c)
(c)
1995
12/95
(c)
346,912
(j)
189,187
804,963
-
-
(d)
(d)
(d)
(d)
1995
06/95
(d)
-
-
949,128
-
-
-
(c)
(c)
(c)
1995
01/96
(c)
-
-
879,296
-
-
-
(c)
(c)
(c)
1995
01/96
(c)
-
-
1,228,436
-
-
-
(c)
(c)
(c)
1996
12/96
(c)
-
399,592
2,529,969
78,461
-
(d)
(d)
(d)
(d)
1996
12/96
(d)
-
-
355,757
-
-
-
(c)
(c)
(c)
1995
01/97
(c)
-
-
347,474
-
-
-
(c)
(c)
(c)
1994
01/97
(c)
-
(l
)
1,365,125
-
-
(l)
(c)
(c)
(c)
1997
06/97
(c)
-
(l
)
1,419,093
-
-
(l)
(c)
(c)
(c)
1997
06/97
(c)
-
-
1,225,477
-
-
-
(c)
(c)
(c)
1997
06/97
(c)
-
-
1,376,025
-
-
-
(c)
(c)
(c)
1998
05/98
(c)
-
-
-
1,416,071
-
-
(c)
(c)
(c)
1998
11/98
(h)
(c)
554,225
(t)
-
2,074,777
-
-
-
(c)
(c)
(c)
1996
09/97
(c)
-
-
1,135,067
-
-
-
(c)
(c)
(c)
1996
09/97
(c)
-
-
4,888,743
-
-
-
(c)
(c)
(c)
1998
06/98
(c)
-
-
828,942
-
-
-
(c)
(c)
(c)
1994
03/94
(c)
-
-
668,390
-
-
-
(c)
(c)
(c)
1994
03/94
(c)
-
-
951,795
-
-
-
(c)
(c)
(c)
1994
06/94
(c)
-
-
-
1,901,335
-
-
(c)
(c)
(c)
1999
03/99
(h)
(c)
-
-
887,497
-
-
-
(c)
(c)
(c)
1994
12/94
(c)
-
336,610
1,173,529
-
-
(d)
(d)
(d)
(d)
1996
12/96
(d)
-
-
1,344,240
-
-
-
(c)
(c)
(c)
1997
09/97
(c)
-
(l
)
-
1,984,435
-
(l)
(c)
(c)
(c)
2000
12/00
(c)
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
-
3,201,489
-
-
-
(c)
(c)
(c)
2002
02/02
(c)
-
-
4,068,179
-
-
-
(c)
(c)
(c)
1996
07/95
(f)
(c)
-
-
4,266,181
-
-
-
(c)
(c)
(c)
1995
11/98
(c)
675,300
(j)
88,604
1,845,988
-
-
(d)
(d)
(d)
(d)
1993
05/93
(d)
711,242
(j)
336,488
1,701,072
-
-
(d)
(d)
(d)
(d)
1993
10/93
(d)
-
128,216
1,674,167
-
-
(d)
(d)
(d)
(d)
1994
01/94
(d)
695,416
(j)
448,648
1,543,573
-
-
(d)
(d)
(d)
(d)
1994
08/94
(d)
-
279,312
1,109,609
-
-
(d)
(d)
(d)
(d)
1997
11/98
(d)
-
415,926
1,397,178
-
-
(d)
(d)
(d)
(d)
1968
11/98
(d)
-
-
571,832
-
-
-
(c)
(c)
(c)
1992
10/93
(c)
-
-
736,345
-
-
-
(c)
(c)
(c)
1993
10/93
(c)
-
-
613,582
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
-
623,641
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
-
608,132
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
-
655,668
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
-
559,307
-
-
-
(c)
(c)
(c)
1993
12/93
(c)
-
(l
)
1,928,871
-
-
(l)
(c)
(c)
(c)
2000
12/01
(c)
-
(l
)
1,599,105
-
-
(l)
(c)
(c)
(c)
1998
12/01
(c)
537,223
(l
)
1,500,145
-
-
(l)
(c)
(c)
(c)
1998
12/01
(c)
484,886
(l
)
1,241,825
-
-
(l)
(c)
(c)
(c)
1998
12/01
(c)
-
(l
)
1,457,625
-
-
(l)
(c)
(c)
(c)
1998
12/01
(c)
305,469
(l
)
1,502,903
-
-
(l)
(c)
(c)
(c)
1998
12/01
(c)
-
1,234,519
3,255,257
-
-
(d)
(d)
(d)
(d)
1997
06/02
(d)
-
634,444
2,225,991
-
-
(d)
(d)
(d)
(d)
1994
01/95
(d)
-
-
2,658,976
-
-
-
(c)
(c)
(c)
1994
03/94
(c)
-
-
2,578,098
-
-
-
(c)
(c)
(c)
1994
02/97
(c)
-
-
2,978,154
-
-
-
(c)
(c)
(c)
1992
02/97
(c)
$
4,652,561
$
4,650,396
$
106,082,280
$
5,380,302
$
-
$
-
$
-
$
-
$
-
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
Costs Capitalized
Life on Which
Subsequent to
Gross Amount at Which
Depreciation and
Initial Cost to Company
Acquisition
Carried at Close of Period (b)
Accumulated
Amortization in
Encum-
Building,
Building,
Depreciation
Date
Latest Income
brances
Improvements and
Improve-
Carrying
Improvements and
and
of Con-
Date
Statement is
(k)
Land
Leasehold Interests
ments
Costs
Land
Leasehold Interests
Total
Amortization
struction
Acquired
Computed
-
4,894,393
-
-
-
4,894,393
-
4,894,393
-
(e)
05/04
(e)
-
1,234,885
-
2,244,454
-
1,234,885
2,244,454
3,479,339
-
2004
12/03
(g)
-
603,181
-
1,735,663
-
603,181
1,735,663
2,338,844
-
2004
02/04
(g)
-
883,610
-
-
-
883,610
-
883,610
-
(e)
07/04
(g)
-
1,690,550
-
-
-
1,690,550
-
1,690,550
-
(e)
06/04
(e)
-
389,667
-
-
-
389,667
-
389,667
-
(e)
07/04
(g)
-
5,453,651
-
8,779,478
-
5,453,651
8,779,478
14,233,129
-
(e)
03/04
(e)
-
1,792,507
-
-
-
1,792,507
-
1,792,507
-
(e)
10/04
(g)
-
4,034,180
-
-
-
4,034,180
-
4,034,180
-
(e)
12/04
(g)
-
77,332
309,470
-
-
77,332
309,470
386,802
-
(e)
09/04
(g)
-
115,720
581,391
-
-
115,720
581,391
697,111
-
(e)
12/04
(g)
-
716,608
1,497,996
-
-
716,608
1,497,996
2,214,604
-
1995
12/01
(e)
-
386,807
-
-
-
386,807
-
386,807
-
(e)
12/02
(e)
-
231,711
-
-
-
231,711
-
231,711
-
(e)
07/03
(e)
-
1,580,611
-
-
-
1,580,611
-
1,580,611
-
(e)
06/04
(e)
-
939,073
1,637,329
-
-
939,073
1,637,329
2,576,402
81,650
1983
12/01
40 years
-
1,530,197
1,020,131
-
-
1,530,197
1,020,131
2,550,328
-
(e)
05/04
(e)
-
1,800,730
-
-
-
1,800,730
-
1,800,730
-
(e)
10/04
(g)
-
555,519
-
-
-
555,519
-
555,519
-
(e)
12/04
(g)
-
1,364,118
-
-
-
1,364,118
-
1,364,118
-
(e)
12/04
(g)
$
-
$
30,275,049
$
5,046,317
$
12,759,595
$
-
$
30,275,049
$
17,805,912
$
48,080,961
81,650
NOTES TO SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(a)
Transactions in real estate and accumulated depreciation during 2004, 2003 and 2002, are summarized as follows:
2004
2003
2002
$
982,075,881
$
787,893,067
$
835,266,183
240,699,423
278,670,366
71,825,377
(93,648,782
)
(84,487,552
)
(115,913,000
)
-
-
(3,285,493
)
$
1,129,126,522
$
982,075,881
$
787,893,067
$
49,108,834
$
39,488,104
$
32,623,991
(2,118,579
)
(1,868,941
)
(4,039,258
)
14,811,717
11,489,671
10,903,371
$
61,801,972
$
49,108,834
$
39,488,104
(b)
As of December 31, 2004, the leases are treated as either operating or financing leases for federal income tax purposes. As of December 31, 2004, the aggregate cost of the properties owned by the Company that under operating leases were $1,148,234,879 and financing leases were $10,710,568.
(c)
For financial reporting purposes, the portion of the lease relating to the building has been recorded as a direct financing lease; therefore, depreciation is not applicable.
(d)
For financial reporting purposes, the lease for the land and building has been recorded as a direct financing lease; therefore, depreciation is not applicable.
(e)
The Company owns only the land for this property.
(f)
Date acquired represents acquisition date of land. Pursuant to lease agreement, the Company purchased the buildings from the tenants upon completion of construction, generally within 12 months from the acquisition of the land.
(g)
Date acquired represents acquisition date of land. The Company developed the buildings, generally completing construction within 12 months from the acquisition date of the land.
(h)
Date acquired represents date of building construction completion. The land has been recorded as operating lease.
(i)
The Company owns only the land for this property, which is subject to a ground lease between the Company and the tenant. The tenant funded the improvements on the property.
(j)
Property is encumbered as a part of the Companys $39,450,000 long-term, fixed rate mortgage and security agreement.
(k)
Encumbered properties for which the portion of the lease relating to the land is accounted for as an operating lease and the portion of the lease relating to the building is accounted for as a direct financing lease, the total amount of the encumbrance is listed with the land portion of the property.
(l)
The Company owns only the building for this property. The land is subject to a ground lease between the Company and an unrelated third party.
(m)
The leasehold interests are amortized over the life of the respective leases which range from 11.5 and 12.5 years.
(n)
The leasehold interest sites were acquired between August 1999 and August 2001.
(o)
In 2002, this property was contributed down to a wholly-owned subsidiary of the Company at the propertys net book value.
(p)
Property is encumbered as a part of the Companys $21,000,000 long-term, fixed rate mortgage and security agreement.
(q)
In 2002, this property was owned by a wholly-owned limited liability entity that was dissolved into the Company.
(r)
The tenant of this property has subleased the property. The tenant continue to be responsible for complying with all the terms of the lease agreement and is continuing to pay rent on this property to the Company.
(s)
Property is encumbered as a part of the Companys $95,000,000 long-term, fixed rate mortgage and security agreement.
(t)
Property is encumbered as a part of the Companys $12,000,000 long-term, fixed rate mortgage and security agreement.
(u)
Property is encumbered as a part of the Companys $6,952,000 long-term, fixed rate mortgage and security agreement.
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
Principal
Amount
of Loans
Face
Carrying
Subject to
Final
Periodic
Amount
Amount
Delinquent
Interest
Maturity
Payment
Prior
of
of
Principal or
Description
Rate
Date
Terms
Liens
Mortgages
Mortgages(e)
Interest
11.5
%
2009
(b)
-
$
2,765,000
$
1,197,116
$
-
11.5
%
2009
(b)
-
2,565,000
1,170,795
-
10.0
%
2018
(b)
-
400,000
364,819
-
10.0
%
2013
(b)
-
210,000
-
-
10.0
%
2007
(d)
-
690,018
298,519
-
10.0
%
2007
(d)
-
1,068,788
371,221
-
8.5
%
2007
(c)
-
4,399,805
1,528,567
-
8.5
%
2007
(c)
-
2,355,279
284,023
-
7.2
%
2013
(b)
-
2,605,000
2,575,118
-
10.5
%
2004
(b)
-
286,000
-
-
8.9
%
2004
(b)
-
93,222
-
-
8.9
%
2005
(b)
-
150,651
9,962
-
9.3
%
2004
(b)
-
369,447
-
-
6.5
%
2009
(b)
-
1,894,000
1,883,587
1,883,587
7.5
%
2008
(b)
-
1,875,000
1,843,831
-
$
21,727,210
$
11,527,558
(a)
$
1,883,587
2004
2003
2003
$
19,773,196
$
8,277,867
$
12,270,022
-
17,122,868
4,344,460
(f)
(8,245,638
)
(5,627,539
)
(8,336,615
)
$
11,527,558
$
19,773,196
$
8,277,867
Exhibit 3.1
TABLE OF CONTENTS
Part I First Amended and Restated Articles of Incorporation of Commercial Net Lease Realty, Inc.
Part II Amendment to First Amended and Restated Articles of Incorporation of Commercial Net Lease Realty, Inc.
PART I
FIRST AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COMMERCIAL NET LEASE REALTY, INC.
Commercial Net Lease Realty, Inc., a Maryland corporation (hereinafter the Corporation), hereby certifies to the Department of Assessments and Taxation of the State of Maryland, that:
FIRST : The Corporation desires to amend and restate its charter as currently in effect.
SECOND : Prior to this amendment and restatement the total number of shares of all classes of capital stock that the Corporation had authority to issue was one 180,000,000 shares, consisting of (i) 90,000,000 shares of common stock, par value $0.01 per share: and (ii) 90,000,000 shares of excess stock, par value $0.01 per share. The aggregate par value of all of the authorized shares of all classes of capital stock having a par value was $1,800,000.00. After this amendment and restatement the total number of shares of all classes of capital stock that the Corporation will have authority to issue will be 210,000,000 shares consisting of (i) 90,000,000 shares of common stock, par value $0.01; (ii) 15,000,000 shares of preferred stock, par value $0.01; and 105,000,000 shares of excess stock, par value $0.01. The aggregate par value of all of the authorized shares of all classes of capital stock having a par value will be $2,100,000.
THIRD : The provisions of the charter which are now in effect and as amended hereby, stated in accordance with the Maryland General Corporation Law are as follows:
ARTICLE I
NAME
The name of the Corporation is Commercial Net Lease Realty, Inc.
ARTICLE II
DURATION
The duration of the Corporation is perpetual.
ARTICLE III
PURPOSES AND POWERS
The purpose for which the Corporation is formed is to engage in any lawful business, act or activity for which corporations may be organized under the laws of the State of Maryland and, in general, to possess and exercise all the purposes, powers, rights and privileges granted to, or conferred upon, corporations by the laws of the State of Maryland now or hereafter in force, and to exercise any powers suitable, convenient or proper for the accomplishment of the purposes herein enumerated, implied or incidental to the powers herein enumerated or which at any time may appear conducive to or expedient for the accomplishment of such purposes. The foregoing shall, except where otherwise expressed, in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other provision of this Charter or of any amendment hereto or restatement hereof, and shall each be regarded as independent and construed as powers as well as purposes.
ARTICLE IV
PRINCIPLE OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation is c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, MD 21202. The resident agent of the Corporation is The Corporation Trust Incorporated, 300 E. Lombard Street, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.
ARTICLE V
BOARD OF DIRECTORS
The number of directors shall be no less than three (3), unless a lesser number is permitted
pursuant to the terms of the Maryland General Corporation Law as in effect from time to time or any
successor statute thereto (the MGCL). Subject to the foregoing, the number of directors of the
Corporation shall be fixed by the Bylaws of the Corporation and maybe increased or deceased from
time to time in such a manner as may be prescribed by the Bylaws. The following persons will serve
as directors of the Corporation until the annual meeting and until their successors are elected and
qualify:
Ted B. Lanier
James M. Seneff, Jr.
ARTICLE VI
AUTHORIZED STOCK
SECTION 1. TOTAL CAPITALIZATION
The total number of shares of all classes of capital stock that the Corporation has authority to issue is two hundred ten million (210,000,000) shares consisting of (i) ninety million (90,000,000) shares of common stock, par value $0.01 (the Common Stock); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the Preferred Stock); and one hundred five million (105,000,000) shares of excess stock, par value $0.01 (the Excess Stock). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $2,100,000.
SECTION 2. CAPITAL STOCK
A. COMMON STOCK
(1) COMMON STOCK SUBJECT TO TERMS OF PREFERRED STOCK. The Common Stock shall be subject to the express terms of the Preferred Stock.
(2) DIVIDEND RIGHTS. The holders of shares of Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors of the Corporation out of funds legally available therefore.
(3) RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary liquidation, dissolution or winding up, or any distribution of the assets, of the Corporation, the aggregate amount available for distribution to holders of shares of Common Stock (including, for purposes of this sentence, holders of shares of Excess Stock) shall be determined by applicable law. Except as provided below, each holder of shares of the Common Stock shall be entitled to receive that portion of such aggregate amount, ratably with (i) each other holder of shares of Common Stock and (ii) each holder of shares of Excess Stock, as the number of shares of the Common Stock held by such holder bears to the total number of shares of Common Stock and Excess Stock. Anything herein to the contrary notwithstanding, in no event shall the amount payable to a holder of shares with respect to Excess Stock hereunder exceed (i) the price per share such holder paid for the Common Stock in the purported Transfer (as that term is defined in paragraph A of Section 3 of this Article VI) that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price (as the term is defined in paragraph A of Section 3 of this Article VI) for the shares of the Common Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to holders of Common Stock and other holders of Excess Stock resulting from the exchange of Common Stock to the extent permitted by the foregoing limitations.
(4) VOTING RIGHTS. Except as may be provided in this Charter, and subject to the express terms of any series of Preferred Stock, the holders of shares of the Common Stock shall have the exclusive right to vote on all matters (as to which a common stockholder shall be entitled to vote) at all meetings of the stockholders of the Corporation, and shall be entitled to one (1) vote for each share of the Common Stock entitled to vote at such meetings.
B. PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as authorized by the Board of Directors. Prior to the issuance of shares of each such series, the Board of Directors, by resolution, shall fix the number of shares to be included in each series, and the terms, rights, restrictions and qualifications of the shares of each series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:
(i) | The designation of the series, which may be by distinguishing number, letter or title; | |||
(ii) | The dividend rate on the shares of the series, if any, whether any dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series; | |||
(iii) | The redemption rights, including conditions and the price or prices, if any, for shares of the series; | |||
(iv) | The terms and amounts of any sinking fund for the purchase or redemption of shares of the series; | |||
(v) | The rights of the shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and the relative rights of priority, if any, of payment of shares of the series; | |||
(vi) | Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation or other entity, and, if so, the specification of such other class or series of such other security, the conversion price or prices or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made; | |||
(vii) | Restrictions on the issuance of shares of the same series or of any other class or series; | |||
(viii) | The voting rights, if any, of the holders of shares of the series; and | |||
(ix) | Any other relative rights, preferences and limitations on that series. |
Subject to the express provisions of any other series of Preferred Stock then outstanding, notwithstanding any other provision of this Charter, the Board of Directors may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares, or alter the designation or classify or reclassify any unissued shares of a particular series of Preferred Stock, by fixing or altering, in one or more respects, from time to time before issuing the shares, the terms, rights, restrictions and qualifications of the shares of any such series of Preferred Stock.
SECTION 3. RESTRICTIONS ON TRANSFER; ACQUISITIONS AND REDEMPTION SHARES
A. DEFINITIONS . For purposes of Sections 3 and 4 of this Article VI, the following terms shall have the following meanings:
Beneficial Ownership shall mean ownership of shares of Capital Stock by an individual who would be treated as an owner of such shares under Section 542(a)(2) of the Code, either directly or constructively through the application of Section 544, as modified by Section 856(h)(1)(B). For purposes of this definition, the term individual also shall include any organization, trust or other entity that is treated as an individual for purposes of Section 542(a)(2) of the Code. The terms Beneficial Owner, Beneficially Own, Beneficially Owns and Beneficially Owned shall have correlative meanings.
Beneficiary shall mean a beneficiary of the Trust as determined pursuant to paragraph A of Section 4 of this Article VI.
Board of Directors shall mean the Board of Directors of the Corporation.
Bylaws shall mean the Bylaws of the Corporation.
Capital Stock shall mean collectively the stock of the Corporation that is either Common Stock and Preferred Stock.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor thereto, as interpreted by any applicable regulations thereto and judicial decisions as in effect from time to time.
Constructive Ownership shall mean ownership of shares of Capital Stock by a Person who would be treated as an owner of such shares, either actually or constructively, through the application of Section 318 of the Code, as modified by Section 856(d)(5) thereof. The terms Constructive Owner, Constructively Own, Constructively Owns and Constructively Owned shall have correlative meanings.
Market Price on any day shall mean the average of the Closing Prices for the ten (10) consecutive Trading Days immediately preceding such day (or those days during such 10-day period for which Closing Prices are available). The Closing Price on any day shall mean the last sale price, regular way, on such day or if no such sale takes place on that day, the average of the closing bid and asked prices, regular way, in either case as reported on the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or the American Stock Exchange, or if the Capital Stock is not so listed or admitted to trading, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange (including the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System) on which the Capital Stock is listed or admitted to trading or, if the Capital Stock is not so listed or admitted to trading, the last quoted price, or if not quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal automated quotation system then in use or, if the Capital Stock is not so quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker selected by the Board of Directors making a market in the Capital Stock or, if there is no such market maker or such closing prices otherwise are not available, the fair market value of the Capital Stock as of such day, as determined by the Board of Directors in its discretion.
Ownership Limit shall mean 9.8 percent of the Value of the outstanding Capital Stock.
Person shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does not include an underwriter which participated in a public offering of Capital Stock for a period of sixty (60) days following the purchase by such underwriter of Capital Stock therein, provided that the foregoing exclusion shall apply in an underwriting only if the ownership of such Capital Stock by such underwriter would not cause the Corporation to fail to qualify as a REIT by reason of being closely held within the meaning of Section 856(a) of the Code or otherwise cause the Corporation to fail to qualify as a REIT.
Purported Beneficial Transferee shall mean, with respect to any purported Transfer which results in Excess Stock, the purported beneficial transferee for whom the Purported Record Transferee would have acquired shares of Capital Stock if such Transfer had been valid under paragraph B of this Section 3.
Purported Record Transferee shall mean, with respect to any purported Transfer which results in Excess Stock, the record holder of the Capital Stock if such Transfer had been valid under paragraph B of this Section 3.
REIT shall mean a real estate investment trust under Sections 856 through 860 of the Code.
Restriction Termination Date shall mean the first day on which the Board of Directors and the stockholders of the Corporation determine that it is no longer in the best interests of the Corporation to attempt, or continue, to qualify as a REIT.
Trading Day shall mean a day on which the principal national securities exchange on which the Capital Stock is listed or admitted to trading is open for the transaction of business or, if the Capital Stock is not listed or admitted to trading, shall mean any day other than a Saturday, Sunday or other day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
Transfer shall mean any sale, transfer, gift, hypothecation, assignment, devise or other disposition of Capital Stock (including (i) the granting of any option (including any option to acquire any option or any series of such options) or entering into any agreement for the sale, transfer or other disposition of Capital Stock or (ii) the sale, transfer assignment or other disposition of any securities or rights convertible into or exchangeable for Capital Stock), whether voluntary or involuntary, of record, constructively or beneficially, and whether by operation of law or otherwise. The terms Transfers and Transferred shall have correlative meanings.
Trust shall mean the trust created pursuant to paragraph A of Section 4 of this Article VI.
Trustee shall mean the Corporation as trustee for the Trust, and any successor trustee appointed by the Corporation.
Value shall mean, as of any given date, the Market Price per share of each class of Capital Stock then outstanding, multiplied by the number of shares of such class then outstanding.
B. OWNERSHIP AND TRANSFER LIMITATION
(1) Notwithstanding any other provision of this Charter, except as provided in paragraph I of this Section 3 and Section 5 of this Article VI, prior to the Restriction Termination Date, no Person shall Beneficially or Constructively Own shares of Capital Stock in excess of the Ownership Limit.
(2) Notwithstanding any other provision of this Charter, except as provided in paragraph I of this Section 3 and Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial or Constructive Ownership of Capital Stock that, if effective, would result in any Person Beneficially or Constructively Owning Capital Stock in excess of the Ownership Limit shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial or Constructive Ownership with respect to that number of shares of Capital Stock which would otherwise be Beneficially or Constructively Owned by Such Person in excess of the Ownership Limit, and neither the Purported Beneficial Transferee nor the Purported Record Transferee shall acquire any rights in that number of shares of Capital Stock.
(3) Notwithstanding any other provision of this Charter, except as provided in Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in ownership of Capital Stock that, if effective, would result in the Capital Stock being owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in ownership with respect to that number of shares which otherwise would be owned by the transferee, and the intended transferee or subsequent owner (including a Beneficial Owner) shall acquire no rights in that number of shares of Capital Stock.
(4) Notwithstanding any other provisions of this Charter except Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial Ownership of shares of Capital Stock that, if effective, would cause the Corporation to fail to qualify as a REIT by reason of being closely held within the meaning of Section 856(h) of the Code or otherwise, directly or indirectly, would cause the Corporation to fail to qualify as a REIT shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial Ownership with respect to that number of shares of Capital Stock which would cause the Corporation to be closely held within the meaning of Section 856(h) of the Code or otherwise, directly or indirectly, would cause the Corporation to fail to qualify as a REIT, and the intended transferee or subsequent Beneficial Owner shall acquire no rights in that number of shares of Capital Stock.
C. EXCHANGE FOR EXCESS STOCK.
(1) If, notwithstanding the other provisions contained in this Article VI, at any time prior to the Restriction Termination Date, there is a purported Transfer, change in the capital structure of the Corporation or other purported change in the Beneficial or Constructive Ownership of Capital Stock such that any person would either Beneficially or Constructively Own Capital Stock in excess of the Ownership Limit, then, except as otherwise provided in paragraph I of this Section 3, such shares of Capital Stock (rounded up to the next whole number of shares) in excess of the Ownership Limit automatically shall be exchanged for an equal number of shares of Excess Stock having terms, rights, restrictions and qualifications identical thereto, except to the extent that this Article VI requires different terms. Such exchange shall be effective as of the close of business on the business day next preceding the date of the purported Transfer, change in capital structure or other change in purported Beneficial or Constructive Ownership of Capital Stock.
(2) If, notwithstanding the other provisions contained in this Article VI, prior to the Restriction Termination Date, there is a purported Transfer, change in the capital structure of the Corporation or other purported change in Beneficial Ownership of Capital Stock which, if effective, would cause the Corporation to fail to qualify as a REIT by reason of being closely held within the meaning of Section 856(h) of the Code, or otherwise, directly or indirectly would cause the Corporation to fail to qualify as a REIT, then the shares of Capital Stock (rounded up to the next whole number of shares), being Transferred or which are otherwise affected by the change in capital structure or other purported change in Beneficial Ownership and which, in any case, would cause the Corporation to be closely held within the meaning of such Section 856(h) or otherwise would cause the Corporation to fail to qualify as a REIT automatically shall be exchanged for an equal number of shares of Excess Stock having terms, rights, restrictions and qualifications identical thereto, except to the extent that this Article VI requires different terms. Such exchange shall be effective as of the close of business on the business day next preceding the date of the purported Transfer, change in capital structure or other purported change in Beneficial Ownership.
D. REMEDIES FOR BREACH . If the Board of Directors or its designee shall at any time determine in good faith that a Transfer or change in the capital structure of the Corporation has taken place in violation of paragraph B of this Section 3 or that a Person intends to acquire or has attempted to acquire Beneficial or Constructive Ownership of any shares of Capital Stock in violation of paragraph B of this Section 3, the Board of Directors or its designee shall take such actions as it deems advisable to refuse to give effect to or to prevent such Transfer, change in capital structure of the Corporation or other attempt to acquire Beneficial or Constructive Ownership of any shares of Capital Stock, including, but not limited to, refusing to give effect thereto on the books of the Corporation or instituting injunctive proceedings with respect thereto; provided, however, that any Transfer, change in the capital structure of the Corporation, attempted Transfer or other attempt to acquire Beneficial or Constructive Ownership of any shares of Capital Stock in violation of subparagraphs (2), (3) and (4) of paragraph B of this Section 3 (as applicable) shall be void ab initio and where applicable automatically shall result in the exchange described in paragraph C of this Section 3, irrespective of any action (or inaction) by the Board of Directors or its designee.
E. NOTICE OF RESTRICTED TRANSFER . Any Person who acquires or attempts to acquire Beneficial or Constructive Ownership of shares of Capital Stock in violation of paragraph B of this Section 3 and any Person who Beneficially or Constructively owns Excess Stock pursuant to paragraph C of this Section 3 shall immediately give written notice to the Corporation, or, in the event of a proposed or attempted Transfer or purported change in Beneficial Ownership, shall give at least fifteen (15) days prior written notice to the Corporation, of such event and shall promptly provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer, attempted Transfer or purported change in Beneficial Ownership on the Corporations status as a REIT.
F. OWNERS REQUIRED TO PROVIDE INFORMATION. Prior to the Restriction Termination Date:
(1) Every Beneficial or Constructive Owner of more than 5.0 percent, or such lower percentages as required pursuant to regulations under the Code or as may be requested by the Board of Directors, of the Value of the outstanding Capital Stock of the Corporation shall annually, no later than January 31 of each calendar year, give written notice to the Corporation stating (i) the name and address of such Beneficial or Constructive Owner; (ii) the number of shares of Capital Stock Beneficially or Constructively Owned and (iii) a description of how such shares are held. Each such Beneficial or Constructive Owner promptly shall provide to the Corporation such additional information as the Corporation, in its sole discretion, may request in order to determine the effect, if any, of such Beneficial or Constructive Ownership on the Corporations status as a REIT and to ensure compliance with the Ownership Limit.
(2) Each person who is a Beneficial or Constructive Owner of Capital Stock and each Person (including the stockholder of record) who is holding Capital Stock for a Beneficial or Constructive Owner promptly shall provide to the Corporation such information as the Corporation, in its sole discretion, may request in order to determine the Corporations status as a REIT, to comply with the requirements of any taxing authority or other governmental agency, to determine any such compliance or to ensure compliance with the Ownership Limit.
G. REMEDIES NOT LIMITED . Noting contained in this Article VI except Section 5 hereof shall limit scope or application of the provisions of this Section 3, the ability of the Corporation to implement or enforce compliance with the terms thereof or the authority of the Board of Directors to take any such other action or actions as it may deem necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporations status as a REIT and to ensure compliance with the Ownership Limit, including, without limitation, refusal to give effect to a transaction on the books of the Corporation.
H. AMBIGUITY . In the case of an ambiguity in the application of any of the provisions of this Section 3, including any definition contained in paragraph A hereof, the Board of Directors shall have the power and authority, in its sole discretion, to determine the application of the provisions of this Section 3 with respect to any situation based on the facts known to it.
I. EXCEPTION . The Board of Directors, upon receipt of a ruling from the Internal Revenue Service, an opinion of counsel, or other evidence satisfactory to the Board of Directors, in its sole discretion, in each case to the effect that the restrictions contained in subparagraph 3 and subparagraph 4 of paragraph B of this Section 3 will not be violated, may waive, in whole or in part, the application of the Ownership Limit with respect to any Person. In connection with any exemption, the Board of Directors may require such representations and undertakings from such Person and may impose such other conditions as the Board deems necessary, in its sole discretion, to determine the effect, if any, of the proposed Transfer on the Corporations status as a REIT.
J. LIMITATIONS ON MODIFICATIONS .
(1) The Ownership Limit may not be increased (nor may any additional ownership limitations be created) if, after giving effect to such increase or creation, the Corporation would be closely held within the meaning of Section 856(h) of the Code (assuming ownership of shares of Capital Stock by all Persons equal to the greater of the Beneficial Ownership of Capital Stock by such Person or the Ownership Limit,
(2) Prior to any modification of the Ownership Limit, the Board of Directors may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary, advisable or prudent in order to determine or ensure the Corporations status a REIT.
K. LEGEND . Each certificate for shares of Capital Stock shall bear substantially the following legend:
The securities represented by this certificate are subject to restrictions on transfer for the purpose of maintenance of the Corporations status as a real estate investment trust under the Internal Revenue Code of 1986, as mended (the Code). Except as otherwise provided pursuant to he Charter of the Corporation, no Person may (i) Beneficially or Constructively Own shares of Capital Stock in excess of 9.8 percent of the Value of the outstanding shares of Capital Stock of the Corporation; or (ii) Beneficially Own Capital Stock which could result in the Corporation being closely held under Section 856(h) of the Code or otherwise would cause the Corporation to fail to qualify as a REIT. Any Person who attempts or proposes to Beneficially or Constructively Own shares of Capital Stock in excess of the above limitations must notify the Corporation in writing at least fifteen (15) days prior to the proposed or attempted transfer. If the transfer restrictions referred to herein are violated, the shares of Capital Stock represented hereby automatically will be exchanged for shares of Excess Stock and will be held in trust by the Corporation, all as provided in the Charter of the Corporation. All capitalized terms in this legend have the meanings identified in the Corporations Charter, as the same may be amended or restated from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each stockholder who so requests.
SECTION 4. EXCESS STOCK.
A. OWNERSHIP IN TRUST . Upon any purported Transfer, change in the capital structure of the Corporation or other purported change in Beneficial Ownership that results in Excess Stock pursuant to paragraph C of Section 3 of this Article VI, such Excess Stock shall be deemed to have been transferred to the Corporation as Trustee of a Trust for the benefit of such Beneficiary or Beneficiaries to whom an interest in such Excess Stock may later be transferred pursuant to paragraph E of this Section 4. Shares of Excess Stock so held in trust shall be issued and outstanding stock of the Corporation. The Purported Record Transferee shall have no rights in such Excess Stock except the right to designate a transferee of such Excess Stock upon the terms specified in paragraph E of this Section 4. The Purported Beneficial Transferee shall have no rights in such Excess Stock except as provided in paragraph C of this Section 4.
B. DIVIDEND RIGHTS. Excess Stock shall not be entitled to any dividends. Any dividend or distribution paid prior to the discovery by the Corporation that the shares of Capital Stock have been exchanged for Excess Stock shall be repaid to the Corporation upon demand, and any dividend or distribution declared but unpaid at the time of such discovery shall be rescinded as void ab initio with respect to such shares of Excess Stock.
C. RIGHTS UPON LIQUIDATION .
(1) Except as provided below, in the event of any voluntary or involuntary liquidation, dissolution or winding up, or any other distribution of the assets, of the Corporation, each holder of shares of Excess Stock resulting from the exchange of Preferred Stock of any specified series shall be entitled to receive, ratably with each other holder of shares of Excess Stock resulting from the exchange of shares of Preferred Stock of such series and each holder of shares of Preferred Stock of such series, such accrued and unpaid dividends, liquidation preferences and other preferential payments, if any, as are due to holders of shares of Preferred Stock of such series. In the event that holders of shares of any series of Preferred stock are entitled to participate in the Corporations distribution of its residual assets, each holder of shares of Excess Stock resulting from the exchange of Preferred Stock of any such series shall be entitled to participate, ratably with (i) each other holder of shares of Excess stock resulting from the exchange of shares of Preferred Stock of all series entitled to so participate; (ii) each holder of shares of Preferred Stock of all series entitled to so participate; and (iii) each holder of shares of Common Stock and Excess Stock resulting from the exchange of shares of Common Stock (to the extent permitted by paragraph C of Section 3 of Article VI hereof), that portion of the aggregate assets available for distribution (determined in accordance with applicable law) as the number of shares of such Excess Stock held by such holder bears to the total number of (i) outstanding shares of Excess Stock resulting from the exchange of Preferred Stock of all series entitled to so participate; (ii) outstanding shares of Preferred Stock of all series entitled to so participate; and (iii) outstanding shares of Common Stock and shares of Excess Stock resulting from the exchange of shares of Common Stock. The Corporation, as holder of the Excess Stock in trust, or, if the Corporation shall have been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute ratably to the Beneficiaries of the Trust, when determined, any such assets received in respect of the Excess Stock in any liquidation, dissolution or winding up, or any distribution of the assets, of the Corporation. Anything to the contrary herein notwithstanding, in no event shall the amount payable to a holder with respect to shares of Excess Stock resulting from the exchange of shares of Preferred Stock exceed (i) the price per share such holder paid for the Preferred Stock in the purported Transfer that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price for the shares of Preferred Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to the holders of shares of Preferred Stock and other holders of Excess Stock resulting from the exchange of Preferred Stock to the extent permitted by the foregoing limitations.
(2) Except as provided below, in the event of any voluntary of involuntary liquidation, dissolution or winding up, or any other distribution of the assets, of the Corporation, each holder of shares of Excess Stock resulting from the exchange of Common Stock shall be entitled to receive, ratably with (i) each other holder of shares of such Excess Stock and (ii) each holder of Common Stock, that portion of the aggregate assets available for distribution to holders of shares of Common Stock (including holders of Excess Stock resulting from the exchange of Common Stock pursuant to paragraph C of Section 3 of Article VI hereof), determined in accordance with applicable law, as the number of shares of such Excess Stock held by such holder bears to the total number of shares of outstanding Common Stock and outstanding Excess Stock resulting from the exchange of Common Stock then outstanding. The Corporation, as holder of the Excess Stock in trust, or, if the Corporation shall have been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute ratably to the Beneficiaries of the Trust, when determined, any such assets received in respect of the Excess Stock in any liquidation, dissolution or winding up, or any distribution of the assets, of the Corporation. Anything herein to the contrary notwithstanding, in no event shall the amount payable to a holder with respect to shares of Excess Stock exceed (i) the price per share such holder paid for the Common Stock in the purported Transfer that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price for the shares of Common Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to the holders of shares of Common Stock and other holders of Excess Stock resulting from the exchange of Common Stock to the extent permitted by the foregoing limitations.
D. VOTING RIGHTS . The holders of shares of Excess Stock shall not be entitled to vote on any matters (except as required by MGCL).
E. RESTRICTIONS ON TRANSFER; DESIGNATION OF BENEFICIARY .
(1) Excess Stock shall not be transferable. The Purported Record Transferee may freely designate a Beneficiary of its interest in the Trust (representing the number of shares of Excess Stock held by the Trust attributable to a purported Transfer that resulted in the Excess Stock, if (i) the shares of Excess Stock held in the Trust would not be Excess Stock in the hands of such Beneficiary and (ii) the Purported Beneficial Transferee does not receive a price for designating such Beneficiary that reflects a price per share for such Excess Stock that exceeds (x) the price per share such Purported Beneficial Transferee paid for the Capital Stock in the purported Transfer that resulted in the Excess Stock or (y) if the Purported Beneficial Transferee did not give value for such shares of Excess Stock (as through a gift, device or other event or transaction), a price per share equal to the Market Price for the shares of Capital Stock on the date of the purported Transfer that resulted in the Excess Stock. Upon such transfer of an interest in the Trust, the corresponding shares of Excess Stock in the Trust automatically shall be exchanged for an equal number of shares of Capital Stock and such shares of Capital Stock shall be transferred of record to the Beneficiary of the interest in the Trust designated by the Purported Record Transferee, as described above, if such Capital Stock would not be Excess Stock in the hands of such Beneficiary. Prior to any transfer of any interest in the Trust, the Purported Record Transferee must give advance notice to the Corporation of the intended transfer and the Corporation must have waived in writing its purchase rights under paragraph F of this Section 4.
(2) Notwithstanding the foregoing, if a Purported Beneficial Transferee receives a price for designating a Beneficiary of an interest in the Trust that exceeds the amounts allowable under subparagraph (1) of this paragraph E, such Purported Beneficial Transferee shall pay, or cause the Beneficiary of the interest in the Trust to pay, such excess to the Corporation.
(3) If any of the transfer restrictions set forth in this paragraph E, or any application thereof, is determined to be void, invalid or unenforceable by any court having jurisdiction over the issue, the Purported Record Transferee may be deemed, at the option of the Corporation, to have acted as the agent of the Corporation in acquiring the Excess Stock as to which such restrictions would, by their terms, apply, and to hold such Excess Stock on behalf of the Corporation.
F. PURCHASE RIGHT IN EXCESS STOCK . Shares of Excess Stock shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Excess Stock (or, in the case of devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price of the Capital Stock exchanged for such Excess Stock on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period of ninety (90) days after the later of (i) the date of the purported Transfer, change in capital structure of the Corporation or purported change in Beneficial Ownership which resulted in such Excess Stock and (ii) the date on which the Board of Directors determines in good faith that a Transfer, change in capital structure of the Corporation or purported change in Beneficial Ownership resulting in Excess Stock has occurred, if the Corporation does not receive a notice pursuant to paragraph E of Section 3 of this Article VI, but in no event later than a permitted Transfer pursuant to and in compliance with the terms of paragraph E of this Section 4.
G. REMEDIES NOT LIMITED . Nothing contained in this Article VI except Section 5 hereof shall limit scope or application of the provisions of this Section 4, the ability of the Corporation to implement or enforce compliance with the terms thereof or the authority of the Board of Directors to take any such other action or actions as it may deem necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporations status as a REIT and to ensure compliance with the Ownership Limit, including, without limitation, refusal to give effect to a transaction on the books of the Corporation.
SECTION 5. SETTLEMENTS .
Nothing in Sections 3 and 4 of this Article VI shall preclude the settlement of any transaction with respect to the Capital Stock entered into through the facilities of the New York Stock Exchange or other national securities exchange on which the Capital Stock is listed.
SECTION 6. SEVERABILITY
If any provision of this Article VI or any application of any such provision is determined to be void, invalid or unenforceable by any court having jurisdiction over the issue, the validity and enforceability of the remainder of this Article VI 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.
ARTICLE VII
MATTERS RELATING TO THE POWERS OF THE CORPORATION AND ITS
DIRECTORS AND STOCKHOLDERS
The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and stockholders thereof:
SECTION 1. MATTERS RELATING TO THE BOARD OF DIRECTORS .
A. AUTHORITY AS TO BYLAWS . Except as otherwise provided herein, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation and the Corporation may, in its Bylaws, confer powers on the Board of Directors in addition to these contained herein or conferred by applicable law.
B. AUTHORITY AS TO STOCK ISSUANCES . The Board of Directors of the Corporation may authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Charter or the Bylaws of the Corporation or in the general laws of the State of Maryland.
C. MANNER OF ELECTION . Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.
D. REMOVAL OF DIRECTORS . Any director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the then outstanding Capital Stock entitled to vote generally in the election of directors.
E. PERMISSIBLE CRITERIA FOR CONSIDERATION OF BEST INTERESTS . In determining what is in the best interest of the Corporation, a director of the Corporation shall consider the interests of the stockholders of the Corporation and, in his or her discretion, may consider the interests of the Corporations employees, suppliers, creditors and tenants and the long-term as well as short-term interests of the Corporation and its stockholders, including the possibility that these interests may be best served by the continued independence of the Corporation.
F. DETERMINATIONS BY BOARD . The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Directors consistent with the Charter of the Corporation and in the absence of actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a court, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its stock: (i) the amount of the net income of the Corporation for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its stock or the payment of other distributions on its stock; (ii) the amount of paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves shall have been created shall have been paid or discharged); (iii) the fair value, or any sale, bid or asked priced to be applied in determining the fair value, of any asset owned or held by the Corporation; and (iv) any matters relating to the acquisition, holding and disposition of any assets by the Corporation.
G. RESERVED POWERS OF BOARD . The enumeration and definition of particular powers of the Board of Directors included in this Article VII shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other provision of the Charter of the Corporation, or construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board of Directors under the laws of the State of Maryland as now or hereafter in force.
H. ALTERATION OF AUTHORITY GRANTED TO THE BOARD OF DIRECTORS . The affirmative vote of that proportion of the then-outstanding Capital Stock necessary to approve an amendment to this Charter pursuant to the MGCL and Article XI hereof shall be required to amend, repeal or adopt any provision inconsistent with Section 1 of this Article VII or with Section 3.12 of the Bylaws of the Corporation (including defined terms therein).
I. REIT QUALIFICATION . The Board of Directors shall use its best efforts to cause the Corporation and its stockholders to qualify for U.S. federal income tax treatment in accordance with the provisions of the Code applicable to REITs. 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 judgment and discretion) to preserve the status of the Corporation as a REIT (as that term is defined in paragraph A of Section 3 of Article VI hereof); provided, however, that in the event that the Board of Directors determines, in its sole judgment and discretion, that it is no longer in the best interests of the Corporation to qualify as a REIT, the Board of Directors shall take such actions as are required by the Code (as that term is defined in paragraph A of Section 3 of Article VI hereof), 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 Corporation pursuant to paragraph A of Section 2 of this Article VII.
SECTION 2. MATTERS RELATING TO THE STOCKHOLDERS .
A. TERMINATION OF REIT STATUS . Notwithstanding anything contained in this Charter to the contrary, the affirmative vote of the holders of a majority of the then-outstanding Capital Stock entitled to vote generally in the election of directors and the approval of the Board of Directors shall be required to terminate voluntarily the Corporations status as a REIT (as that term is defined in paragraph A of Section 3 of Article VI).
B. NO CUMULATIVE RIGHTS . Stockholders of the Corporation shall not have cumulative voting rights in the election of directors.
C. NO PREEMPTIVE RIGHTS . No holders of stock of the Corporation, of whatever class, shall have any preferential right of subscription to any shares of stock of any class or to any securities convertible into shares of stock of any class of the Corporation, nor any right of subscription to any thereof.
ARTICLE VIII
DIRECTORS LIABILITY
To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article VIII, nor the adoption or amendment of any provision of the Charter or Bylaws of the Corporation inconsistent with this Article VIII, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
ARTICLE IX
INDEMNIFICATION
Each person who is or was or who agrees to become a director or officer of the Corporation, or each person who, while a director of the Corporation, is or was serving or who agrees to serve, at the request of the Corporation, as a director, officer, partner, joint venture, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executor, administrators or estate of such person), shall be indemnified by the Corporation, and shall be entitled to have paid on his behalf or be reimbursed for reasonable expenses in advance of final disposition of a proceeding, in accordance with the Bylaws of the Corporation, to the full extent permitted from time to time by the Maryland General Corporation Law as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) or any other applicable laws presently or hereafter in effect. The Corporation shall have the power, with the approval of the Board of Directors, to provide such indemnification and advancement of expenses to any employee or agent of the Corporation, in accordance with the Bylaws of the Corporation. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article IX. Any amendment or repeal of this Article IX shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal.
ARTICLE X
APPLICATION OF CERTAIN PROVISIONS OF LAW
SECTION 1. BUSINESS COMBINATIONS .
Notwithstanding any other provision of this Charter or any contrary provision of law, Title 3, subtitle 6 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time, or any successor statute thereto, shall not apply to any business combination (as defined in Section 3.601(d) of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time, or any successor statute thereto) involving the Corporation.
SECTION 2. CONTROL SHARE TRANSACTIONS .
Notwithstanding any other provision of this Charter or any contrary provision of law, Title 3, subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time, or any successor statute thereto shall not apply to any acquisition of shares of stock of the Corporation.
ARTICLE XI
AMENDMENT
The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in its Charter and any other provisions authorized by the laws of the State of Maryland at the time in force may be added or inserted in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholder, directors or any other persons whomsoever by and pursuant to this Charter in its present form or as hereafter amended are granted subject to the rights reserved in this Article XI; provided, however, that any amendment or repeal of Articles VIII, IX or this Article XI of this Charter shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal.
IN WITNESS WHEREOF , these First Amended and Restated Articles of Incorporation are hereby executed by Gary M. Ralston, the President of the Corporation, who hereby acknowledges that the First Amended and Restated Articles of Incorporation are the act of the Corporation, 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.
Dated: August 10, 1998
By: | /s/ Gary M. Ralston | |||
Gary M. Ralston, President | ||||
ATTEST
By: /s/ Kevin B. Habicht
Kevin B. Habicht, Secretary
PART II
ARTICLES OF AMENDMENT
TO
FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
COMMERCIAL NET LEASE REALTY, INC.
Commercial Net Lease Realty, Inc., a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter, the Corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The First Amended and Restated Articles of Incorporation (the Articles of Incorporation) are hereby amended by renaming Article XI AMENDMENT AND CERTAIN EXTRAORDINARY ACTIONS and deleting Article XI in its entirety and inserting the following new Article XI:
Section 1. Amendment
The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in its Charter and any other provisions authorized by the laws of the State of Maryland at the time in force may be added or inserted in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other person whomsoever by and pursuant to this Charter in its present form or as hereafter amended are granted subject to the rights reserved in this Article XI, provided, however, that any amendment or repeal of Articles VIII, IX or this Article XI of this Charter shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal. Subject to the provisions of any class or series of Preferred Stock at the time outstanding, this Charter may be amended by the affirmative vote of the holders of not less than a majority of the Common Stock then outstanding and entitled to vote thereon.
Section 2. Consolidation, Merger, Share Exchange or Transfer of Assets
Subject to the provisions of any class or series of Preferred Stock at the time outstanding, the Board of Directors shall have the power to (i) consolidate the Corporation with one or more other entities into a new entity, (ii) merge the Corporation into another entity, (iii) effect a share exchange with another domestic or foreign corporation or other entity or (iv) sell or otherwise dispose of all or substantially all of the Corporations assets; provided, however, that such action shall have been approved by the holders of not less than a majority of the Common Stock then outstanding and entitled to vote thereon.
SECOND : The total number of all classes of capital stock which the Corporation has authority to issue immediately prior to this amendment is two hundred ten million (210,000,000) shares consisting of (i) ninety million (90,000,000) shares of common stock, par value $0.01 (the Common Stock); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the Preferred Stock); and one hundred five million (105,000,000) shares of excess stock, par value $0.01 (the Excess Stock). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $2,100,000.
THIRD : The Articles of Incorporation are hereby amended by deleting Article VI, Section 1 in its entirety and inserting the following new Article VI, Section 1:
The total number of shares of all classes of capital stock that the Corporation has authority to issue is four hundred ten million (410,000,000) shares consisting of (i) one hundred ninety million (190,000,000) shares of common stock, par value $0.01 (the Common Stock); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the Preferred Stock); and (iii) two hundred five million (205,000,000) shares of excess stock, par value $0.01 (the Excess Stock). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $4,100,000.
FOURTH: The information required by subsection (b)(2)(i) of Section 2-607 of the Maryland General Corporation Law will not be changed by these Articles of Amendment; and
FIFTH: The amendments to the Articles of Incorporation as hereinabove set forth have been duly advised by the Board of Directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, Commercial Net Lease Realty, Inc. has caused these presents to be signed in its name and on its behalf by its Executive Vice President and Chief Operating Officer and attested by its Assistant Secretary on September 23, 2004.
THE UNDERSIGNED , Executive Vice President and Chief Operating Officer of Commercial Net Lease Realty, 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:
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Commercial Net Lease Realty, Inc. | |
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/s/Kella W. Schaible
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/s/Julian E. Whitehurst | |
Kella W. Schaible
|
Julian E. Whitehurst | |
Assistant Secretary
|
Executive Vice President and Chief Operating officer |
Exhibit 10.2
Commercial Net Lease Realty, Inc.
Restricted Stock Award Agreement
This Restricted Stock Award Agreement (this Agreement) is entered into between Commercial Net Lease Realty, Inc., a Maryland corporation (the Company) and ___ (Participant) pursuant to the Stock Award granted to Participant as of the date hereunder (the Date of Grant), under the Commercial Net Lease Realty, Inc. 2000 Performance Incentive Plan (the Plan). In consideration of the mutual promises and covenants made herein and the terms and conditions of the Plan, which is wholly incorporated herein by reference, the parties hereby agree as follows:
1. Definitions . Except as is expressly provided herein, all terms defined within the Plan shall have the same meaning herein. Additionally, the following definitions shall apply to this Agreement:
(a) Cause shall mean with respect to any individual: (i) the conviction of the individual of, or the entry of a plea of guilty or nolo contendere by the individual to, (A) any felony, or (B) any crime involving dishonesty or moral turpitude; (ii) fraud, misappropriation, embezzlement by the individual related to Participants duties to the Company; (iii) the individuals unsatisfactory performance of his assigned duties for the Company, which continues after (A) the individual has received written notice of his unsatisfactory performance, and (B) the individual has had a reasonable opportunity to cure such unsatisfactory performance; or (iv) the breach by the individual of any material term of an agreement pursuant to which he provides services to the Company.
(b) Restricted Stock shall mean the Stock Award that is the subject of this Agreement.
(c) Unvested Restricted Stock shall mean shares of Restricted Stock that are subject to forfeiture under the terms of this Agreement.
(d) Vesting Date shall mean the date on which all or a portion of the Restricted Stock is no longer subject to forfeiture under the terms of this Agreement.
(e) Vested Restricted Stock shall mean shares of Restricted Stock that are not subject to forfeiture under the terms of this Agreement.
2. Award. As of the Date of Grant, the Company hereby awards and grants to Participant a Stock Award of ___thousand (___,000) shares of Common Stock of the Company (collectively, the Restricted Stock).
3. Vesting .
(a) As of each of the following Vesting Dates, Restricted Stock shall become Vested Restricted Stock at the specified rate, provided that the Participant is continuously employed by the Company as of the Vesting Date: [vesting varies per grant]
(b) [In the event of a Change of Control, Participant shall vest in the Restricted Stock as of the day before the Change of Control and no portion of the Restricted Stock shall be Unvested Restricted Stock.]
(c) In the event that Participant is terminated as a result of death or Disability or is terminated without Cause, [or if Participant terminates his employment agreement for Good Reason (as defined in Participants Employment Agreement),] Participant shall vest in the Restricted Stock as of the day before the Termination of Employment and no portion of the Restricted Stock shall be Unvested Restricted Stock.
(d) In the event Participant incurs a Termination of Employment other than as provided in subsection 3 (c) above, all Unvested Restricted Stock shall immediately and without notice be forfeited and Participant shall have no rights with respect to such Unvested Restricted Stock.
(e) Except as is provided in Article 12 of the Plan, any adjustment to an award of Restricted Stock pursuant to Article 12 shall not change the ratio of Unvested Restricted Stock to Vested Restricted Stock.
4. Shareholder Rights and Restrictions on Transfer. The Participant shall have all rights of a stockholder with respect to each share of Unvested Restricted Stock, including the right to receive dividends and vote the share; provided, however, that (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares of Unvested Restricted Stock, (ii) the Company shall retain custody of the certificates evidencing shares of Unvested Restricted Stock, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to shares of Unvested Restricted Stock. The limitations set forth in the preceding sentence shall not apply to shares of Unvested Restricted Stock once such shares become Vested Restricted Stock. If any transfer or other disposition of shares of Unvested Restricted Stock is made or attempted, such transfer shall be null and void and of no force and effect, and in addition to any other legal or equitable remedies which it may have, the Company may enforce its rights by action for specific performance (to the extent permitted by law) and the Company shall refuse to recognize any transferee as one of its shareholders for any purpose, including without limitation for purposes of dividend and voting rights. This Agreement shall be binding upon the Participant and his heirs, representatives, successors and assigns.
5. Representations of the Participant and Share Registration. The Company may require that the Participant execute and deliver to the Company a written statement, in form satisfactory to the Company, in which the Participant represents and warrants that the shares of Restricted Stock are being acquired for such persons own account, for investment only and not with a view to the resale or distribution thereof. The Participant shall, at the request of the Company, be required to represent and warrant in writing that any subsequent resale or distribution of shares of Restricted Stock by the Participant shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the shares of Restricted Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the Participant shall, prior to any offer of sale or sale of such shares of Restricted Stock, obtain a prior favorable written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the application of such exemption thereto. The Company may delay issuance or delivery of shares of Restricted Stock if it determines that listing, registration or qualification of the shares or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the sale or purchase of the shares, until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Company.
6. Stock Legends. In addition to such other legends that the Company determines are necessary and appropriate pursuant to Section 8.4 of the Plan, each certificate of Common Stock issued pursuant to this Agreement shall bear on its face the following legend:
The shares represented by this certificate are subject to restrictions on transfer, a copy of the terms of which will be furnished by the Company to the holder of this certificate upon written request and without charge.
7. Tax Gross-Up Payments. [varies per grant]
8. Right to Continued Services. Nothing herein shall confer upon Participant any right to continued employment by the Company or any subsidiaries or affiliates or to continued service as a Director or limit in any way the right of the Company or any subsidiary or affiliate at any time to terminate or alter the terms of that employment or services as a Director.
9. Acceptance of Agreement. The shares of the Restricted Stock are granted subject to all of the applicable terms and provisions of the Plan and this Agreement. The terms and provisions of the Plan are incorporated by reference herein. Participant accepts and agrees to be bound by all the terms and conditions hereof.
Executed as of the ___day of ___, 2004.
Commercial Net Lease Realty, Inc.
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By: | ||||
Participant:
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By: | ||||
Print Name: |
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (Agreement) is made and entered into effective as of the 16th day of February, 2004, by and between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation (CNLR), and CRAIG MACNAB (Executive).
Preliminary Statement
WHEREAS , CNLR desires to employ Executive, and Executive desires to be employed by CNLR; and
WHEREAS , CNLR and Executive desire to enter into this Agreement which sets forth the terms and conditions of Executives employment by CNLR.
NOW, THEREFORE , in consideration of the mutual covenants set forth below, the Company and Executive agree as follows:
1. Employment . CNLR hereby employs the Executive, and Executive agrees to serve CNLR, for the period and upon terms and conditions set forth below. Except as otherwise provided in this Agreement, Executives employment shall be subject to the employment policies and practices of CNLR in effect from time to time during the term of Executives employment.
2. Term of Agreement . The term of Executives employment pursuant to this Agreement shall commence on February 16, 2004 (the Effective Date), and shall continue in effect for a period of three (3) years to and including February 16, 2007, unless terminated earlier in accordance with Section 5 below. Thereafter, this Agreement may be renewed (a) by CNLR for up to a maximum of three additional one-year terms, upon written notice by CNLR to Executive no later than ninety days prior to the termination date of the initial or any renewal term, and (b) thereafter upon the mutual agreement of CNLR and Executive, unless terminated sooner in accordance with Section 5 below. (The natural termination date of the initial term or any renewal term of this Agreement shall be referred to as the Termination Date.)
3. Position and Duties . Executive shall serve as the Chief Executive Officer of CNLR and shall have such duties, authority and responsibilities as are normally associated with and appropriate for such position, and shall perform such other services for CNLR consistent with such position as may be reasonably assigned to him by the Chairman of the Board of Directors of CNLR. Executive shall devote substantially all of his working time and efforts to the business and affairs of CNLR, except that Executive may engage in personal or charitable activities which do not interfere with Executives employment duties. Executive shall comply with the policies, standards, and regulations established from time to time by CNLR.
4. Compensation and Related Matters
4.1 Base Salary . During the term of this Agreement, CNLR shall pay to Executive a base salary at an annual rate as specified in Attachment A to this Agreement (Base Salary). If CNLR exercises its option to renew the term of Executives employment pursuant to Section 2 above, Executives Base Salary in effect for the year prior to such renewal term shall be automatically increased by the highest percentage increase in base salary for CNLRs Chief Operating Officer, Chief Financial Officer, or General Counsel for the year immediately prior to said renewal term. The Base Salary shall be paid in equal installments in accordance with CNLRs usual and customary payroll practices, but not less frequently than monthly.
4.2 Bonus and Deferred Compensation . Executive may be entitled to an annual bonus and shall be entitled to deferred compensation as set forth in Attachment A.
4.3 Benefit Plans and Arrangements . Executive shall be entitled, to the extent Executive is eligible, to participate in and to receive benefits under all existing and future employee benefit plans, perquisites and fringe benefit programs of CNLR that are provided generally to other similarly situated
senior executives of CNLR, on terms similar to those provided to such other executives of CNLR, including, but not limited to, any retirement, health benefits, and life insurance plans. Executive shall also be entitled to the fringe benefits set forth on Attachment B to this Agreement.
4.4 Expenses . CNLR shall reimburse Executive for all reasonable and customary expenses incurred by Executive in performing services for CNLR, including, but not limited to, all reasonable and customary expenses of travel while away from home on business or at the request of and in the service of CNLR, provided that such expenses are incurred and accounted for by Executive in accordance with the policies and procedures established from time to time by CNLR.
4.5 Paid Time Off . Executive shall be entitled to no fewer than twenty (20) days of paid time off (PTO) per year.
4.6 Relocation Reimbursement . CNLR shall reimburse Executive, or pay on his behalf, the following: (a) the reasonable cost and expenses of moving Executives household goods from his current residence to the Orlando, Florida metropolitan area (the Orlando Area); (b) Executives reasonable temporary living expenses in the Orlando Area in connection with his relocation; (c) Executives reasonable expenses incurred in commuting between Orlando and Atlanta, Georgia on weekends for up to six (6) months from the Effective Date; (d) the reasonable expenses incurred by Executives family traveling between Atlanta and Orlando to locate a permanent residence and schools; and (e) the closing costs (including any real estate brokers commissions) incurred by Executive in connection with the sale of his current primary residence in Atlanta, and the closing costs (excluding any real estate brokers commission) incurred by Executive in connection with his purchase of a new primary residence in the Orlando Area. Reimbursement or payment of the expenses provided for in this Section 4.6 shall be made by CNLR upon presentation of appropriate receipts, invoices, closing statements, or other documentation as reasonably requested by CNLR.
4.7 Board of Directors . Upon Executives commencement of employment with CNLR, CNLR shall cause Executive to be elected to its Board of Directors.
5. Termination . The term of Executives employment pursuant to this Agreement may be terminated under the following circumstances:
5.1 Death . The term of Executives employment shall terminate upon his death.
5.2 Disability . CNLR may terminate the term of Executives employment as a result of Executives Disability. For purposes of this Agreement, Disability is defined as the inability, by reason of illness or other physical or mental incapacity or limitation, of Executive substantially to perform the duties of his employment with the Company, as determined in good faith by the Board of Directors of CNLR, which inability continues for at least one hundred twenty (120) consecutive days, or for shorter periods aggregating one hundred twenty (120) days during any consecutive twelve (12) month period.
5.3 By CNLR for Cause . CNLR may terminate the term of Executives employment for Cause upon written notice to Executive. For purposes of this Agreement, CNLR shall have Cause to terminate Executives employment upon any of the following events:
(a) Executives continued failure to perform, or his habitual neglect of, his duties and obligations hereunder;
(b) Executives conviction of, or plea of guilty or nolo contendre to, an indictment or information, or an indictment or information is filed against Executive and is not discharged or otherwise resolved within twelve (12) months thereafter, and said indictment or information charged Executive with a felony, any crime involving moral turpitude, or any crime which is likely to result in material injury to CNLR;
(c) Executives breach of a fiduciary duty relating to the Executives employment with CNLR, including but not limited to an act of fraud, theft or dishonesty; or
(d) Executives material breach of this Agreement.
Notwithstanding the foregoing, CNLR shall not be deemed to have Cause to terminate the term of Executives employment under subsections (a) or (d) unless CNLR has provided written notice to the Executive setting forth in reasonable detail the reasons for CNLRs intention to terminate for Cause, and Executive has failed within thirty (30) days thereafter to cure the event or deficiency set forth in the written notice.
5.4 By CNLR Without Cause . CNLR may terminate the term of Executives employment other than for Cause, death or Disability at any time upon sixty (60) days prior written notice to Executive.
5.5 By Executive for Good Reason . Executive may terminate the term of his employment for Good Reason upon written notice to CNLR. For purposes of this Agreement, Good Reason shall include the following events unless otherwise consented to by Executive:
(a) The assignment to Executive of any duties materially inconsistent with Executives position, duties, responsibilities and status within CNLR;
(b) A material reduction in Executives reporting responsibilities not pertaining to job performance issues;
(c) A Change in Control (as defined in Section 2.4 of CNLRs 2000 Performance Incentive Plan);
(d) A requirement by CNLR that Executives work location be moved more than fifty (50) miles from CNLRs principal place of business in Orlando, Florida;
(e) CNLRs material breach of this Agreement; or
(f) CNLRs failure to obtain an agreement from any successor to the business of CNLR by which the successor assumes and agrees to perform this Agreement.
Notwithstanding the foregoing, Executive shall not be deemed to have Good Reason to terminate the term of his employment under subsections (a), (b), (d), or (e) unless Executive has provided written notice to CNLR setting forth in reasonable detail the reasons for Executives intention to terminate his employment for Good Reason, and CNLR has failed within thirty (30) days thereafter to cure the event or deficiency set forth in the written notice.
5.6 By Executive Without Good Reason . Executive may terminate the term of Executives employment other than for Good Reason at any time upon sixty (60) days prior written notice to CNLR
6. Compensation in the Event of Termination . Upon the termination of this Agreement, CNLR shall pay Executive compensation as set forth below:
6.1 By CNLR Without Cause; By Executive for Good Reason . In the event that Executives employment is terminated by CNLR without Cause, or by the Executive for Good Reason, CNLR shall pay the Executive a cash payment equal to (i) two times Executives Base Salary in effect on the date of termination if such termination is on or before June 30, 2005, or (ii) one times Executives Base Salary in effect on the date of termination if such termination is after June 30, 2005 (the Severance Payment). The Severance Payment shall be made payable in equal installments over a twelve (12) month period in accordance with CNLRs usual and customary payroll practices, commencing on the first payday following Executives termination. Within thirty (30) days of the date of termination of Executives employment, CNLR shall also pay Executive a lump sum equal to the sum of: (a) any accrued but unpaid Base Salary, performance bonus for the prior year, and vacation due Executive as of the date of termination of employment; (b) reimbursements for appropriately submitted expenses which have been incurred, but have not been paid by CNLR, as of the date of termination; and (c) a pro-rated performance bonus for the year or partial year in which Executives employment hereunder is terminated, determined in accordance with paragraph 2 of Attachment A. In the event that any payment to Executive pursuant to this Section 6.1 shall be deemed to be an excess parachute payment under Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the Code) and subject to the excise tax under Section 4999(a) of the Code (the Parachute Tax), then the amount of such payment to Executive shall be increased by an additional amount equal to the amount, after deducting the Parachute Tax and any income tax due on such additional amount, as may be required to enable Executive to pay the Parachute Tax due on any payment under this Section 6.1 and any income tax due on such additional amount.
6.2 By CNLR for Cause; By Executive Without Good Reason . In the event that CNLR terminates Executives employment for Cause, or Executive terminates his employment without Good Reason, all compensation or benefits to which Executive may otherwise be entitled to shall cease on the date of termination, except for (a) any accrued but unpaid Base Salary due Executive as of the date of termination of employment; and (b) reimbursements for appropriately submitted expenses which have been incurred, but have not been paid by CNLR, as of the date of termination.
6.3 Death or Disability . In the event that CNLR terminates Executives employment due to his death or Disability, the Company shall pay the Executive or his estate (a) lump sum equal to one (1) times Executives Base Salary in effect at the date of termination, payable within thirty (30) days of Executives termination; (b) any accrued but unpaid Base Salary, performance bonus for the prior year, and vacation due Executive as of the date of termination of employment; (c) reimbursements for appropriately submitted expenses which have been incurred, but have not been paid by CNLR, as of the date of termination; and (d) a pro-rated performance bonus for the year or partial year in which Executives employment hereunder is terminated, determined in accordance with paragraph 2 of Attachment A.. This payment shall be in addition to, rather than in lieu of, the entitlement of Executive or his estate to any other insurance or benefit proceeds as a result of his death or Disability.
6.4 Natural Termination . In the event that Executives employment by CNLR pursuant to this Agreement naturally terminates on a Termination Date, the Company shall pay the Executive (a) any accrued but unpaid Base Salary and performance bonus for the prior year due Executive as of the Termination Date, (b) reimbursements for appropriately submitted expenses which have been incurred, but have not been paid by CNLR, as of the Termination Date; and (c) a pro-rated performance bonus for the year or partial year in which Executives employment hereunder is terminated, determined in accordance with paragraph 2 of Attachment A. Provided, however, that at the election of CNLR in its sole and absolute discretion and upon written notice to the Executive on or prior to the Termination Date, CNLR may, in addition to the amounts set forth in subsections (a), (b) and (c) above, pay the Executive an optional cash payment equal to one (1) times the Executives Base Salary which is in effect on the Termination Date, which cash payment shall be made payable over a twelve (12) month period in equal installments in accordance with CNLRs usual and customary payroll practices, commencing on the first payday following the Termination Date (the Optional Severance Payment).
7. Non-Competition; Non-Solicitation; and Confidentiality .
7.1 Disclosure of Confidential Information . Executive acknowledges that CNLR will provide Executive with confidential and proprietary information regarding the business in which CNLR or any of its current or future subsidiaries or affiliates (collectively, other than CNLR, the CNLR Affiliates) are involved, and CNLR and the CNLR Affiliates will provide Executive with trade secrets, as defined in Section 688.002(4) of the Florida Statutes, of CNLR and the CNLR Affiliates (hereinafter all such confidential information and trade secrets referred to as the Confidential Information). For purposes of this Agreement, Confidential Information includes, but is not limited to:
(a) Information related to the business of CNLR and the CNLR Affiliates, including but not limited to marketing strategies and plans, sales procedures, operating policies and procedures, pricing and pricing strategies, business and strategic plans, financial statements and projections, accounting and tax positions and procedures, and other business and financial information of CNLR and the CNLR Affiliates;
(b) Information regarding the customers of CNLR and the CNLR Affiliates which Executive acquired as a result of his employment with CNLR, including but not limited to, customer contracts, customer lists, work performed for customers, customer contacts, customer requirements and needs, data used by CNLR and the CNLR Affiliates to formulate customer proposals, customer financial information and other information regarding the customers business;
(c) Information regarding the vendors of CNLR and the CNLR Affiliates which Executive acquired as a result of his employment with CNLR, including but not limited to, product and service information and other information regarding the business activities of such vendors;
(d) Training materials developed by and utilized by CNLR and the CNLR Affiliates;
(e) Any other information which Executive acquired as a result of his employment with CNLR and which Executive has a reasonable basis to believe CNLR or the CNLR Affiliates, as the case may be, would not want disclosed to a business competitor or to the general public; and
(f) Information which:
(i) is proprietary to, about or created by CNLR or the CNLR Affiliates;
(ii) gives CNLR or any of the CNLR Affiliates some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of CNLR or the CNLR Affiliates;
(iii) is not typically disclosed to non-executives by CNLR or otherwise is treated as confidential by CNLR or the CNLR Affiliates; or
(iv) is designated as Confidential Information by CNLR or from all the relevant circumstances should reasonably be assumed by Executive to be confidential to CNLR or any CNLR Affiliates.
Notwithstanding the foregoing, Confidential Information does not include information that (i) was known to Executive prior to disclosure by the Company; (ii) was generally known or available to the public at the time the Company disclosed the information to Executive; (iii) became generally known or available to the public after disclosure by the Company through no act or omission of Executive; or (iv) was disclosed to Executive by a third party having a bona fide right both to possess the information and to disclose the information to Executive.
7.2 Covenant Not to Compete . While employed by CNLR and for a period of one (1) year thereafter, in consideration of the obligations of CNLR hereunder, including without limitation their disclosure of Confidential Information to Executive, Executive shall not, directly or indirectly, for compensation or otherwise, engage in or have any interest in any sole proprietorship, partnership, corporation, company, association, business or any other person or entity (whether as an employee, officer, corporation, business or any creditor, consultant or otherwise) that, directly or indirectly, competes with any of the business enterprises in which CNLR or any CNLR Affiliate is now, or during Executives employment becomes engaged in, including, but not limited to, all aspects of commercial real estate development, leasing and financing (collectively, CNLRs Business) in any and all states in which CNLR or any CNLR Affiliate conducts such business while Executive is employed by CNLR or any CNLR Affiliate; provided, however, Executive may continue to hold securities of CNLR or any CNLR Affiliate or acquire, solely as an investment, shares of capital stock or other equity securities of any company which are traded on any national securities exchange or are regularly quoted in the over-the-counter market, so long as Executive does not control, acquire a controlling interest in, or become a member of a group which exercises direct or indirect control of more than five percent (5%) of any class of capital stock of such corporation. Notwithstanding the foregoing, in the event that Executives employment by CNLR naturally terminates on the Termination Date and CNLR elects not to pay Executive the Optional Severance Payment pursuant to Section 6.4 above, then the prohibitions contained in this Section 7.2 shall terminate on the Termination Date. Further provided, that the prohibitions of this Section 7.2 shall not apply following termination by CNLR without Cause or termination by the Executive for Good Reason.
7.3 Nonsolicitation of Clients . While employed by CNLR and for a period of one (1) year thereafter, in consideration of the obligations of CNLR hereunder, including without limitation their disclosure of Confidential Information to Executive, Executive shall not, directly or indirectly, for himself or as principal, agent, independent contractor, consultant, director, officer, member, or employee of any other person, firm, corporation, partnership, company, association, business or other entity, solicit, attempt to contract with, or enter into a contractual or business relationship of any kind pertaining to any aspect of CNLRs Business, or any other business conducted by CNLR or any CNLR Affiliate, with any person or entity with which CNLR or any CNLR Affiliate had any contractual or business relationship, or engaged in negotiations toward such a contract, in the previous twenty-four (24) months. Further provided, that the prohibitions of this Section 7.3 shall not apply following termination by CNLR without Cause or termination by the Executive for Good Reason.
7.4 Nonsolicitation of Employees . While employed by CNLR and for a period of one (1) year thereafter, in consideration of the obligations of CNLR hereunder, including without limitation their disclosure of Confidential Information to Executive, Executive shall not directly or indirectly, for himself or as principal, agent, independent contractor, consultant, director, officer, member, or employee of any other person, firm, corporation, partnership, company, association or other entity, either (a) hire, attempt to employ, contact, solicit with respect to hiring or enter into any contractual arrangement with any employee or former employee of CNLR or any CNLR Affiliate, or (b) induce or otherwise advise or encourage any employee of CNLR or any CNLR Affiliate to leave his or her employment unless, in each such case, such employee or former employee has not been employed by CNLR or an CNLR Affiliate for a period in excess of six (6) months at the time of such solicitation, attempt to employ, contact, employment, or inducement. Further provided, that the prohibitions of this Section 7.4 shall not apply following termination by CNLR without Cause or termination by the Executive for Good Reason.
7.5 Nondisparagement . While employed by CNLR and after Executives employment terminates, in consideration of the obligations of CNLR hereunder, including without limitation their disclosure of Confidential Information to Executive, Executive shall not disparage, denigrate or comment negatively upon, either orally or in writing, CNLR, any CNLR Affiliate, or any of their officers or directors, including, but not limited to, James M. Seneff, Jr. and Robert A. Bourne (collectively, the Benefited Persons), to or in the presence of any person or entity unless compelled to act by a valid subpoena or other legal mandate; provided, however, if Executive receives such a subpoena or other legal mandate he shall provide CNLR with written notice of same at least five (5) business days prior to the date on which Executive is required to make the disclosure. Unless Executive is terminated for Cause, CNLR shall not disparage, denigrate or comment negatively upon, either orally or in writing, the Executive to any prospective employer or third party after Executives employment terminates unless compelled to do so by subpoena or other legal mandate; provided however, if CNLR receives such a subpoena or other legal mandate it shall provide Executive with written notice of same at least five (5) business days prior to the date on which CNLR is required to make the disclosure.
7.6 Confidentiality . While employed by CNLR and after Executives employment terminates, in consideration of the obligations of CNLR hereunder, including without limitation their disclosure of Confidential Information to Executive, Executive shall keep secret and retain in strictest confidence, shall not disclose to any third-party, and shall not use for his benefit or the benefit of others, except in connection with the business affairs of CNLR or any other Benefited Persons, all confidential and proprietary information and trade secrets relating to the business of CNLR or any of the other Benefited Persons, including, without limitation, the Confidential Information, which information is not generally known or otherwise obtainable in the public domain, unless such disclosure is required by a valid subpoena or other legal mandate. In the event Executive receives such a subpoena or legal mandate he shall provide CNLR with written notice of same at least five (5) business days prior to the date on which Executive is required to make the disclosure.
8. Tangible Items . All files, records, documents, manuals, books, forms, reports, memoranda, studies, data, calculations, recordings, or correspondence, in whatever form they may exist, and all copies, abstracts and summaries of the foregoing, and all physical items related to the business of CNLR or any other Benefited Person, whether of a public nature or not, and whether prepared by Executive or not, are and shall remain the exclusive property of CNLR or any other Benefited Person, as the case may be, and shall not be removed from their premises, except as required in the course of Executives employment by CNLR, without the prior written consent of CNLR. Such items, including any copies or other reproductions thereof, shall be promptly returned by Executive to CNLR on or before the Termination Date or at any earlier time upon the written request of CNLR.
9. Remedies .
9.1 Injunctive Relief . CNLR and Executive acknowledge and agree that a breach by Executive of any of the covenants contained in Sections 7 and 8 of this Agreement will cause immediate and irreparable harm and damage to CNLR and/or any other Benefited Person, and that monetary damages will be inadequate to compensate CNLR, and/or any other Benefited Person, as the case may be, for such breach. Accordingly, Executive acknowledges that CNLR and/or any other Benefited Person affected shall, in addition to any other remedies available to them at law or in equity, be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of said covenants by Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, without the necessity of proving the inadequacy of legal remedies or irreparable harm. In addition, Executive acknowledges that in the event of his breach of any of the provisions of Sections 7 or 8 of this Agreement, in addition to any other remedies CNLR may have, CNLR may cease making the balance of the payments specified in Section 6.1 or 6.4.
9.2 Arbitration . Except with regard to Section 9.1, all disputes between the parties or any claims concerning the performance, breach, construction or interpretation of this Agreement, or in any manner arising out of this Agreement, shall be submitted to binding arbitration in accordance with the Commercial Arbitration Rules, as amended from time to time, of the American Arbitration Association (the AAA), which arbitration shall be carried out in the manner set forth below:
(a) Within fifteen (15) days after written notice by one party to the other party of its demand for arbitration, which demand shall set forth the name and address of its designated arbitrator, the other party shall appoint its designated arbitrator and so notify the demanding party. Within fifteen (15) days thereafter, the two arbitrators so appointed shall appoint the third arbitrator. If the two appointed arbitrators cannot agree on the third arbitrator, then the AAA shall appoint an independent arbitrator as the third arbitrator. The dispute shall be heard by the arbitrators within ninety (90) days after appointment of the third arbitrator. The decision of any two or all three of the arbitrators shall be binding upon the parties without any right of appeal. The decision of the arbitrators shall be final and binding upon CNLR, its successors and assigns, and upon Executive, his heirs, personal representatives, and legal representatives.
(b) The arbitration proceedings shall take place in Orlando, Florida, and the judgment and determination of such proceedings shall be binding on all parties. Judgment upon any award rendered by the arbitrators may be entered into any court having competent jurisdiction without any right of appeal.
(c) Each party shall pay its or his own expenses of arbitration, and the expenses of the arbitrators and the arbitration proceeding shall be shared equally. However, if in the opinion of a majority of the arbitrators, any claim or defense was unreasonable, the arbitrators may assess, as part of their award, all or any part of the arbitration expenses of the other party (including reasonable attorneys fees) and of the arbitrators and the arbitration proceeding.
10. Indemnification . CNLR shall indemnify and hold harmless Executive from any claims, losses or damages (including reasonable attorneys fees and costs) resulting from any action or inaction on his part while serving as an officer or director of CNLR, or any of its subsidiaries, and shall advance the expenses of defending any claim against Executive related thereto, but only to the extent permitted by CNLRs certificate of incorporation and by-laws.
11. Severability . As the provisions of this Agreement are independent of and severable from each other, CNLR and Executive agree that if, in any action before any court or agency legally empowered to enforce this Agreement, any term, restriction, covenant, or promise hereof is found to be unreasonable or otherwise unenforceable, then such decision shall not effect the validity of the other provisions of this Agreement, and such invalid term, restriction, covenant, or promise shall also be deemed modified to the extent necessary to make it enforceable.
12. Notice . For purposes of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when received if delivered in person, the next business day if delivered by overnight commercial courier ( e.g. Federal Express), or the third (3rd) business day if mailed by United States certified mail, return receipt requested, postage prepaid, to the following addresses:
If to Executive:
Craig Macnab
Commercial Net Lease Realty, Inc.
450 South Orange Avenue 14th Floor
Orlando, Florida 32801
If to CNLR:
Commercial Net Lease Realty, Inc.
450 South Orange Avenue 14th Floor
Orlando, Florida 32801
Attn: James M. Seneff, Jr.
Chairman of the Board of Directors
Either party may change its address for notices in accordance with this Section 11 by providing written notice of such change to the other party.
13. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Florida.
14. Benefits; Binding Effect; Assignment . This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, legal representatives, successors and permitted assigns. Executive shall not assign this Agreement.
15. Entire Agreement Amendment . This Agreement, including its incorporated Attachments A, B and C, constitutes the entire agreement between the parties, and all prior understandings, agreements or undertakings between the parties concerning Executives employment or the other subject matters of this Agreement are superseded in their entirety by this Agreement. This Agreement may not be modified or amended other than by an agreement in writing executed an delivered by both parties hereto.
16. Counterparts . This Agreement may be executed in counterparts, each of which will be deemed and original, but which together shall be one and the same instrument.
17. Tax Advice . Executive confirms and represents to CNLR that he has had the opportunity to obtain the advice of legal counsel, financial and tax advisers, and such other professionals as he deems necessary for entering into this Agreement, and he has not relied upon the advice of CNLR or CNLRs officers, directors, or employees.
18. Interpretation . As both parties having had the opportunity to consult with legal counsel, no provision of this Agreement shall be construed against or interpreted to the disadvantage of any party by reason of such party having, or being deemed to have, drafted, devised, or imposed such provision.
[Signatures appear on following page.]
IN WITNESS WHEREOF , the undersigned have executed this Agreement to be effective as of the date first above written.
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Executive
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/s/Craig Macnab | |
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Witness
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Craig Macnab | |
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CNLR
Commercial Net Lease Realty, Inc. |
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/s/James M. Seneff, Jr. | |
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Witness
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James M. Seneff, Jr.
Chairman of the Board of Directors |
ATTACHMENTS INTENTIONALLY OMITTED
Exhibit 10.4
EMPLOYMENT AGREEMENT
(Julian E. Whitehurst)
THIS EMPLOYMENT AGREEMENT is dated as of February 1, 2003, by and between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation (hereinafter referred to as the Company), and JULIAN E. WHITEHURST (hereinafter referred to as the Executive).
WHEREAS, the Company wishes to offer employment to the Executive, and the Executive wishes to accept such offer, on the terms set forth below.
Accordingly, the parties hereto agree as follows:
1. Term . The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending on December 31, 2003, unless sooner terminated in accordance with the provisions of Section 4 or Section 5 (the period during which the Executive is employed hereunder being hereinafter referred to as the Term). The Term shall be subject to automatic one (1) year renewals unless either party hereto notifies the other, in accordance with Section 7.5, of non-renewal at least ninety (90) days prior to the end of any such Term.
2. Duties . The Executive, in his capacity as Executive Vice President and General Counsel of Commercial Net Lease Realty, Inc., shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Board of Directors of the Company (the Board), the Chief Executive Officer or the President of the Company (including the performance of services for, and serving on the Board of Directors of, any subsidiary of the Company without any additional compensation). The Executive shall devote substantially all of the Executives business time and effort to the performance of the Executives duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Board, so long as such activities do not interfere with the Executives duties for the Company.
3. Compensation .
3.1. Salary . The Company shall pay the Executive during the Term a salary at the rate of $200,850 per annum (the Annual Salary), in accordance with the customary payroll practices of the Company applicable to senior executives generally. Annual Salary will increase annually on January 1 of each year by an amount as may be approved by the Board, with such increase to be effective on the date salary increases are effective for the employees of the Company generally and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary.
3.2. Bonus . The Executive will be eligible to participate in the Companys Annual Bonus Program (the Bonus Plan), the terms of which will be established by the Compensation Committee of the Company.
3.3. Benefits In General . The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.
3.4. Vacation . The Executive shall be entitled to vacation of twenty (20) days per year.
3.5. Automobile . The Company will provide the Executive a monthly allowance of $500 for the use of an automobile. At the option of the Company, in lieu of providing such allowance, the Company will provide the Executive with an automobile of suitable standard to the Executives position.
3.6. Disability Benefits and Life Insurance . The Executive shall be entitled to long-term disability coverage providing benefits (to continue for such period as is provided in the applicable disability plan or program, as amended from time to time) equal to two-thirds of Annual Salary in the case of a covered disability and life insurance benefits with a face amount equal to Annual Salary.
3.7. Expenses . The Company shall pay or reimburse the Executive for all ordinary and reasonable out-of-pocket expenses actually incurred (and, in the case of reimbursement, paid) by the Executive during the Term in the performance of the Executives services under this Agreement, provided that the Executive submits such expenses in accordance with the policies applicable to senior executives of the Company generally.
4. Termination upon Death or Disability . If the Executive dies during the Term, the obligations of the Company to or with respect to the Executive shall terminate in their entirety except as otherwise provided under this Section 4. If the Executive becomes eligible for disability benefits under the Companys long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement), the Company shall have the right, to the extent permitted by law, to terminate the employment of the Executive upon notice in writing to the Executive; provided that the Company will have no right to terminate the Executives employment if, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Executive will be able to resume the Executives duties on a regular full-time basis within ninety (90) days of the date the Executive receives notice of such termination. Upon death or other termination of employment by virtue of disability, (i) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan or in clause (ii) below) earned and accrued under this Agreement prior to the date of termination (and reimbursement under this Agreement for expenses incurred prior to the date of termination); (ii) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall be entitled to a cash payment equal to the Executives Annual Salary (as in effect on the effective date of such termination) payable no later than thirty (30) days after such termination; and (iii) this Agreement shall otherwise terminate upon such death or other termination of employment and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.14).
5. Certain Terminations of Employment .
5.1. Termination for Cause; Termination of Employment by the Executive Without Good Reason .
(a) For purposes of this Agreement, Cause shall mean:
(i) the Executives (A) conviction for (or pleading nolo contendere to) any felony, or a misdemeanor involving moral turpitude, or (B) indictment for any felony or misdemeanor involving moral turpitude, if such indictment is not discharged or otherwise resolved within eighteen (18) months;
(ii) the Executives commission of an act of fraud, theft or dishonesty related to the performance of the Executives duties hereunder;
(iii) the willful and continuing failure or habitual neglect by the Executive to perform the Executives duties hereunder;
(iv) any material violation by the Executive of the covenants contained in Section 6; or
(v) the Executives willful and continuing material breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (iii) or (v) above, the Executive shall have thirty (30) days from the date such notice is given to cure such event or condition and, if the Executive does so, such event or condition shall not constitute Cause hereunder.
(b) For purposes of this Agreement, Good Reason shall mean, unless otherwise consented to by the Executive:
(i) the material reduction of the Executives authority, duties and responsibilities, or the assignment to the Executive of
duties materially inconsistent with the Executives position or positions with the Company and its subsidiaries;
(ii) a reduction in Annual Salary of the Executive;
(iii) the failure by the Company to obtain an agreement in form and substance reasonably satisfactory to the Executive from any successor to the business of the Company to assume and agree to perform this Agreement; or
(iv) the Companys material and willful breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason under clause (i), (ii) or (iv) above, the Company shall have thirty (30) days from the date on which the Executive gives the notice thereof to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder.
(c) The Company may terminate the Executives employment hereunder for Cause. If the Company terminates the Executive for Cause, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
(d) The Executive may terminate his employment without Good Reason. If the Executive terminates the Executives employment with the Company without Good Reason: (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
5.2. Termination Without Cause; Termination for Good Reason; Failure to Renew Employment Agreement . The Company may terminate the Executives employment at any time for any reason or no reason and the Executive may terminate the Executives employment with the Company for Good Reason. If the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or if the Company, for any reason, does not renew this agreement at the expiration of its Term, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment or expiration of the Term other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan and clause (ii) below) earned and accrued under this Agreement prior to the effective date of the termination of employment or expiration of the Term (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment or expiration of the Term); (ii) except as otherwise provided in Section 5.3 below, the Executive shall receive (A) a cash payment equal to two (2) times the Executives Annual Salary (as in effect on the effective date of such termination or expiration) payable in twelve (12) equal monthly installments (plus interest on such unpaid amount at the Prime Rate, as hereinafter defined, commencing on the first day of the first calendar month following such termination or expiration and continuing on the first day of each calendar month thereafter until paid in full and (B) for a period of one (1) year after termination of employment or expiration of the term such continuing health benefits (including any medical, vision or dental benefits), under the Companys health plans and programs applicable to senior executives of the Company generally as the Executive would have received under this Agreement (and at such costs to the Executive) as would have applied in the absence of such termination or expiration (but not taking into account any post-termination increases in Annual Salary that may otherwise have occurred without regard to such termination and that may have favorably affected such benefits) it being expressly understood and agreed that nothing in this clause (ii)(B) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as the Executive becomes entitled to receive health benefits from another employer or recipient of the Executives services (and provided, further, that such entitlement shall be determined without regard to any individual waivers or other arrangements); (iii) all outstanding unvested options held by the Executive shall vest and such options shall remain exercisable for one (1) year following termination or expiration (or, if shorter, the balance of the regular term of the options); and (iv) this Agreement shall otherwise terminate upon such termination of employment or expiration of the Term and the Executive shall have no further rights hereunder (except as provided in Section 7.14). As used herein, the term Prime Rate shall mean the prime rate of interest as published in the Wall Street Journal (or, if the Wall Street Journal is no longer published, a similar national business publication) from time to time.
5.3. Change of Control . Immediately upon a change of control, as hereinafter defined, then the provisions of Section 5.2 (ii)(A) above shall be automatically deleted and replaced with the following new Section 5.2(ii)(A):
. . . [(ii) except as otherwise provided in Section 5.3 below, the Executive shall receive] (A) a cash payment equal to two (2) times (x) the Executives Annual Salary (as in effect on the effective date of such termination or expiration) plus (y) the average of the Executives annual bonus compensation for the previous three (3) years (or such lesser period of time as the Executive has been employed by the Company if the Executive has not been so employed for three (3) previous years) payable no later than thirty (30) days after such termination or expiration and [B] . . .
For the purposes hereof, the term change of control shall mean:
(a) a person or group (which terms shall have the meaning they have when used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, any corporation owned directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company) becomes (other than solely by reason of a repurchase of voting securities by the Company), the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of forty percent (40%) or more of the combined voting power of the Companys then total outstanding voting securities; or
(b) the Company consolidates with or merges with or into another corporation or partnership or conveys, transfers or leases, in any transaction or series of transactions, all or substantially all of its assets to any corporation or partnership, or any corporation or partnership consolidates with or merges with or into the Company, in any event pursuant to a transaction in which the outstanding voting stock of the Company is reclassified or changed into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding voting securities of the Company are changed into or exchanged for voting securities of the surviving corporation and (ii) the persons who were the beneficial owners of the Companys voting securities immediately prior to such transaction beneficially own immediately after such transaction fifty percent (50%) or more of the total outstanding voting power of the surviving corporation, or the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution.
6. Covenants of the Executive .
6.1. Covenant Against Competition; Other Covenants . The Executive acknowledges that (i) the principal business of the Company is the acquisition, ownership and management of a diversified portfolio of high-quality, single-tenant, freestanding properties leased to retail businesses (such business, and any and all other businesses that after the date hereof, and from time to time during the Term, become material and substantial with respect to the Companys then-overall business, herein being collectively referred to as the Business); (ii) the Company knows of a limited number of persons who have developed the Companys Business; (iii) the Companys Business is, in part, national in scope; (iv) the Executives work for the Company and its subsidiaries (and the predecessors of either) has given and will continue to give the Executive access to the confidential affairs and proprietary information of the Company; (vi) the covenants and agreements of the Executive contained in this Section 6 are essential to the business and goodwill of the Company; and (vii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in this Section 6. In light of the foregoing, during the Term and for a period of one (1) year thereafter (and, as to Sections 6.1(b) and (d), at any time during and after the Executives employment with the Company and its subsidiaries (and the predecessors of either)):
(a) The Executive shall not, directly or indirectly, own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the Business of the Company in any state in which the Company conducts its Business. In the case of a termination by the Company without Cause or by the Executive for Good Reason, the preceding covenant shall expire on the date of termination; provided, however, that notwithstanding the foregoing, the Executive may invest in securities of any entity, solely for investment purposes and without participating in the business thereof, if (i) such securities are traded on any national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, (ii) the Executive is not a controlling person of, or a member of a group which controls, such entity, and (iii) the Executive does not, directly or indirectly, own one percent (1%) or more of any class of securities of such entity.
(b) The Executive shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of the Company and its affiliates, all confidential matters relating to the Companys Business and the business of any of its affiliates and to the Company and any of its affiliates, learned by the Executive heretofore or hereafter directly or indirectly from the Company or any of its subsidiaries (or any predecessor of either) (the Confidential Company Information), including, without limitation, information with respect to the Business and any aspect thereof, profit or loss figures, and the Companys or its affiliates, (or any of their predecessors) properties, and shall not disclose such Confidential Company Information to anyone outside of the Company except with the Companys express written consent and except for Confidential Company Information which (i) at the time of receipt or thereafter becomes publicly known through no wrongful act of the Executive, (ii) is clearly obtainable in the public domain, (iii) was not acquired by the Executive in connection with the Executives employment or affiliation with the Company, (iv) was not acquired by the Executive from the Company or its representatives or from a third party who has an agreement with the Company not to disclose such information, or (v) is required to be disclosed by rule of law or by order of a court or governmental body or agency.
(c) The Executive shall not, without the Companys prior written consent, directly or indirectly, (i) knowingly solicit or encourage to leave the employment or other service of the Company or any of its affiliates, any employee thereof or hire (on behalf of the Executive or any other person or entity) any employee who has left the employment or other service of the Company or any of its affiliates (or any predecessor of either) within one (1) year of the termination of such employees or independent contractors employment or other service with the Company and its affiliates, or (ii) whether for the Executives own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Companys or any of its affiliates, relationship with, or endeavor to entice away from the Company or any of its affiliates, any person who during the Executives employment with the Company and its affiliates (or the predecessors of either) is or was a customer or client of the Company or any of its affiliates (or any predecessor of either).
(d) All memoranda, notes, lists, records, property and any other tangible product and documents (and all copies thereof) made, produced or compiled by the Executive or made available to the Executive concerning the Business of the Company and its affiliates shall be the Companys property and shall be delivered to the Company at any time on request.
(e) Notwithstanding anything set forth in this Section to the contrary, if at any time after a change of control, as defined above, (i) the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or (ii) the Company, for any reason, does not renew this agreement at the expiration of its Term, then the covenants set forth in this Section 6.1 shall expire and terminate immediately upon the expiration or earlier termination of this Agreement.
6.2. Rights and Remedies upon Breach . The Executive acknowledges and agrees that any breach by him of any of the provisions of Section 6.1 (the Restrictive Covenants) would result in irreparable injury and damage for which money damages would not provide an adequate remedy. Therefore, if the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company and its affiliates shall have the right and remedy to have the Restrictive Covenants specifically enforced (without posting bond and without the need to prove damages) by any court having equity jurisdiction, including, without limitation, the right to an entry against the Executive of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants. This right and remedy shall be in addition to, and not in lieu of, any other rights and remedies available to the Company and its affiliates under law or in equity (including, without limitation, the recovery of damages). The existence of any claim or cause of action by the Executive, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions .
7.1. Severability . The Executive acknowledges and agrees that (i) the Executive has had an opportunity to seek advice of counsel in connection with this Agreement and (ii) the Restrictive Covenants are reasonable in geographical and temporal scope and in all other respects. If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.
7.2. Duration and Scope of Covenants . If any court or other decision maker of competent jurisdiction determines that any of the Executives covenants contained in this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration or geographical scope of such provision, then, after such determination has become final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
7.3. Enforceability; Jurisdictions . The Company and the Executive intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of breadth of scope or otherwise it is the intention of the Company and the Executive that such determination not bar or in any way affect the Companys right, or the right of any of its affiliates, to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in such other respective jurisdictions, such Restrictive Covenants as they relate to each jurisdictions being, for this purpose, severable, diverse and independent covenants, subject, where appropriate, to the doctrine of res judicata . Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Executive and the Company (or its affiliates, where applicable), other than those arising under Section 6, to the extent necessary for the Company (or its affiliates, where applicable) to avail itself of the rights and remedies provided under Section 6.2, shall be submitted to arbitration in Orlando, Florida, in accordance with Florida law and the procedures of the American Arbitration Association. The determination of the arbitrators shall be conclusive and binding on the Company (or its affiliates, where applicable) and the Executive and judgment may be entered on the arbitrator(s) award in any court having jurisdiction.
7.4. Attorneys Fees . In the event of any legal proceeding (including an arbitration proceeding) relating to this Agreement or any term or provision thereof, the losing party shall be responsible to pay or reimburse the prevailing party for all reasonable attorneys fees incurred by the prevailing party in connection with such proceeding.
7.5.
Notices
. Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five (5) days after the date of deposit in the United States mail as
follows:
(i)
If to the Company, to:
450 South Orange Avenue
Suite 1400
Orlando, Florida 32801
Attention: James M. Seneff, Jr.
Facsimile: (407) 650-1011
with a copy to:
Shaw Pittman LLP
2300 N Street, N.W.
Washington, D.C. 20037
Attention: John McDonald, Esquire
Facsimile: (202) 663-8007
(ii)
If to the Executive, to:
Julian E. Whitehurst
450 South Orange Avenue
Suite 900
Orlando, Florida 32801
Facsimile: (407) 650-1044
with a copy to:
Julian E. Whitehurst
2077 Santa Antilles Road
Orlando, FL 32806
Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.
7.6. Entire Agreement . This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the Company or its subsidiaries (or any predecessor of either).
7.7. Waivers and Amendments . This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.
7.8. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
7.9. Assignment . This Agreement, and the Executives rights and obligations hereunder, may not be assigned by the Executive; any purported assignment by the Executive in violation hereof shall be null and void. In the event of any sale, transfer or other disposition of all or substantially all of the Companys assets or business, whether by merger, consolidation or otherwise, the Company may assign this Agreement and its rights hereunder.
7.10. Withholding . The Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law. No other taxes, fees, impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.
7.11. No Duty to Mitigate . The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments hereunder be subject to offset in the event the Executive does mitigate.
7.12. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.
7.13. Counterparts . This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two (2) copies hereof each signed by one of the parties hereto.
7.14. Survival . Anything contained in this Agreement to the contrary notwithstanding the provisions of Section 6, 7.3, 7.4, 7.10, and the other provisions of this Section 7 (to the extent necessary to effectuate the survival of Sections 6, 7.3, 7.4, and 7.10) shall survive termination of this Agreement and any termination of the Executives employment hereunder.
7.15. Existing Agreements . Executive represents to the Company that the Executive is not subject or a party to any employment or consulting agreement, non-competition covenant or other agreement, covenant or understanding which might prohibit the Executive from executing this Agreement or limit the Executives ability to fulfill the Executives responsibilities hereunder.
7.16. Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
7.17. Parachute Provisions . If any amount payable to or other benefit receivable by the Executive pursuant to this Agreement is deemed to constitute a Parachute Payment (as defined below), alone or when added to any other amount payable or paid to or other benefit receivable or received by the Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then, in addition to any other benefits to which the Executive is entitled under this Agreement, the Executive shall be paid by the Company an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to put the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest applicable rates on such Parachute Payments and on any payments under this Section 7.17) as if no excise taxes had been imposed with respect to Parachute Payments. The amount of any payment under this Section 7.17 shall be computed by a certified public accounting firm mutually and reasonably acceptable to the Executive and the Company, the computation expenses of which shall be paid by the Company. Parachute Payment shall mean any payment deemed to constitute a parachute payment as defined in Section 280G of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF , the parties hereto have signed their names as of the day and year first above written.
COMPANY:
COMMERCIAL NET LEASE REALTY, INC. |
||||
By: | /s/Gary M. Ralston | |||
Name: | Gary M. Ralston | |||
Its: | President | |||
EXECUTIVE:
|
||||
By: | /s/Julian E. Whitehurst | |||
Julian E. Whitehurst | ||||
Exhibit 10.5
TABLE OF CONTENTS
Part I. | Employment Agreement |
Part II. | Amendment to Employment Agreement |
PART I
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of January 1,1998, by and between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation (hereinafter referred to as the Company ), and Kevin B. Habicht (hereinafter referred to as the Executive ).
WHEREAS, the Agreement and Plan of Merger, dated as of May 15, 1997, between CNL REALTY ADVISORS, INC., a Florida corporation ( CNL Advisors ), and the Company contemplates that the Company enter into an employment agreement with the Executive;
WHEREAS, the Company wishes to offer employment to the Executive, and the Executive wishes to accept such offer, on the terms set forth below;
Accordingly, the parties hereto agree as follows:
1. Term . The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending on December 31, 2000, unless sooner terminated in accordance with the provisions of Section 4 or Section 5 (the period during which the Executive is employed hereunder being hereinafter referred to as the Term ). The Term shall be subject to automatic one-year renewals unless either party hereto notifies the other, in accordance with Section 7.5, of non-renewal at least 90-days prior to the end of any such Term.
2. Duties . The Executive, in his capacity as Executive Vice President shall faithfully perform for the Company the duties of said office including, without limitation, acting as chief financial officer and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Board of Directors of the Company (the Board ), the Chief Executive Officer or the President of the Company (including the performance of services for, and serving on the Board of Directors of, any subsidiary of the Company without any additional compensation). The Executive shall devote substantially all of the Executives business time and effort to the performance of the Executives duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Board, so long as such activities do not interfere with the Executives duties for the Company.
3. Compensation
3.1. Salary . The Company shall pay the Executive during the Term a salary at the rate of $150,000 per annum (the Annual Salary), in accordance with the customary payroll practices of the Company applicable to senior executives generally. Annual Salary will increase annually on January 1 of each year by an amount as may be approved by the Board, with such increase to be effective on the date salary increases are effective for employees of the Company generally and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary.
3.2. Bonus . The Executive will be eligible to participate in the Companys Annual Bonus Program (the Bonus Plan ), the terms of which will be established by the Executive Compensation Committee of the Company. Until such time as the Company adopts a formal bonus program, the Executive will be entitled to a bonus of up to 50% of Annual Salary.
3.3. Benefits In General . The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.
3.4. Vacation . The Executive shall be entitled to vacation of 20 days per year.
3.5. Automobile . The Company will provide the Executive a monthly allowance of $500 for the use of an automobile. At the option of the Company, in lieu of providing such allowance, the Company will provide the Executive with an automobile of suitable standard to the Executives position.
3.6. Disability Benefits and Life Insurance . The Executive shall be entitled to long-term disability coverage providing benefits (to continue for such period as is provided in the applicable disability plan or program, as amended from time to time) equal to two-thirds of Annual Salary in the case of a covered disability and life insurance benefits with a face amount equal to Annual Salary.
3.7. Expenses . The Company shall pay or reimburse the Executive for all ordinary and reasonable out-of-pocket expenses actually incurred (and, in the case of reimbursement, paid) by the Executive during the Term in the performance of the Executives services under this Agreement; provided that the Executive submits such expenses in accordance with the policies applicable to senior executives of the Company generally.
4. Termination upon Death or Disability . If the Executive dies during the Term, the obligations of the Company to or with respect to the Executive shall terminate in their entirety except as otherwise provided under this Section 4. If the Executive becomes eligible for disability benefits under the Companys long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement), the Company shall have the right, to the extent permitted by law, to terminate the employment of the Executive upon notice in writing to the Executive; provided that the Company will have no right to terminate the Executives employment if, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Executive will be able to resume the Executives duties on a regular full-time basis within 90 days of the date the Executive receives notice of such termination. Upon death or other termination of employment by virtue of disability, (i) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan or in clause (ii) below) earned and accrued under this Agreement prior to the date of termination (and reimbursement under this Agreement for expenses incurred prior to the date of termination); (ii) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall be entitled to a cash payment equal to the Executives Annual Salary (as in effect on the effective date of such termination) payable no later than 30 days after such termination; and (iii) this Agreement shall otherwise terminate upon such death or other termination of employment and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.14).
5. Certain Terminations of Employment .
5.1. Termination for Cause; Termination of Employment by the Executive Without Good Reason .
(a) For purposes of this Agreement, Cause shall mean:
(i) the Executives (A) conviction for (or pleading nolo contendere to) any felony, or a misdemeanor involving moral turpitude, or (B) indictment for any felony or misdemeanor involving moral turpitude, if such indictment is not discharged or otherwise resolved within 18 months;
(ii) the Executives commission of an act of fraud, theft or dishonesty related to the performance of the Executives duties hereunder;
(iii) the willful and continuing failure or habitual neglect by the Executive to perform the Executives duties hereunder;
(iv) any material violation by the Executive of the covenants contained in Section 6; or
(v) the Executives willful and continuing material breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Cause under clause (iii) or (v) above, the Executive shall have 30 days from the date such notice is given to cure such event or condition and, if the Executive does so, such event or condition shall not constitute Cause hereunder.
(b) For purposes of this Agreement, Good Reason shall mean, unless otherwise consented to by the Executive:
(i) the material reduction of the Executives authority, duties and responsibilities, or the assignment to the Executive of duties materially inconsistent with the Executives position or positions with the Company and its subsidiaries;
(ii) a reduction in Annual Salary of the Executive;
(iii) the failure by the Company to obtain an agreement in form and substance reasonably satisfactory to the Executive from any successor to the business of the Company to assume and agree to perform this Agreement; or
(iv) the Companys material and willful breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason under clause (i), (ii) or (iv) above, the Company shall have 30 days from the date on which the Executive gives the notice thereof to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder.
(c) The Company may terminate the Executives employment hereunder for Cause. If the Company terminates the Executive for Cause, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
(d) The Executive may terminate his employment without Good Reason. If the Executive terminates the Executives employment with the Company without Good Reason: (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
5.2. Termination Without Cause; Termination for Good Reason; Failure to Renew Employment Agreement . The Company may terminate the Executives employment at any time for any reason or no reason and the Executive may terminate the Executives employment with the Company for Good Reason. If the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or if the Company, for any reason, does not renew this Agreement at the expiration of its Term, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment or expiration of the Term other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan and clause (ii) below) earned and accrued under this Agreement prior to the effective date of the termination of employment or expiration of the Term (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment or expiration of the Term); (ii) the Executive shall receive (A) a cash payment equal to two (2) times the Executives Annual Salary (as in effect on the effective date of such termination or expiration) payable no later than 30 days after such termination or expiration and (B) for a period of one (1) year after termination of employment or expiration of the Term such continuing health benefits (including any medical, vision or dental benefits), under the Companys health plans and programs applicable to senior executives of the Company generally as the Executive would have received under this Agreement (and at such costs to the Executive) as would have applied in the absence of such termination or expiration (but not taking into account any post-termination increases in Annual Salary that may otherwise have occurred without regard to such termination and that may have favorably affected such benefits) it being expressly understood and agreed that nothing in this clause (ii)(B) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as the Executive becomes entitled to receive health benefits from another employer or recipient of the Executives services (and provided, further, that such entitlement shall be determined without regard to any
individual waivers or other arrangements); (iii) all outstanding unvested options held by the Executive shall vest and such options shall remain exercisable for one (1) year following termination or expiration (or, if shorter, the balance of the regular term of the options); and (iv) this Agreement shall otherwise terminate upon such termination of employment or expiration of the Term and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
6. Covenants of the Executive .
6.1. Covenant Against Competition; Other Covenants . The Executive acknowledges that (i) the principal business of the Company is the acquisition, ownership and management of a diversified portfolio of high-quality, single-tenant, freestanding properties leased to retail businesses (such business, and any and all other businesses that after the date hereof, and from time to time during the Term, become material and substantial with respect to the Companys then-overall business, herein being collectively referred to as the Business ); (ii) the Company knows of a limited number of persons who have developed the Companys Business; (iii) the Companys Business is, in part, national in scope; (iii) the Executives work for the Company and its subsidiaries (and the predecessors of either) has given and will continue to give the Executive access to the confidential affairs and proprietary information of the Company; (v) the covenants and agreements of the Executive contained in this Section 6 are essential to the business and goodwill of the Company; and (vi) the Company would not have entered into this Agreement but for the covenants and agreements set forth in this Section 6. In light of the foregoing, during the Term and for a period of one year thereafter (and, as to Section 6.1 (b) and (d), at any time during and after the Executives employment with the Company and its subsidiaries (and the predecessors of either)):
(a) The Executive shall not, directly or indirectly, own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the Business of the Company in any state in which the Company conducts its Business. In the case of a termination by the Company without Cause or by the Executive for Good Reason, the preceding covenant shall expire on the date of termination; provided, however, that, notwithstanding the foregoing, the Executive may invest in securities of any entity, solely for investment purposes and without participating in the business thereof, if (i) such securities are traded on any national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, (ii) the Executive is not a controlling person of, or a member of a group which controls, such entity and (iii) the Executive does not, directly or indirectly, own one percent or more of any class of securities of such entity.
b) The Executive shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of the Company and its affiliates, all confidential matters relating to the Companys Business and the business of any of its affiliates and to the Company and any of its affiliates, learned by the Executive heretofore or hereafter directly or indirectly from the Company or any of its subsidiaries (or any predecessor of either) (the Confidential Company Information ), including, without limitation, information with respect to the Business and any aspect thereof, profit or loss figures, and the Companys or its affiliates, (or any of their predecessors) properties, and shall not disclose such Confidential Company information to anyone outside of the Company except with the Companys express written consent and except for Confidential Company Information which (i) at the time of receipt or thereafter becomes publicly known through no wrongful act of the Executive, (ii) is clearly obtainable in the public domain, (iii) was not acquired by the Executive in connection with the Executives employment or affiliation with the Company, (iv) was not acquired by the Executive from the Company or its representatives or from a third-party who has an agreement with the Company not to disclose such information, or (v) is required to be disclosed by rule of law or by order of a court or governmental body or agency.
(c) The Executive shall not, without the Companys prior written consent, directly or indirectly, (i) knowingly solicit or encourage to leave the employment or other service of the Company or any of its affiliates, any employee thereof or hire (on behalf of the Executive or any other person or entity) any employee who has left the employment or other service of the Company or any of its affiliates (or any predecessor of either) within one year of the termination of such employees or independent contractors employment or other service with the Company and its affiliates, or (ii) whether for the Executives own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Companys or any of its affiliates, relationship with, or endeavor to entice away from the Company or any of its affiliates, any person who during the Executives employment with the Company and its affiliates (or the predecessors of either) is or was a customer or client of the Company or any of its affiliates (or any predecessor of either).
(d) All memoranda, notes, lists, records, property and any other tangible product and documents (and all copies thereof) made, produced or compiled by the Executive or made available to the Executive concerning the Business of the Company and its affiliates shall be the Companys property and shall be delivered to the Company at any time on request.
6.2. Rights and Remedies upon Breach . The Executive acknowledges and agrees that any breach by him of any of the provisions of Section 6.1 (the Restrictive Covenants ) would result in irreparable injury and damage for which money damages would not provide an adequate remedy. Therefore, if the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company and its affiliates shall have the right and remedy to have the Restrictive Covenants specifically enforced (without posting bond and without the need to prove damages) by any court having equity jurisdiction, including, without limitation, the right to an entry against the Executive of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants. This right and remedy shall be in addition to, and not in lieu of, any other rights and remedies available to the Company and its affiliates under law or in equity (including, without limitation, the recovery of damages). The existence of any claim or cause of action by the Executive, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions .
7.1. Severability . The Executive acknowledges and agrees that (i) the Executive has had an opportunity to seek advice of counsel in connection with this Agreement and (ii) the Restrictive Covenants are reasonable in geographical and temporal scope and in all other respects. If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.
7.2. Duration and Scope of Covenants . If any court or other decision maker of competent jurisdiction determines that any of the Executives covenants contained in this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration or geographical scope of such provision, then, after such determination has become final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
7.3. Enforceability; Jurisdictions . The Company and the Executive intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of breadth of scope or otherwise it is the intention of the Company and the Executive that such determination not bar or in any way affect the Companys right, or the right of any of its affiliates, to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in such other respective jurisdictions, such Restrictive Covenants as they relate to each jurisdictions being, for this purpose, severable, diverse and independent covenants, subject, where appropriate, to the doctrine of res judicata . Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Executive and the Company (or its affiliates, where applicable), other than those arising under Section 6, to the extent necessary for the Company (or its affiliates, where applicable) to avail itself of the rights and remedies provided under Section 6.2, shall be submitted to arbitration in Orlando, Florida in accordance with Florida law and the procedures of the American Arbitration Association. The determination of the arbitrators shall be conclusive and binding on the Company (or its affiliates, where applicable) and the Executive and judgment may be entered on the arbitrator(s) award in any court having jurisdiction.
7.4. Attorneys Fees . In the event of any legal proceeding (including an arbitration proceeding) relating to this Agreement or any term or provision thereof, the losing party shall be responsible to pay or reimburse the prevailing party for all reasonable attorneys fees incurred by the prevailing party in connection with such proceeding.
7.5. Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails as follows:
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(i) |
If to the Company, to:
400 East South Street |
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Suite 500 | |||
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Orlando, Florida 32801 | |||
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Attention: James M. Seneff, Jr. | |||
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Facsimile: (407) 648-8756 |
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with a copy in either case to:
Shaw, Pittman, Potts & Trowbridge |
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2300 N Street, N.W. | |||
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Washington, D.C. 20037 | |||
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Attention: Thomas H. McCormick, Esquire | |||
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Facsimile: (202) 663-8007 | |||
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(ii) |
If to the Executive, to:
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Kevin B. Habicht | |||
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901 Lake Catherine Drive | |||
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Maitland, Florida 32751
with a copy in either case to: Rogers & Wells |
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200 Park Avenue | |||
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New York, NY 10166 | |||
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Attention: Jay L. Bernstein, Esq. | |||
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Facsimile: (212) 878-8527 |
Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.
7.6. Agreement . This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the Company or its subsidiaries (or any predecessor of either).
7.7. Waivers and Amendments . This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.
7.8. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
7.9. Assignment . This Agreement, and the Executives rights and obligations hereunder, may not be assigned by the Executive; any purported assignment by the Executive in violation hereof shall be null and void. In the event of any sale, transfer or other disposition of all or substantially all of the Companys assets or business, whether by merger, consolidation or otherwise, the Company may assign this Agreement and its rights hereunder.
7.10. Withholding . The Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law. No other taxes, fees, impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.
7.11. No Duty to Mitigate . The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments hereunder be subject to offset in the event the Executive does mitigate.
7.12. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.
7.13. Counterparts . This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto.
7.14. Survival . Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 6, 7.3, 7.4 and 7.10 and the other provisions of this Section 7 (to the extent necessary to effectuate the survival of Sections 6, 7.3, 7.4 and 7.10) shall survive termination of this Agreement and any termination of the Executives employment hereunder.
7.15. Existing Agreements . Executive represents to the Company that the Executive is not subject or a party to any employment or consulting agreement, non-competition covenant or other agreement, covenant or understanding which might prohibit the Executive from executing this Agreement or limit the Executives ability to fulfill the Executives responsibilities hereunder.
7.16. Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
7.17. Parachute Provisions . If any amount payable to or other benefit receivable by the Executive pursuant to this Agreement is deemed to constitute a Parachute Payment (as defined below), alone or when added to any other amount payable or paid to or other benefit receivable or received by the Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then, in addition to any other benefits to which the Executive is entitled under this Agreement, the Executive shall be paid by the Company an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to put the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest applicable rates on such Parachute Payments and on any payments under this Section 7.17) as if no excise taxes had been imposed with respect to Parachute Payments. The amount of any payment under this Section 7.17 shall be computed by a certified public accounting firm mutually and reasonably acceptable to the Executive and the Company, the computation expenses of which shall be paid by the Company. Parachute Payment shall mean any payment deemed to constitute a parachute payment as defined in Section 280G of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF , the parties hereto have signed their names as of the day and year first above written.
COMMERCIAL NET LEASE REALTY, INC.
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By: | /s/James M. Seneff, Jr. | |||
Its: | Chief Executive Officer | |||
By: | /s/Kevin B. Habicht | |||
Kevin B. Habicht | ||||
PART II
AMENDMENT TO EMPLOYMENT AGREEMENT
(Kevin B. Habicht)
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (Amendment) is dated as of January 1, 2003, by and between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation (hereinafter referred to as the Company), and KEVIN B. HABICHT (hereinafter referred to as the Executive).
RECITALS:
A. The Company and the Executive have entered into that certain Employment Agreement effectively dated January 1, 1998 (the Agreement); and
B. The Company and the Executive wish to amend the Agreement as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing mutual covenants, representations, warranties and agreements contained herein, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged by all the parties, it is agreed as follows:
TERMS:
1. Definitions . Capitalized terms as set forth herein shall have the same definition as set forth in the Agreement.
2. Modification of Section 5.2 . Section 5.2 of the Agreement is hereby deleted in its entirety and replaced with the following new Section 5.2:
5.2 Termination Without Cause; Termination for Good Reason; Failure to Renew Employment Agreement . The Company may terminate the Executives employment at any time for any reason or no reason and the Executive may terminate the Executives employment with the Company for Good Reason. If the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or if the Company, for any reason, does not renew this agreement at the expiration of its Term, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment or expiration of the Term other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan and clause (ii) below) earned and accrued under this Agreement prior to the effective date of the termination of employment or expiration of the Term (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment or expiration of the Term); (ii) except as otherwise provided in Section 5.3 below, the Executive shall receive (A) a cash payment equal to two (2) times the Executives Annual Salary (as in effect on the effective date of such termination or expiration) payable in twelve (12) equal monthly installments (plus interest on such unpaid amount at the Prime Rate, as hereinafter defined, commencing on the first day of the first calendar month following such termination or expiration and continuing on the first day of each calendar month thereafter until paid in full and (B) for a period of one (1) year after termination of employment or expiration of the term such continuing health benefits (including any medical, vision or dental benefits), under the Companys health plans and programs applicable to senior executives of the Company generally as the Executive would have received under this Agreement (and at such costs to the Executive) as would have applied in the absence of such termination or expiration (but not taking into account any post-termination increases in Annual Salary that may otherwise have occurred without regard to such termination and that may have favorably affected such benefits) it being expressly understood and agreed that nothing in this clause (ii)(B) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as the Executive becomes entitled to receive health benefits from another employer or recipient of the Executives services (and provided, further, that such entitlement shall be determined without regard to any individual waivers or other arrangements); (iii) all outstanding unvested options held by the Executive shall vest and such options shall remain exercisable for one (1) year following termination or expiration (or, if shorter, the balance of the regular term of the options); and (iv) this Agreement shall otherwise terminate upon such termination of employment or expiration of the Term and the Executive shall have no further rights hereunder (except as provided in Section 7.14). As used herein, the term Prime Rate shall mean the prime rate of interest as published in the Wall Street Journal (or, if the Wall Street Journal is no longer published, a similar national business publication) from time to time.
3. Addition of Section 5.3 . Section 5 of the Agreement is hereby amended to add the following new Section 5.3:
5.3 Change of Control . Immediately upon a change of control, as hereinafter defined, then the provisions of Section 5.2 (ii)(A) above shall be automatically modified to read as follows:
. . . [(ii) except as otherwise provided in Section 5.3 below, the Executive shall receive] (A) a cash payment equal to two (2) times (x) the Executives Annual Salary (as in effect on the effective date of such termination or expiration) plus (y) the average of the Executives annual bonus compensation for the previous three (3) years (or such lesser period of time as the Executive has been employed by the Company if the Executive has not been so employed for three (3) previous years) payable no later than thirty (30) days after such termination or expiration and [B] . . . .
For the purposes hereof, the term change of control shall mean:
(a) a person or group (which terms shall have the meaning they have when used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, any corporation owned directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company) becomes (other than solely by reason of a repurchase of voting securities by the Company), the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of forty percent (40%) or more of the combined voting power of the Companys then total outstanding voting securities; or
(b) the Company consolidates with or merges with or into another corporation or partnership or conveys, transfers or leases, in any transaction or series of transactions, all or substantially all of its assets to any corporation or partnership, or any corporation or partnership consolidates with or merges with or into the Company, in any event pursuant to a transaction in which the outstanding voting stock of the Company is reclassified or changed into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding voting securities of the Company are changed into or exchanged for voting securities of the surviving corporation and (ii) the persons who were the beneficial owners of the Companys voting securities immediately prior to such transaction beneficially own immediately after such transaction fifty percent (50%) or more of the total outstanding voting power of the surviving corporation, or the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution.
4. Addition of Subsection (e) to Section 6.1 . Section 6.1 of the Agreement is hereby amended to add the following new Subsection (e):
(e) Notwithstanding anything set forth in this Section to the contrary, if at any time after a change of control, as defined above, (i) the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or (ii) the Company, for any reason, does not renew this agreement at the expiration of its Term, then the covenants set forth in this Section 6.1 shall expire and terminate immediately upon the expiration or earlier termination of this Agreement.
5.
Modification of Section 7.5
. Section 7.5 of the Agreement is hereby amended to
modify the notice addresses of the Company and the Executive as follows:
450 South Orange Avenue
Suite 1400
Orlando, Florida 32801
Attention: James M. Seneff, Jr.
Facsimile: (407) 650-1011
6. No Other Modifications . Except as specifically set forth herein, the Employment Agreement remains unmodified and in full force and effect.
IN WITNESS WHEREOF , the parties hereto have signed their names as of the day and year first above written.
COMPANY:
COMMERCIAL NET LEASE REALTY, INC. |
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By: | /s/Gary M. Ralston | |||
Name: | Gary M. Ralston | |||
Its: | President | |||
EXECUTIVE:
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By: | /s/Kevin B. Habicht | |||
Kevin B. Habicht | ||||
EMPLOYMENT AGREEMENT
(Dennis E. Tracy)
THIS EMPLOYMENT AGREEMENT is dated as of January 1, 2003, by and between COMMERCIAL NET LEASE REALTY SERVICES, INC., a Maryland corporation (hereinafter referred to as the Company), and DENNIS E. TRACY (hereinafter referred to as the Executive).
WHEREAS, the Company wishes to offer employment to the Executive, and the Executive wishes to accept such offer, on the terms set forth below.
Accordingly, the parties hereto agree as follows:
1. Term . The Company hereby employs the Executive, and the Executive hereby accepts such employment for an initial term commencing as of the date hereof and ending on December 31, 2003, unless sooner terminated in accordance with the provisions of Section 4 or Section 5 (the period during which the Executive is employed hereunder being hereinafter referred to as the Term). The Term shall be subject to automatic one (1) year renewals unless either party hereto notifies the other, in accordance with Section 7.5, of non-renewal at least ninety (90) days prior to the end of any such Term.
2. Duties . The Executive, in his capacity as Chief Development Officer and Executive Vice President of the Company, shall faithfully perform for the Company the duties of said office and shall perform such other duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Board of Directors of the Companys parent, Commercial Net Lease Realty, Inc. (CNLR) (the Board), the Chief Executive Officer or the President of the Company (including the performance of services for, and serving on the Board of Directors of, any subsidiary of the Company without any additional compensation). The Executive shall devote substantially all of the Executives business time and effort to the performance of the Executives duties hereunder, provided that in no event shall this sentence prohibit the Executive from performing personal and charitable activities and any other activities approved by the Board, so long as such activities do not interfere with the Executives duties for the Company.
3. Compensation .
3.1. Salary . The Company shall pay the Executive during the Term a salary at the rate of $187,500.00 per annum (the Annual Salary), in accordance with the customary payroll practices of the Company applicable to senior executives generally. Annual Salary will increase annually on January 1 of each year by an amount as may be approved by the Board, with such increase to be effective on the date salary increases are effective for the employees of the Company generally and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary.
3.2. Bonus . The Executive will be eligible to participate in the Companys Annual Bonus Program (the Bonus Plan), the terms of which will be established by the Compensation Committee of the Company.
3.3. Benefits In General . The Executive shall be permitted during the Term to participate in any group life, hospitalization or disability insurance plans, health programs, pension and profit sharing plans and similar benefits that may be available to other senior executives of the Company generally, on the same terms as may be applicable to such other executives, in each case to the extent that the Executive is eligible under the terms of such plans or programs.
3.4. Vacation . The Executive shall be entitled to vacation of twenty (20) days per year.
3.5. Automobile . The Company will provide the Executive a monthly allowance of $500 for the use of an automobile. At the option of the Company, in lieu of providing such allowance, the Company will provide the Executive with an automobile of suitable standard to the Executives position.
3.6. Disability Benefits and Life Insurance . The Executive shall be entitled to long-term disability coverage providing benefits (to continue for such period as is provided in the applicable disability plan or program, as amended from time to time) equal to two-thirds of Annual Salary in the case of a covered disability and life insurance benefits with a face amount equal to Annual Salary.
3.7. Expenses . The Company shall pay or reimburse the Executive for all ordinary and reasonable out-of-pocket expenses actually incurred (and, in the case of reimbursement, paid) by the Executive during the Term in the performance of the Executives services under this Agreement; provided that the Executive submits such expenses in accordance with the policies applicable to senior executives of the Company generally.
4. Termination upon Death or Disability . If the Executive dies during the Term, the obligations of the Company to or with respect to the Executive shall terminate in their entirety except as otherwise provided under this Section 4. If the Executive becomes eligible for disability benefits under the Companys long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement), the Company shall have the right, to the extent permitted by law, to terminate the employment of the Executive upon notice in writing to the Executive; provided that the Company will have no right to terminate the Executives employment if, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Executive will be able to resume the Executives duties on a regular full-time basis within ninety (90) days of the date the Executive receives notice of such termination. Upon death or other termination of employment by virtue of disability, (i) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan or in clause (ii) below) earned and accrued under this Agreement prior to the date of termination (and reimbursement under this Agreement for expenses incurred prior to the date of termination); (ii) the Executive (or the Executives estate or beneficiaries in the case of the death of the Executive) shall be entitled to a cash payment equal to the Executives Annual Salary (as in effect on the effective date of such termination) payable no later than thirty (30) days after such termination; and (iii) this Agreement shall otherwise terminate upon such death or other termination of employment and there shall be no further rights with respect to the Executive hereunder (except as provided in Section 7.14).
5. Certain Terminations of Employment .
5.1. Termination for Cause; Termination of Employment by the Executive Without Good Reason .
(a) For purposes of this Agreement, Cause shall mean:
(i) the Executives (A) conviction for (or pleading nolo contendere to) any felony, or a misdemeanor involving moral turpitude, or (B) indictment for any felony or misdemeanor involving moral turpitude, if such indictment is not discharged or otherwise resolved within eighteen (18) months;
(ii) the Executives commission of an act of fraud, theft or dishonesty related to the performance of the Executives duties hereunder;
(iii) the willful and continuing failure or habitual neglect by the Executive to perform the Executives duties hereunder;
(iv) any material violation by the Executive of the covenants contained in Section 6; or
(v) the Executives willful and continuing material breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that
constitutes Cause under clause (iii) or (v) above, the Executive shall have thirty (30) days from the date such notice is given to cure such event or condition and, if the Executive does so, such event or condition shall not constitute Cause hereunder.
(b) For purposes of this Agreement, Good Reason shall mean, unless otherwise consented to by the Executive:
(i) the material reduction of the Executives authority, duties and responsibilities, or the assignment to the Executive of duties materially inconsistent with the Executives position or positions with the Company and its subsidiaries;
(ii) a reduction in Annual Salary of the Executive;
(iii) the failure by the Company to obtain an agreement in form and substance reasonably satisfactory to the Executive from any successor to the business of the Company to assume and agree to perform this Agreement; or
(iv) the Companys material and willful breach of this Agreement.
Notwithstanding the foregoing, if there exists (without regard to this sentence) an event or condition that constitutes Good Reason under clause (i), (ii) or (iv) above, the Company shall have thirty (30) days from the date on which the Executive gives the notice thereof to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder.
(c) The Company may terminate the Executives employment hereunder for Cause. If the Company terminates the Executive for Cause, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
(d) The Executive may terminate his employment without Good Reason. If the Executive terminates the Executives employment with the Company without Good Reason: (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan) earned and accrued under this Agreement prior to the effective date of the termination of employment (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment); and (ii) this Agreement shall otherwise terminate upon such termination of employment and the Executive shall have no further rights hereunder (except as provided in Section 7.14).
5.2. Termination Without Cause; Termination for Good Reason; Failure to Renew Employment Agreement . The Company may terminate the Executives employment at any time for any reason or no reason and the Executive may terminate the Executives employment with the Company for Good Reason. If the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or if the Company, for any reason, does not renew this agreement at the expiration of its Term, (i) the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment or expiration of the Term other than Annual Salary and other benefits (but excluding any bonuses except as provided in the Bonus Plan and clause (ii) below) earned and accrued under this Agreement prior to the effective date of the termination of employment or expiration of the Term (and reimbursement under this Agreement for expenses incurred prior to the effective date of the termination of employment or expiration of the Term); (ii) except as otherwise provided in Section 5.3 below, the Executive shall receive (A) a cash payment equal to two (2) times the Executives Annual Salary (as in effect on the effective date of such
termination or expiration) payable in twelve (12) equal monthly installments (plus interest on such unpaid amount at the Prime Rate, as hereinafter defined, commencing on the first day of the first calendar month following such termination or expiration and continuing on the first day of each calendar month thereafter until paid in full and (B) for a period of one (1) year after termination of employment or expiration of the term such continuing health benefits (including any medical, vision or dental benefits), under the Companys health plans and programs applicable to senior executives of the Company generally as the Executive would have received under this Agreement (and at such costs to the Executive) as would have applied in the absence of such termination or expiration (but not taking into account any post-termination increases in Annual Salary that may otherwise have occurred without regard to such termination and that may have favorably affected such benefits) it being expressly understood and agreed that nothing in this clause (ii)(B) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as the Executive becomes entitled to receive health benefits from another employer or recipient of the Executives services (and provided, further, that such entitlement shall be determined without regard to any individual waivers or other arrangements); (iii) all outstanding unvested options held by the Executive shall vest and such options shall remain exercisable for one (1) year following termination or expiration (or, if shorter, the balance of the regular term of the options); and (iv) this Agreement shall otherwise terminate upon such termination of employment or expiration of the Term and the Executive shall have no further rights hereunder (except as provided in Section 7.14). As used herein, the term Prime Rate shall mean the prime rate of interest as published in the Wall Street Journal (or, if the Wall Street Journal is no longer published, a similar national business publication) from time to time.
5.3. Change of Control . Immediately upon a change of control, as hereinafter defined, then the provisions of Section 5.2 (ii)(A) above shall be automatically deleted and replaced with the following new Section 5.2(ii)(A):
. . . [(ii) except as otherwise provided in Section 5.3 below, the Executive shall receive] (A) a cash payment equal to two (2) times (x) the Executives Annual Salary (as in effect on the effective date of such termination or expiration) plus (y) the average of the Executives annual bonus compensation for the previous three (3) years (or such lesser period of time as the Executive has been employed by the Company if the Executive has not been so employed for three (3) previous years) payable no later than thirty (30) days after such termination or expiration and [B] . . .
For the purposes hereof, the term change of control shall mean:
(a) a person or group (which terms shall have the meaning they have when used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (other than CNLR, any trustee or other fiduciary holding securities under an employee benefit plan of CNLR, any corporation owned directly or indirectly, by the stockholders of CNLR in substantially the same proportions as their ownership of voting securities of CNLR) becomes (other than solely by reason of a repurchase of voting securities by CNLR), the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of forty percent (40%) or more of the combined voting power of CNLRs then total outstanding voting securities; or
(b) CNLR consolidates with or merges with or into another corporation or partnership or conveys, transfers or leases, in any transaction or series of transactions, all or substantially all of its assets to any corporation or partnership, or any corporation or partnership consolidates with or merges with or into CNLR, in any event pursuant to a transaction in which the outstanding voting stock of CNLR is reclassified or changed into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding voting securities of CNLR are changed into or exchanged for voting securities of the surviving corporation and (ii) the persons who were the beneficial owners of CNLRs voting securities immediately prior to such transaction beneficially own immediately after such transaction fifty percent (50%) or more of the total outstanding voting power of the surviving corporation, or CNLR is liquidated or dissolved or adopts a plan of liquidation or dissolution.
6. Covenants of the Executive .
6.1. Covenant Against Competition; Other Covenants . The Executive acknowledges that (i) the principal business of the Company and CNLR is the development, acquisition, ownership, management and sale of a diversified portfolio of high-quality, single-tenant, freestanding properties leased to retail businesses (such business, and any and all other businesses that after the date hereof, and from time to time during the Term, become material and substantial with respect to the Companys then-overall business, herein being collectively referred to as the Business); (ii) the Company knows of a limited number of persons who have developed the Companys Business; (iii) the Companys Business is, in part, national in scope; (iv) the Executives work for the Company and its subsidiaries (and the predecessors of either) has given and will continue to give the Executive access to the confidential affairs and proprietary information of the Company; (vi) the covenants and agreements of the Executive contained in this Section 6 are essential to the business and goodwill of the Company; and (vii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in this Section 6. In light of the foregoing, during the Term and for a period of one (1) year thereafter (and, as to Sections 6.1(b) and (d), at any time during and after the Executives employment with the Company and its subsidiaries (and the predecessors of either)):
(a) The Executive shall not, directly or indirectly, own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the Business of the Company in any state in which the Company conducts its Business. In the case of a termination by the Company without Cause or by the Executive for Good Reason, the preceding covenant shall expire on the date of termination; provided, however, that notwithstanding the foregoing, the Executive may invest in securities of any entity, solely for investment purposes and without participating in the business thereof, if (i) such securities are traded on any national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, (ii) the Executive is not a controlling person of, or a member of a group which controls, such entity, and (iii) the Executive does not, directly or indirectly, own one percent (1%) or more of any class of securities of such entity.
(b) The Executive shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of the Company and its affiliates, all confidential matters relating to the Companys Business and the business of any of its affiliates and to the Company and any of its affiliates, learned by the Executive heretofore or hereafter directly or indirectly from the Company or any of its subsidiaries (or any predecessor of either) (the Confidential Company Information), including, without limitation, information with respect to the Business and any aspect thereof, profit or loss figures, and the Companys or its affiliates, (or any of their predecessors) properties, and shall not disclose such Confidential Company Information to anyone outside of the Company except with the Companys express written consent and except for Confidential Company Information which (i) at the time of receipt or thereafter becomes publicly known through no wrongful act of the Executive, (ii) is clearly obtainable in the public domain, (iii) was not acquired by the Executive in connection with the Executives employment or affiliation with the Company, (iv) was not acquired by the Executive from the Company or its representatives or from a third party who has an agreement with the Company not to disclose such information, or (v) is required to be disclosed by rule of law or by order of a court or governmental body or agency.
(c) The Executive shall not, without the Companys prior written consent, directly or indirectly, (i) knowingly solicit or encourage to leave the employment or other service of the Company or any of its affiliates, any employee thereof or hire (on behalf of the Executive or any other person or entity) any employee who has left the employment or other service of the Company or any of its affiliates (or any predecessor of either) within one (1) year of the termination of such employees or independent contractors employment or other service with the Company and its affiliates, or (ii) whether for the Executives own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Companys or any of its affiliates, relationship with, or
endeavor to entice away from the Company or any of its affiliates, any person who during the Executives employment with the Company and its affiliates (or the predecessors of either) is or was a customer or client of the Company or any of its affiliates (or any predecessor of either).
(d) All memoranda, notes, lists, records, property and any other tangible product and documents (and all copies thereof) made, produced or compiled by the Executive or made available to the Executive concerning the Business of the Company and its affiliates shall be the Companys property and shall be delivered to the Company at any time on request.
(e) Notwithstanding anything set forth in this Section to the contrary, if at any time after a change of control, as defined above, (i) the Company or the Executive terminates the Executives employment and such termination is not described in Section 4 or Section 5.1, or (ii) the Company, for any reason, does not renew this agreement at the expiration of its Term, then the covenants set forth in this Section 6.1 shall expire and terminate immediately upon the expiration or earlier termination of this Agreement.
6.2. Rights and Remedies upon Breach . The Executive acknowledges and agrees that any breach by him of any of the provisions of Section 6.1 (the Restrictive Covenants) would result in irreparable injury and damage for which money damages would not provide an adequate remedy. Therefore, if the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company and its affiliates shall have the right and remedy to have the Restrictive Covenants specifically enforced (without posting bond and without the need to prove damages) by any court having equity jurisdiction, including, without limitation, the right to an entry against the Executive of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants. This right and remedy shall be in addition to, and not in lieu of, any other rights and remedies available to the Company and its affiliates under law or in equity (including, without limitation, the recovery of damages). The existence of any claim or cause of action by the Executive, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of the Restrictive Covenants.
7. Other Provisions
7.1. Severability . The Executive acknowledges and agrees that (i) the Executive has had an opportunity to seek advice of counsel in connection with this Agreement and (ii) the Restrictive Covenants are reasonable in geographical and temporal scope and in all other respects. If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full affect, without regard to the invalid portions.
7.2. Duration and Scope of Covenants . If any court or other decision maker of competent jurisdiction determines that any of the Executives covenants contained in this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration or geographical scope of such provision, then, after such determination has become final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced.
7.3. Enforceability; Jurisdictions . The Company and the Executive intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of breadth of scope or otherwise it is the intention of the Company and the Executive that such determination not bar or in any way affect the Companys right, or the right of any of its affiliates, to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in such other respective jurisdictions, such Restrictive Covenants as they relate to each jurisdictions being, for this purpose, severable, diverse and independent covenants, subject, where appropriate, to the doctrine of res
judicata . Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Executive and the Company (or its affiliates, where applicable), other than those arising under Section 6, to the extent necessary for the Company (or its affiliates, where applicable) to avail itself of the rights and remedies provided under Section 6.2, shall be submitted to arbitration in Orlando, Florida, in accordance with Florida law and the procedures of the American Arbitration Association. The determination of the arbitrators shall be conclusive and binding on the Company (or its affiliates, where applicable) and the Executive and judgment may be entered on the arbitrator(s) award in any court having jurisdiction.
7.4. Attorneys Fees . In the event of any legal proceeding (including an arbitration proceeding) relating to this Agreement or any term or provision thereof, the losing party shall be responsible to pay or reimburse the prevailing party for all reasonable attorneys fees incurred by the prevailing party in connection with such proceeding.
7.5.
Notices
. Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five (5) days after the date of deposit in the United States mail as
follows:
(i)
If to the Company, to:
450 South Orange Avenue
Suite 1400
Orlando, Florida 32801
Attention: Gary M. Ralston, Chairman of the Board
Facsimile: (407) 650-1044
with a copy to:
Shaw Pittman LLP
2300 N Street, N.W.
Washington, D.C. 20037
Attention: John McDonald, Esquire
Facsimile: (202) 663-8007
(ii)
It fo the Executive, to:
Dennis E. Tracy
450 South Orange Avenue
Suite 900
Orlando, Florida 32801
Facsimile: (407) 650-1055
with a copy to:
Dennis E. Tracy
843 Palmer Avenue
Winter Park, FL 32789
Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder.
7.6. Entire Agreement . This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the Company or its subsidiaries (or any predecessor of either).
7.7. Waivers and Amendments . This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such
right, power or privilege.
7.8. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
7.9. Assignment . This Agreement, and the Executives rights and obligations hereunder, may not be assigned by the Executive; any purported assignment by the Executive in violation hereof shall be null and void. In the event of any sale, transfer or other disposition of all or substantially all of the Companys assets or business, whether by merger, consolidation or otherwise, the Company may assign this Agreement and its rights hereunder.
7.10. Withholding . The Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law. No other taxes, fees, impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.
7.11. No Duty to Mitigate . The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments hereunder be subject to offset in the event the Executive does mitigate.
7.12. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives.
7.13. Counterparts . This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two (2) copies hereof each signed by one of the parties hereto.
7.14. Survival . Anything contained in this Agreement to the contrary notwithstanding the provisions of Section 6, 7.3, 7.4, 7.10, and the other provisions of this Section 7 (to the extent necessary to effectuate the survival of Sections 6, 7.3, 7.4, and 7.10) shall survive termination of this Agreement and any termination of the Executives employment hereunder.
7.15. Existing Agreements . Executive represents to the Company that the Executive is not subject or a party to any employment or consulting agreement, non-competition covenant or other agreement, covenant or understanding which might prohibit the Executive from executing this Agreement or limit the Executives ability to fulfill the Executives responsibilities hereunder.
7.16. Headings . The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
7.17. Parachute Provisions . If any amount payable to or other benefit receivable by the Executive pursuant to this Agreement is deemed to constitute a Parachute Payment (as defined below), alone or when added to any other amount payable or paid to or other benefit receivable or received by the Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then, in addition to any other benefits to which the Executive is entitled under this Agreement, the Executive shall be paid by the Company an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to put the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest applicable rates on such Parachute Payments and on any payments under this Section 7.17) as if no excise taxes had been imposed with respect to Parachute Payments. The amount of any payment under this Section 7.17 shall be computed by a certified public accounting firm mutually and reasonably acceptable to the Executive and the Company, the computation expenses of which shall be paid by the Company.
Parachute Payment shall mean any payment deemed to constitute a parachute payment as defined in Section 280G of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF , the parties hereto have signed their names as of the day and year first above written.
COMPANY:
COMMERCIAL NET LEASE REALTY, INC. |
||||
By: | /s/Gary M. Ralston | |||
Name: | Gary M. Ralston | |||
Its: President | ||||
EXECUTIVE:
|
||||
By: | /s/Dennis E. Tracy | |||
Dennis E. Tracy | ||||
Exhibit 10.8
TABLE OF CONTENTS
Part I. Separation Agreement and General Release
Part II. First Amendment to Separation Agreement and General Release
PART I
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS SEPARATION AGREEMENT AND GENERAL RELEASE (the Agreement) is made and entered into as of April 23, 2004, by and between GARY M. RALSTON (Ralston) and COMMERCIAL NET LEASE REALTY, INC. (CNLR or the Company).
WHEREAS, pursuant to an Employment Agreement with CNLR, dated May 15, 1997 (the Ralston Employment Agreement), Ralston currently is employed as CNLRs Chief Operating Officer and President;
WHEREAS, Ralston has expressed an interest in leaving his position at CNLR;
WHEREAS, the parties wish to resolve all matters between themselves on an amicable basis; and
WHEREAS, contemporaneously with the execution of this Agreement, Ralston will enter into a consulting agreement and investment agreement with James M. Seneff, Jr. (the Seneff/Ralston Agreements), which the parties acknowledge and agree is not inconsistent with the promises they undertake herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth in this Agreement, the sufficiency of which the parties hereto acknowledge, it is agreed as follows:
1. Ralston will remain as CNLRs Chief Operating Officer and President and will report to CNLRs Chief Executive Officer, Craig Macnab, until close of business on April 30, 2004 (the Separation Date), after which he will no longer be employed by CNLR. As of the Separation Date, Ralston will voluntarily resign as Chief Operating Officer and President and will also voluntarily resign any other positions, titles, or offices he may hold at CNLR or any affiliated companies or entities. Prior to the Separation Date, CNLR will continue to pay and provide Ralstons current salary and benefits, pursuant to normal payroll and business practices, as provided in the Ralston Employment Agreement. Upon the execution of this Agreement, Ralston shall execute and deliver to CNLR and its subsidiaries and affiliates (collectively, the CNLR Group) his letter of resignation as an officer and director effective as of the Separation Date in form and substance identical to the letter attached hereto as Exhibit A. The parties will agree on an appropriate press release with respect to Ralstons resignation.
2. In consideration for Ralstons promises in this Agreement, CNLR makes the following promises:
(a) CNLR agrees to pay Ralston the sum of Seven Hundred and Fifty Thousand Dollars ($750,000), net of all legally required payroll and income tax withholdings. Of the $750,000, $250,000 shall be due and payable on May 1, 2004, and the remaining $500,000 balance shall be paid in twenty-four equal monthly installments, commencing on June 1, 2004.
(b) CNLR will also pay Ralston by separate check his regular compensation for hours worked through the Separation Date, but which remain unpaid as of the Separation Date, and any vacation pay that is accrued but unused as of the Separation Date, net of all legally required payroll and income tax withholdings.
(c) CNLR agrees to pay Ralston the sum of Four Hundred Thirty-Seven Thousand Five Hundred Dollars ($437,500), net of all legally required payroll and income tax withholdings on May 1, 2004.
(d) CNLR will allow all shares of Restricted Stock (as described in the Restricted Stock Agreement between Ralston and CNLR, dated March 14, 2003 (the Restricted Stock Agreement)) currently held in Ralstons name to fully and completely vest as of the Separation Date and will pay the tax gross-up payment as provided in Paragraph 7 of the Restricted Stock Agreement as of such vesting date.. The remaining undistributed shares shall be held in escrow by the Company, and shall be released to Ralston on a pro-rata basis each month over the two-year period commencing May 1, 2004, and Ralston shall be entitled to receive any and all dividends with respect to such escrowed shares in accordance with the terms of the Restricted Stock Agreement. A letter will be provided to Wachovia National Bank indicating that the shares have vested.
(e) On or before May 31, 2004, CNLR will purchase (or will designate an affiliated or unaffiliated purchaser for) Ralstons shares of stock or other equity interests in Commercial Net Lease Realty Services, Inc. for an aggregate purchase price of no less than $250,000 or no greater than $315,000. Such purchase price will be based on a valuation prepared by Schonbraun Safris McCann Bekritsky & Co. LLC. At the time of CNLRs purchase of Ralstons interests, the other shareholders voting interests will be acquired by CNLR at a purchase price equal to each shareholders pro-rata interest in Commercial Net Lease Realty Services based on Schonbraun valuation.
(f) Ralston acknowledges and represents to CNLR that as the President and Chief Operating Officer of CNLR he is familiar with the operations, prospects, and financial condition of the CNLR Group including but not limited to Commercial Net Lease Realty Services, Inc., he believes the aggregate purchase price set forth in subparagraph (e) above is a fair and reasonable price for the Equity Interests, and that neither CNLR, any member of the CNLR Group, nor any of their officers or directors are making any representation as to the fair market value of the Equity Interests, any evaluation of the advisability of the sale of such equity interests, or the fairness of the purchase price for the Equity Interests. On or prior April 30, 2004, the parties hereto will agree as to the allocation of the purchase price among the various Equity Interests.
(g) CNLR will use commercially reasonable efforts to arrange for the purchase of Ralstons equity interests in CNL Commercial Finance, Inc., CNL Commercial Investors, Inc. and CNL Funding, L.P. It is contemplated that these entities will be sold to third parties, and that Ralston shall be entitled to his pro-rata share of the purchase price paid with respect thereto based upon his percentage ownership of the entities.
(h) CNLR will pay Ralstons documented and reasonable attorneys fees related to negotiating this Agreement, not to exceed $24,000.00, within thirty (30) days of Ralstons submission of the bill for legal services to CNLR.
(i) The payments and promises set forth above will not be disbursed to Ralston until at least seven (7) business days following CNLRs receipt of this Agreement executed by Ralston and the expiration without revocation of the revocation period described in Paragraph 13 of this Agreement.
3. (a) CNLR agrees to engage Ralston to provide consulting services for twelve(12) months (the Consulting Services), beginning May 1, 2004, at a rate of Two Hundred Fifty Thousand Dollars ($250,000) per year, payable in equal monthly installments at the beginning of each month throughout the consulting period beginning on June 1, 2004. Until November 30, 2004, Ralston shall provide up to forty (40) hours per month, and during the remainder of this term he shall provide up to twenty (20) hours per month (the Hours Requirement) of Consulting Services to CNLR, including, but not limited to, providing counsel and expertise relating to (i) transitioning in a new Chief Executive Officer, (ii) assisting CNLR on issues arising with major tenants, brokers, and shareholders, and (iii) assisting with investor relations. Ralston further agrees that, as a consultant, he shall render the Consulting Services in a diligent, careful, thorough and professional manner consistent with good business practices and shall at all times use his best efforts to endeavor to provide CNLR competent assistance and to promote CNLRs interest. At the request of CNLR, Ralston shall submit to CNLR by the tenth business day of each month a written report summarizing his hours worked and services provided in the preceding month. Should Ralston incur any reasonable out-of-pocket expenses in connection with the Consulting Services (other than for such office space and support as he might otherwise incur in connection with permissible activities other than the Consulting Services), CNLR shall reimburse Ralston for such expenses upon the presentation of an itemized invoice with appropriate supporting documentation. The consulting engagement shall not be deemed to create an agency, joint venture, partnership or franchise relationship between CNLR and Ralston. Ralston acknowledges that he is voluntarily terminating his employment relationship with CNLR and is choosing to provide services to the Company as an independent contractor. Ralston acknowledges that, after April 30, 2004, he will not be an employee of CNLR and, subject to subparagraph (b) below, will not be entitled to any Company employment rights or benefits nor shall be authorized to act on behalf of Company. Ralston shall not hold himself out as having authority to act on behalf of CNLR unless specifically authorized to do so in writing by CNLRs Chief Executive Officer. Ralston shall be solely responsible for any and all tax obligations related to his Consulting Services for the Company, including but not limited to, all city, state and federal income taxes, social security withholding tax and other self employment tax incurred by him (provided that such provision does not affect CNLRs obligation to pay to Ralston the tax gross-up amounts provided in Paragraph 2(d) hereof). Ralston will not cite his Consulting Services in support of any claim to be an employee of CNLR for the purpose of claiming unemployment or workers compensation or seeking other employment-related benefits (other than as may be required to enforce CNLRs obligations described in subparagraph
(b) below). CNLR shall not dictate the work hours of Ralston during the term of his Consulting Services, nor have the right to control the manner, means, or method by which Ralston performs the Consulting Services called for by this Agreement. Rather, CNLR shall be entitled only to direct Ralston with respect to the elements of services to be performed by Ralston and the results expected to be derived by CNLR there from, to inform Ralston as to where and when such services shall be performed, and to review and assess the performance of such services by Ralston for the limited purposes of assuring that such services have been reasonably satisfactorily performed. CNLR shall be entitled to exercise broad general power of supervision and control over the results of Ralstons work to ensure satisfactory performance, including the right to inspect, the right to stop work, the right to make suggestions or recommendations as to the details of the work, and the right to propose modifications to the work. Except as may be otherwise agreed to by CNLR in writing, Ralston shall not be entitled to any compensation for the Consulting Services other than the compensation set forth in this Paragraph 3. It is acknowledged and understood that if Ralston is requested to engage in development work on behalf of CNLR or its affiliates, to negotiate joint ventures or other arrangements or provide services over and above the types of services normally considered consulting in nature, CNLR and Ralston anticipate entering into separate compensation agreements for such services, if any; provided, however , the parties acknowledge and agree that, for the purposes of this Agreement, to the extent such services are provided within the Hours Requirement, the services shall be deemed consulting in nature.
(b) During the first eighteen (18) months of the Non-Compete Period described in Paragraph 5 below, CNLR shall pay, for the benefit of Ralston, all payments Ralston would otherwise be entitled to make under the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) for such continuing health benefits (including any medical, vision or dental benefits) under the Companys health plans and programs applicable to senior executives of the Company generally. During the remaining six (6) month term of this Agreement, CNLR shall arrange to provide, for the benefit of Ralston, continuing health benefits (including any medical, vision or dental benefits) comparable to those provided under the Companys health plans and programs applicable to senior executives of the Company. The parties hereto expressly understand and agree that nothing in this subparagraph (b) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as Ralston becomes entitled to receive health benefits from another employer or recipient of Ralstons services, other than a subsidiary or affiliate of CNLR (and provided, further, that (i) such entitlement shall be determined without regard to any individual waivers or other arrangements, and (ii) nothing contained herein shall require Ralston, to the extent he determines to establish a company pursuant to the Seneff/Ralston Agreement, to have such company provide health benefits to Ralston.
(c) Until November 30, 2004, CNLR shall provide office space and appropriate support services to Ralston to facilitate the provision of the consulting services during the initial term at a location reasonably near the executive offices of the Company.
4. The parties agree that their promises in Paragraphs 2, 3, 5, 8, 9,11, 12 and 15 are in full, final and complete settlement of all known claims Ralston may have against CNLR, its affiliates, subsidiaries, past and present officers, directors, employees, agents, successors and assigns, and that the various covenants, obligations and undertakings of Ralston as set forth herein are in full, final and complete settlement of all known claims that CNLR and its affiliates may have against Ralston arising out of or relating to his employment by and service to CNLR and its affiliates. Nothing contained herein shall constitute any waiver or relinquishment of the rights of Ralston as a stockholder of CNLR. Notwithstanding the foregoing, to the extent that any claim (whether or not known on the date hereof) by Ralston or CNLR is based on fraud, willful misconduct or gross negligence by the other party, the rights of the party claiming fraud, willful misconduct or gross negligence shall remain unaffected by this Paragraph 4, and such party may pursue any cause of action against the other party, whether at law or equity.
5. (a) Ralston acknowledges that as the Chief Operating Officer and President of CNLR he has (i) acquired trade secrets (as defined in Section 688.024(4), Florida Statutes) of CNLR, (ii) acquired valuable confidential business information concerning the past, present, and future business of CNLR, and (iii) gained substantial relationships with CNLR customers and prospective customers. Ralston further acknowledges that the Business of the Company (as defined below) is very competitive and that competition by him in that business (except as permitted hereunder) would severely injure the Company. Accordingly, Ralston shall not, for a period of twenty-four (24) months following the date hereof (the Non-Compete Period), in any geographic market in which CNLR or any member of the CNLR Group is then doing Business or preparing to do Business, directly or indirectly, own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the Business of the Company. For the purposes of this Agreement, the Business of the Company shall be defined as the acquisition, ownership and management of a diversified portfolio of high-quality, single-tenant, freestanding properties leased to retail, office and industrial businesses. Notwithstanding the foregoing, Ralston shall be permitted to engage in the following activities;
(i) Ralston may invest in securities of any entity, solely for investment purposes and without participating in the business thereof, if (i) such securities are traded on any national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System, (ii) Ralston is not a controlling person of, or a member of a group which controls, such entity and (iii) Ralston does not, directly or indirectly, own five percent or more of any class of securities of such entity;
(ii) Ralston may engage in private commercial real estate development business within the State of Florida through the development of commercial real estate projects provided that (A) Ralston notifies CNLR of the activities he intends to engage in prior to commencing the same, and (B) he provides CNLR with the opportunity to participate in the purchase of projects he may develop on a first refusal basis (that is, Ralston will provide CNLR with the opportunity to acquire the projects he develops on terms and conditions at least as favorable as those offered to third parties prior to accepting any purchase from a third party);
(iii) Ralston may have an ownership interest in, and engage in any real estate activities through, the company formed pursuant to the Seneff/Ralston Agreements; and
(iv) Ralston may become an owner, officer or employee of a privately held real estate competitor so long as (A) Ralston is the largest single stockholder of the real estate competitor (other than Seneff and any other shareholder approved by Seneff), (B) Ralston is actively involved in the management thereof, (C) the Real Estate Competitor is not funded by publicly-solicited debt or equity, and (D) the real estate competitor engages in activities that the company referred to in (iii) above elects not to participate in and such activities are conducted solely in the State of Florida.
(b) Ralston further agrees that, during the Non-Compete Period, without the prior written consent of CNLR or except in connection with activities he may permissibly undertake pursuant to Paragraph 5(a) above, he (1) shall not solicit, directly or indirectly, for his own behalf or on behalf of any other person(s), any customer of the Company that had utilized services from the Company at any time during the Ralstons employment or during the Non-Compete Period in any line of business that the Company conducts during Non-Compete Period or that the Company is actively soliciting, for the purpose of marketing or providing any service competitive with any service then offered by the Company; or (2) shall not engage, directly or indirectly, by himself or in connection with any other person(s), in the development or marketing of any service which will compete with any service that the Company is then providing, developing or marketing or is in the process of developing or marketing as of the Separation Date or (3) shall not directly or indirectly, whether for Ralstons own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Companys or any of its affiliates, relationship with, or endeavor to entice away from the Company or any of its affiliates, any person who during Ralstons employment with the Company and its affiliates (or the predecessors of either) is or was a customer or client of the Company or any of its affiliates (or any predecessor of either). Ralston further agrees that he shall not, directly or indirectly knowingly solicit or encourage to leave the employment or other service of the Company or any of its affiliates, any employee thereof or hire (on behalf of Ralston or any other person or entity) any employee who has left the employment or other service of the Company or any of its affiliates (or any predecessor of either) within one year of the termination of such employees or independent contractors employment or other service with the Company and its affiliates.
(c) Ralston acknowledges that these restrictions set forth in this Paragraph 5 are reasonable in scope and duration. Ralston further acknowledges that he has sufficient assets and other skills to provide a reasonable livelihood for himself while such obligations are in force, and that together with the consulting engagement set forth in Paragraph 3, he has the ability to provide such a livelihood.
(d) The restrictions contained in this Paragraph 5 shall terminate upon consummation of any transaction resulting in a change in control of CNLR. For the purposes of this Agreement, a change in control of CNLR occurs whenever as a result of a transaction or series of related transactions involving a merger with or acquisition by individuals or entities that are not affiliates of CNLR pursuant to which the then current shareholders (defined as those shareholders of CNLR immediately prior to the consummation of the transaction or the consummation of the first of the series of related transactions) wind up holding less than 50% of the resulting equity interests of CNLR or its successor.
6. Nothing in this Agreement shall be construed as an admission of liability by CNLR, its affiliates, subsidiaries, or its past and present officers, directors, employees or agents, and CNLR specifically disclaims liability to or wrongful treatment of Ralston on the part of itself, its affiliates, subsidiaries, and its past and present officers, directors, employees and agents.
7. Ralston represents that he has not filed any complaints or charges against the CNLR Group with the Equal Employment Opportunity Commission, or with any other federal, state or local agency or court, and covenants that he will not seek to recover on any claim released in this Agreement. Ralston also agrees that he will not in the future make any claim, charge, complaint, or demand, or file any suit, of any kind against any member of the CNLR Group or any of their
officers, directors, employees, or agents based upon any facts or events which have occurred at any time prior to the execution of this Agreement except to the extent that he may file any claim, whether at law or equity or in any agency (whether or not known on the date hereof) based on fraud, willful misconduct or gross negligence by any member of the CNLR Group or any of their officers, directors, employees, or agents.
8. Ralston covenants not to sue, and fully and forever releases and discharges CNLR, its parents, subsidiaries, affiliates, divisions, successors and assigns, together with its past and present trustees, directors, officers, employees, agents, attorneys and representatives (collectively, the CNLR Releasees) from any and all claims, debts, liens, liabilities, demands, obligations, acts, agreements, causes of action, suits, costs and expenses (including attorneys fees), damages (whether pecuniary, actual, compensatory, punitive or exemplary) or liabilities of any nature or kind whatsoever in law or equity or otherwise, whether now known or unknown, arising out of or in any way connected with Ralstons employment with CNLR; provided, however, that nothing in this Agreement shall either waive any rights or claims of Ralston that arise after Ralston signs this Agreement or impair or preclude Ralstons right to take action to enforce the terms of this Agreement or to pursue any claim (whether known or unknown) based on fraud, willful misconduct or gross negligence. CNLR covenants not to sue, and fully and forever releases and discharges Ralston from any and all known claims, debts, liens, liabilities, demands, obligations, acts, agreements, causes of action, suits, costs and expenses (including attorneys fees), damages (whether pecuniary, actual, compensatory, punitive or exemplary) or liabilities of any nature or kind whatsoever in law or equity or otherwise, whether now known or unknown, arising out of or in any way connected with Ralstons employment with CNLR; provided, however, that nothing in this Agreement shall either waive any rights or claims of CNLR that arise after CNLR signs this Agreement or impair or preclude CNLRs right to take action to enforce the terms of this Agreement or to pursue any claim (whether known or unknown) based on fraud, willful misconduct or gross negligence. This release by Ralston includes but is not limited to claims arising under federal, state or local laws prohibiting employment discrimination, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Equal Pay Act and the Americans with Disabilities Act, claims for attorneys fees or costs, workers compensation claims, and any and all claims regarding any claimed employment contract, whether written, oral, implied or otherwise, relating to CNLRs right to terminate its employees, or any other claims under federal, state, or local statute, regulation or ordinance, common law, or any other law in any way relating to Ralstons employment with CNLR or the termination of that employment.
9. Each of CNLR and Ralston agrees, without limiting the generality of the above release, not to sue or otherwise institute or cause to be instituted or to in any way participate in or voluntarily assist in the prosecution of any complaints, charges or grievances against any releasee concerning any claims released in this Agreement.
10. Ralston shall keep secret and retain in strictest confidence all confidential matters relating to (i) the Companys business and affairs (which term includes activities other than the Business of the Company as defined herein) , (ii) the business of any of its affiliates and (iii) the Company and any of its affiliates, learned by Ralston heretofore or hereafter directly or indirectly from the Company or any of its subsidiaries or any predecessor of either (all such confidential matters, the Confidential Company Information ), including, without limitation, information with respect to the Business and any aspect thereof, profit or loss figures, and the Companys or its affiliates, (or any of their predecessors) properties, and shall not disclose such Confidential Company Information to anyone outside of the Company or its affiliates except with the Companys prior express written consent and except for Confidential Company Information which (i) at the time of receipt or thereafter becomes publicly known through no wrongful act of Ralston, (ii) is clearly obtainable in the public domain, (iii) was not acquired by Ralston in connection with Ralstons employment, service or affiliation with the Company, (iv) was not acquired by Ralston from the Company or its representatives or affiliates or from a third-party who has an agreement with the Company not to disclose such information, or (v) is required to be disclosed by rule of law or by order of a court or governmental body or agency. Notwithstanding the foregoing, Ralston shall be entitled to retain a copy of his contacts file and other personal materials he may have developed, generated or received during his service with the Company, and shall be entitled to use the same in connection with permissible real estate activities as set forth in Paragraph 5 hereof; provided that nothing contained in this sentence shall permit Ralston to disclose the same to third parties in violation of the provisions of this Paragraph 10. On the Separation Date, Ralston shall deliver to CNLR his CNLR identification card and office keys and any other CNLR property or tangible Company Confidential Information in his possession, custody, or control as the Company may request.
11. Ralston agrees that he will truthfully give evidence and provide all other assistance which CNLR or any of its affiliates may from time to time reasonably require in connection with the defense or prosecution of any action or proceeding that has been or may be instituted by or against CNLR or any of its affiliates in relation to events which occurred during the period of Ralstons employment with CNLR. CNLR will reimburse Ralston for all reasonable out-of-pocket expenses incurred in connection with such cooperation upon the presentation of an itemized invoice with appropriate supporting documentation. CNLR and its officers and employees agree that they will truthfully give evidence and provide all other assistance which Ralston may from time to time reasonably require in connection with the defense or prosecution of any
action or proceeding that has been or may be instituted by or against Ralston in relation to events which occurred during the period of Ralstons employment with CNLR, and Ralston shall reimburse CNLR for all reasonable out-of-pocket expenses incurred in connection with such cooperation upon the presentation of an itemized invoice with appropriate supporting documentation except to the extent that such expenses would otherwise be indemnifiable by the Company as contemplated by Paragraph 12 hereof.
12. Ralston shall continue to be entitled to the indemnification rights provided by the articles of incorporation, bylaws or special indemnification agreements with respect to actions taken by him (a) during the period of Ralstons employment with CNLR, (b) specifically at the request of CNLR during the period he is providing Consulting Services to the Company as contemplated by Paragraph 3(a), and (c) to the extent he is requested and agrees to provide services to the Company beyond the scope of the consulting services contemplated in Paragraph 3 (such an engagement in development work on behalf of CNLR or its affiliates or negotiating joint ventures or other arrangements) and such services are in excess of the Hours Requirement in accordance with the term and conditions thereon as in effect on the date hereof, subject only to such amendments as may be effective for all senior executive officers of CNLR hereafter.
13. Ralston acknowledges that he had adequate time to consider this Agreement and that he has seven (7) calendar days from the date he executes this Agreement in which to revoke it and that this Agreement will not be effective or enforceable nor the amounts set forth in Paragraph 2 paid until after the seven-day revocation period ends without revocation by Ralston. Revocation can be made by delivery of a written notice of revocation to Jay Whitehurst, General Counsel, Commercial Net Lease Realty, Inc., 450 South Orange Avenue, Suite 900, Orlando, FL, 32801, by midnight on or before the seventh calendar day after Ralston signs the Agreement.
14. Ralston acknowledges that he has been advised to consult with an attorney of his choice with regard to this Agreement. Ralston hereby acknowledges that he understands the significance of this Agreement, and represents that the terms of this Agreement are fully understood and voluntarily accepted by him.
15. CNLR and Ralston agree that they will treat the existence and terms of this Agreement as confidential and will not discuss the Agreement (with the exception of Paragraphs 1, 3 and 5 herein), the fact of settlement, or the negotiations and communications leading to this Agreement, with anyone other than: (i) their counsel or tax advisor, as necessary to seek their professional advice, (ii) in the case of Ralston, his wife, (iii) as required by compulsory legal process (provided that, to the extent reasonably practicable, the party required to disclose the terms hereof provide written thereof to the other party at least five (5) business days prior to the date that such disclosure is required), (iv) in the case of CNLR, its independent accountants, (v) in the case of CNLR, to a prospective lender or in connection with a proposed transaction (provided that the recipient of the of the disclosure is bound by a written confidentiality agreement), (vi) upon the advice of counsel, to comply with securities law disclosure requirements, or (vi) in order to enforce the terms of this Agreement. To the extent CNLR elects to make the existence or terms of this Agreement public under the provisions of (iii), (iv) or (v) hereof, Ralston shall not be precluded from discussing or disclosing those matters publicly disclosed by CNLR with or to third parties.
16. Ralston shall not disparage, denigrate or comment negatively upon, either orally or in writing, any member of the CNLR Group or any CNLR Releasee to or in the presence of any other person or entity unless compelled to do so by a valid subpoena or court order; provided, however, that if Ralston receives such a subpoena or court order he gives, to the extent reasonably practicable, CNLR written notice thereof at least five (5) business days prior to the date on which Ralston is required to comply. CNLR shall not disparage, denigrate or comment negatively upon, either orally or in writing Ralston to or in the presence of any other person or entity unless compelled to do so by a valid subpoena or court order; provided, however, that if CNLR receives such a subpoena or court order CNLR gives, to the extent reasonably practicable, Ralston written notice thereof at least five (5) business days prior to the date on which CNLR is required to comply. Nothing contained herein is intended to or shall limit or either parties ability to make truthful statements necessary to comply with applicable laws, rules or regulations, to obtain any benefits under any bond and/or insurance policy, or to commence, institute, prosecute or defend any lawsuit, action, claim or proceeding before or in any court, regulatory, governmental, arbitral or other authority.
17. In the event of violation by either party of the undertakings or agreements set forth in this Agreement, either Ralston or CNLR, as applicable, shall have the right to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain the other party from violating such undertakings or agreements or to compel such party to perform such undertakings or agreements. Notwithstanding the foregoing, neither party shall be entitled to exercise the rights and remedies set forth in the remaining sentences of this Paragraph unless (a) such party has given notice to the other party of the violation (setting forth with reasonable specificity the nature of the violation), and (b) the other party has been given an appropriate period to cure the violation. For violations of obligations to make payments hereunder, the cure period shall be three (3) business days. For violations of other obligations that are capable of being cured, the cured period shall be thirty (30) days. There shall be no cure period for violations of obligations that cannot be cured. In the event of a breach by Ralston, CNL shall have the right to (i) immediately stop the payments as described in Paragraph 2(a), (ii) cause the forfeiture of any shares of unissued Restricted Stock held in escrow as described in Paragraph 2(d), and (iii) terminate the consulting
obligations described in Paragraph 3. Ralston shall indemnify and hold the Company harmless from, and shall be fully responsible for, all costs and expenses, including without limitation actual attorney fees and related legal costs and expenses incurred by the Company, in enforcing the covenants, undertakings and agreements of Ralston under this Agreement. In the case of a breach thereof by CNLR (i) all payments required to be made hereunder shall be accelerated and shall be immediately due and payable, (ii) the shares of restricted stock of CNLR held in escrow shall be immediately released to Ralston, and (iii) the restrictions of Paragraph 5 hereof shall immediately terminate. CNLR shall indemnify and hold the Ralston harmless from, and shall be fully responsible for, all costs and expenses, including without limitation actual attorney fees and related legal costs and expenses incurred by Ralston, in enforcing the covenants, undertakings and agreements of CNLR under this Agreement. Nothing herein contained shall in any way limit or exclude any and all other rights granted by law or equity to Ralston or the Company.
18. This Agreement shall be binding on CNLR and Ralston and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall run to the benefit of the Releasees and each of them and to their respective heirs, administrators, representatives, executors, successors and assigns. Except for the obligations to pay fees to Ralston in connection with his performance of the Consulting Services (the Consulting Fees), the obligations of CNLR to Ralston pursuant to this Agreement shall not be affected by the death, disability or incapacity of Ralston (a Death or Disability Event), and in the event thereof, any payments required hereunder shall be made to his heirs or personal representative at such time had such obligations would have been payable had there not been a Death or Disability Event. In the event of a Death or Disability Event, CNLRs obligation to pay the Consulting Fees shall terminate on the date of such event and CNLRs obligation to pay such fees shall cease, provided, however, any accrued and unpaid Consulting Fees shall be payable by CNLR to Ralstons heirs or personal representative through and including the Death or Disability Event. For the purposes of this Agreement, a Disability Event shall be defined as an event or circumstance arising by way of illness or accident that prevents Ralston from carrying out his consulting obligations under Paragraph 3 hereunder for three calendar months out of any consecutive period of six (6) calendar months.
19. This Agreement sets forth the entire agreement between Ralston and CNLR, and fully supersedes any and all prior agreements or understandings between them regarding its subject matter, including the Ralston Employment Agreement and Restricted Stock Agreement (provided, however, that those provisions of the Restricted Stock Agreement referred to herein shall remain valid and effective, notwithstanding the termination of such Agreement). This Agreement may only be modified by written agreement signed by both parties.
20. If any of the provisions of this Agreement, including without limitation any of the restrictive covenants herein, or any part thereof, is determined to be invalid or unenforceable by any court or administrative agency of competent jurisdiction, or in the event that any provision cannot be modified so as to be valid and enforceable, then that provision shall be deemed severed from the Agreement and the remainder of the Agreement shall remain in full force and effect. The language of all valid parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning and not strictly for or against any of the parties.
21. Except as set forth in Paragraph 17 above, any dispute between the parties concerning the performance, breach, construction or interpretation of this Agreement, or in any manner arising out of this Agreement, shall be submitted to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA), which arbitration shall be carried out in the manner set forth below:
(a) Within fifteen (15) days after written notice by one party to the other party of its demand for arbitration under this Paragraph 11, which demand shall set forth the name and address of its designated arbitrator, the other party shall select its designated arbitrator and so notify the demanding party. Within fifteen (15) days thereafter, the two arbitrators so selected shall select the third arbitrator. The dispute shall be heard by the arbitrators so selected within ninety (90) days after selection of the third arbitrator. The decision of any two arbitrators shall be binding upon the parties. Should any party or arbitrator fail to make a selection, the AAA shall designate such arbitrator upon the application of either party. Any arbitrator designated by any party, the selected arbitrators or the AAA must meet the standards of R-17 of the Commercial Arbitration Rules of the AAA. The decision of the arbitration panel so selected shall be final and binding upon the parties.
(b) The arbitration proceedings shall take place in Orlando, Florida, and the determination of the arbitrators in such proceedings shall be binding on the parties. Judgment upon any award rendered by the arbitrators may be entered into by any court having competent jurisdiction without any right of appeal.
(c) Each party shall pay its or his own expenses of arbitration (including its attorneys fees and costs), and the expenses of the arbitrators and the arbitration proceeding shall be shared equally. However, the arbitrators shall have the power to assess against a party, as part of their award, all or any part of the arbitration expenses of the other party (including reasonable attorneys fees) and the expenses and costs of the arbitrators and the arbitration proceeding.
22. All notice required to be given under this Agreement to any party shall be in writing and delivered personally to the other party by hand delivery or sent by United States certified mail, return receipt requested, postage prepaid, addressed to the other party at the address set forth below or at such other address as such party shall so notify the other party. Any notice shall be deemed to be received when received if hand delivered or two (2) business days after being properly deposited in the United States mail as set forth above.
23. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party by reason of such party having, or being deemed to have, drafted, devised, or imposed such provision.
24. This Agreement shall be governed in all respects by Florida law, without regard to its conflict of laws principles.
PLEASE READ CAREFULLY.
THIS AGREEMENT AND GENERAL RELEASE INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS
.
Dated: As of April 23, 2004 | /s/Gary M. Ralston | |||
GARY M. RALSTON | ||||
152 Trismen Terrace Winter Park, FL 32789 |
||||
Dated: As of April 23, 2004 |
COMMERCIAL NET LEASE REALTY, INC.
|
|||
BY: | ||||
450 South Orange Avenue
Suite 900 Orlando, FL 32801 Attn: General Counsel |
PART II
FIRST AMENDMENT TO SEPARATION
AGREEMENT AND GENERAL RELEASE
This First Amendment to Separation Agreement and General Release (Amendment) is made and entered into as of the 30th day of December 2004, by and between Gary M. Ralston (Ralston) and Commercial Net Lease Realty, Inc. , a Maryland corporation (CNLR or the Company).
WHEREAS, Ralston and CNLR have entered into that certain Separation Agreement and General Release dated as of April 23, 2004 (the Agreement), which provides, among other things, for payment by CNLR of certain amounts to Ralston and consulting services to be provided by Ralston to CNLR, as well as a non-compete period applicable to Ralston;
WHEREAS, CNLR and Ralston have agreed that CNLR may prepay all remaining amounts due to Ralston, subject to a two percent (2%) discount, and that upon such prepayment that Ralston will be released from all obligations in connection with consulting services or in connection with any non-compete period.
NOW, THEREFORE, in consideration of the premises hereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. All capitalized terms used herein shall have the same meaning as ascribed thereto in the Agreement.
2. CNLR will pay all amounts due to Ralston under the Agreement within ten (10) days from the effective date hereof.
3. The provisions of Paragraph 3(a) of the Agreement concerning Consulting Services to be provided by Ralston and the provisions of Paragraph 5 of the Agreement concerning Ralstons non-compete obligations and the related Non-Compete Period are hereby terminated in their entirety.
4. CNLR shall promptly cause all remaining shares escrowed pursuant to Paragraph 2(d) of the Agreement to be released to Ralston.
5. In all other respects, the Agreement shall remain in full force and effect in accordance with its terms.
COMMERCIAL NET LEASE REALTY, INC.
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||
|
||
By:
/s/ Julian E. Whitehurst
|
/s/ Gary M. Ralston | |
Name: Julian E. Whitehurst
|
Gary M. Ralston | |
Title: Executive Vice President and Chief Operating officer
|
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
EXHIBIT 12
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Companys consolidated ratios of earnings to fixed charges for the periods as shown.
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
Net Earnings
|
$ | 64,933,739 | $ | 53,472,592 | $ | 48,058,349 | $ | 28,963,548 | $ | 38,250,664 | ||||||||||
|
||||||||||||||||||||
Fixed Charges:
|
||||||||||||||||||||
Interest on Indebtedness
|
33,453,678 | 28,356,201 | 27,239,152 | 25,522,640 | 27,213,199 | |||||||||||||||
Amortization of Discount
Relating to Indebtedness
|
122,859 | 146,195 | 127,375 | 107,201 | 93,600 | |||||||||||||||
Amortization of Treasury Lock
Gain
|
(456,669 | ) | (596,741 | ) | (554,527 | ) | (515,299 | ) | (478,846 | ) | ||||||||||
Amortization of Deferred
Charges
|
1,260,198 | 1,334,224 | 963,438 | 817,170 | 812,529 | |||||||||||||||
|
||||||||||||||||||||
|
34,380,066 | 29,239,879 | 27,775,438 | 25,931,712 | 27,640,482 | |||||||||||||||
|
||||||||||||||||||||
Net Earnings Before Fixed
Charges
|
$ | 99,313,805 | $ | 82,712,471 | $ | 75,833,787 | $ | 54,895,260 | $ | 65,891,146 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Divided by Fixed Charges
|
||||||||||||||||||||
Fixed Charges
|
$ | 34,380,066 | $ | 29,239,879 | $ | 27,775,438 | $ | 25,931,712 | $ | 27,640,482 | ||||||||||
Capitalized and Deferred
Interest
|
270,879 | 102,544 | (599,902 | ) | 451,624 | 646,897 | ||||||||||||||
|
||||||||||||||||||||
|
$ | 34,650,945 | $ | 29,342,423 | $ | 27,175,536 | $ | 26,383,336 | $ | 28,287,379 | ||||||||||
|
||||||||||||||||||||
|
||||||||||||||||||||
Ratio of Net Earnings to
Fixed Charges
|
2.87 | 2.82 | 2.79 | 2.08 | 2.33 | |||||||||||||||
|
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|
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Preferred Stock Dividends
|
||||||||||||||||||||
Series A Preferred Stock
|
$ | 4,008,378 | $ | 4,007,532 | $ | 4,009,554 | $ | - | $ | - | ||||||||||
Series B Convertible Preferred
Stock
|
1,675,000 | 502,500 | - | - | - | |||||||||||||||
|
||||||||||||||||||||
Total Preferred Stock
Dividends
|
$ | 5,683,378 | 4,510,032 | 4,009,554 | $ | - | $ | - | ||||||||||||
|
||||||||||||||||||||
Combined Fixed Charges and
Preferred Stock Dividends
|
$ | 40,334,323 | $ | 33,852,455 | $ | 31,185,090 | $ | 26,383,336 | $ | 28,287,379 | ||||||||||
|
||||||||||||||||||||
Ratio of Net Earnings to Combined
Fixed Charges and
Preferred Stock Dividends
|
2.46 | 2.44 | 2.43 | 2.08 | 2.33 | |||||||||||||||
|
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Advisor Acquisition Costs
|
$ | - | $ | - | $ | - | $ | 12,581,769 | $ | 1,521,063 | ||||||||||
|
||||||||||||||||||||
Net Earnings After Advisor
Acquisition Costs
and Fixed Charges
(1)
|
$ | 99,313,805 | $ | 82,712,471 | $ | 75,833,787 | $ | 67,477,029 | $ | 67,412,209 | ||||||||||
|
||||||||||||||||||||
Ratio of Net Earnings After
Advisor Acquisition Costs to
Fixed Charges
(1)
|
2.87 | 2.82 | 2.79 | 2.56 | 2.38 | |||||||||||||||
|
(1) The Companys revolving credit facility and notes payable covenants provide for fixed charge coverage ratios to be calculated before Advisor Acquisiton Costs.
COMMERCIAL NET LEASE REALTY, INC.
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
December 31, 2004
Jurisdiction
Subsidiary
of Formation
Florida
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
Arizona
Arizona
Virginia
Texas
Ohio
Delaware
Texas
Delaware
Maryland
Maryland
Maryland
Maryland
Florida
Maryland
Maryland
Delaware
Delaware
Delaware
Michigan
Delaware
Maryland
Delaware
Maryland
Maryland
Maryland
Maryland
Delaware
Maryland
Maryland
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
We consent to the incorporation by reference in the registration statement (no. 333-105635) on Form
S-3 and registration statement (no. 333-64794) on Form S-8 of Commercial Net Lease Realty, Inc. and
subsidiaries of our reports dated March 9, 2005, with respect to the consolidated balance sheets of
Commercial Net Lease Realty, Inc. and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of earnings, stockholders equity, and cash flows for each of the
years in the three-year period ended December 31, 2004, and all related financial statement
schedules, managements assessment of the effectiveness of internal control over financial
reporting as of December 31, 2004 and the effectiveness of internal control over financial
reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on
Form 10-K of Commercial Net Lease Realty, Inc. and subsidiaries. Our
report refers to the Companys adoption
of FIN No. 46(R) Consolidation of Variable Interest Entities.
Orlando, Florida
Commercial Net Lease Realty, Inc.:
March 11, 2005
Exhibit 31.1
I, Craig Macnab, Chief
Executive Officer of Commercial Net Lease Realty, Inc., certify
that:
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1.
I have reviewed this annual report on Form 10-K of Commercial Net Lease Realty,
Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4.
The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and
5.
The registrants other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over
financial reporting.
March 14, 2005
/s/ Craig Macnab
Name: Craig Macnab
Title: Chief Executive Officer
Exhibit 31.2
I, Kevin B. Habicht,
Chief Financial Officer of Commercial Net Lease Realty, Inc., certify that:
CERTIFICATION PURSUANT
TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1.
I have reviewed this annual report on Form 10-K of Commercial Net Lease Realty,
Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the registrant as
of, and for, the periods presented in this annual report;
4.
The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial
reporting; and
5.
The registrants other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over
financial reporting.
March 14, 2005
/s/ Kevin B. Habicht
Name: Kevin B. Habicht
Title: Chief Financial Officer
Exhibit 32.1
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Craig
Macnab, Chief Executive Officer, certifies that (1) this Annual Report
of Commercial Net Lease Realty, Inc. (the Company) on Form 10-K for the period
ended December 31, 2004, as filed with the Securities and Exchange Commission on the date
hereof (this Report), fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in
this Report fairly presents, in all material respects, the financial condition of the Company
as of December 31, 2004 and 2003 and its results of operations for the years ended
December 31, 2004, 2003 and 2002.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
March 14, 2005
/s/ Craig Macnab
Name: Craig Macnab
Title: Chief Executive Officer
Exhibit 32.2
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned, Kevin B. Habicht, Chief Financial Officer, certifies that (1) this
Annual Report of Commercial Net Lease Realty, Inc. (the Company) on
Form 10-K for the period ended December 31, 2004, as filed with the Securities
and Exchange Commission on the date hereof (this Report), fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, and (2) the information contained in this
Report fairly presents, in all material respects, the financial condition of the
Company as of December 31, 2004 and 2003 and its results of operations for the
years ended December 31, 2004, 2003 and 2002.
A signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
March 14, 2005
/s/ Kevin B. Habicht
Name: Kevin B. Habicht
Title: Chief Financial Officer
Exhibit 99.1
Annual CEO Certification
(Section 303A.12(a))
As the Chief Executive Officer of Commercial Net Lease Realty, Inc., and as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, I hereby certify that as of the date hereof, I am not aware of any violation by the Company of NYSEs Corporate Governance listing standards, other than has been notified to the Exchange pursuant to Section 303A.12(b) and disclosed as an attachment hereto.
By:
/s/ Craig Macnab
Name:
Craig Macnab
Title:
Chief Executive Officer and President
Date:
August 9, 2004