Jan. 13, 2005 --Already facing a class-action lawsuit over its hotel trust, Orlando-based CNL has now been sued in Texas over the company's proposed reverse merger with a Dallas-based restaurant real estate investment trust, a deal valued at more than $1.6 billion.

The same law firm that sued CNL in Orlando last summer contends in the latest case, which also seeks class-action status, that the complex restaurant merger is bad financially for more than 45,000 limited partners.

The suit charges that the merger is designed to "bail out" CNL's restaurant trust, CNL Restaurant Properties Inc., "from financial difficulties."

It contends that owners of CNL Income Fund limited partnership shares, who are being bought out as part of the deal, would be shortchanged at least $140 million.

CNL spokeswoman Carolyn Gosselin said Monday the latest case, filed late last week, "has no merit" but is not a surprise to the company.

"These types of large transactions are always the target of class-action lawsuits," Gosselin said.

James M. Seneff, founder and chairman of parent company CNL Financial Group Inc., and Robert Bourne, one of his top executives, are named in the latest lawsuit, which was filed by Chimicles & Tikellis, a Pennsylvania firm that specializes in shareholder cases. Three other firms are also participating in the litigation.

Gosselin said proxy statements are being sent to investors in the three companies in the merger, and CNL expects investors, about 100,000 combined, will approve the deal.

One of the three companies, Dallas-based U.S. Restaurant Properties, said in a Securities and Exchange Commission filing in November that the merger is expected to close during the first quarter.

Although called a merger, the proposal maintains CNL as the controlling entity and keeps the headquarters in Orlando. CNL will hold a majority of board seats and the surviving company, operating under the CNL Restaurant name, will trade on the New York Stock Exchange through the existing U.S.Restaurant Properties Inc. listing.

At the time the deal was announced in August, it was valued at about $1.3 billion in stock and cash. CNL estimates that the total deal would now be worth about $3 billion, including debt.

The debt, about $1.4 billion, includes existing debt for both U.S. Restaurant Properties and CNL Restaurant Properties, and new debt to buy out the 18 CNL Income Fund limited partnerships. The equity portion of the deal has grown to about $1.6 billion, as Restaurant Properties shares have continued to increase.

Shortly after the restaurant deal was announced, CNL was sued in connection with a separate, aborted attempt to raise more than $700 million for its hotel trust. The suit, which is still pending, charges that CNL used improper accounting and "manipulative devises" to make CNL Hotels & Resorts look healthier than it really was.

CNL said at the time that the case had no merit. Gosselin said Monday that she could not comment further on the case, which is being handled by U.S. District Judge Gregory A. Presnell.

The new case, filed in state court in Dallas County, was filed on behalf of New York investor Robert Lewis and Sutter Acquisition Fund Inc., a privately held San Francisco company.

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