<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INLAND RETAIL REAL ESTATE TRUST, INC.
(Exact name of registrant as specified in governing instruments)
------------------------
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(Address of principal executive offices)
------------------------
ROBERT H. BAUM, ESQ.
VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
THE INLAND GROUP, INC.
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(Name and address of agent for service)
------------------------
WITH A COPY TO:
ROGER G. FEIN
WILDMAN, HARROLD, ALLEN & DIXON
225 WEST WACKER DRIVE
SUITE 2800
CHICAGO, ILLINOIS 60606-1229
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value......... 50,000,000 $10.00 $500,000,000 $147,500
Common Stock, $.01 par value(1)...... 1,250,000 12.00 15,000,000 4,425
Common Stock, $.01 par value(2)...... 4,000,000 9.50 38,000,000 11,210
Soliciting Dealer Warrants(3)........ 1,250,000 .0008 1,000 0
</TABLE>
(1) Represents Shares which are issuable upon exercise of warrants issuable to
Inland Securities Corporation (the "Dealer Manager") or its assignees
pursuant to that certain Warrant Purchase Agreement between the registrant
and the Dealer Manager (the "Warrant Purchase Agreement"), a copy of the
form of which is filed as Exhibit 1.3 to the registration statement.
(2) Represents Shares issuable pursuant to the registrant's Distribution
Reinvestment Program.
(3) Represents warrants issuable to the Dealer Manager to purchase 1,250,000
Shares pursuant to the Warrant Purchase Agreement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OF HEADING IN PROSPECTUS
- ----------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Outside Back Cover Page
Pages of Prospectus
3. Summary Information, Risk Factors Cover Page; Prospectus Summary; Risk Factors; Conflicts of Interest;
and Ratio of Earnings to Fixed Compensation Table; Summary of the Organizational Documents; Plan
Charges of Distribution
4. Determination of Offering Price Risk Factors
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution Cover Page; Prospectus Summary; Compensation Table; Who May Invest;
Plan of Distribution; How to Subscribe; Distribution Reinvestment
and Share Repurchase Programs
8. Use of Proceeds Prospectus Summary; Structure and Formation of the Company; Estimated
Use of Proceeds of Offering
9. Selected Financial Data Selected Financial Data
10. Management's Discussion and Analysis Management's Discussion and Analysis of the Financial Condition of
of Financial Condition and Results the Company
of Operations
11. General Information as to Registrant Cover Page; Prospectus Summary; Risk Factors; Management; Structure
and Formation of the Company; Summary of the Organizational
Documents
12. Policy with Respect to Certain Prospectus Summary; Investment Objectives and Policies; Real Property
Activities Investments; Summary of the Organizational Documents; Reports to
Stockholders
13. Investment Policies of Registrant Cover Page; Prospectus Summary; Risk Factors; Conflicts of Interest;
Investment Objectives and Policies; Real Property Investments;
Summary of the Organizational Documents
14. Description of Real Estate Cover Page; Prospectus Summary; Investment Objectives and Policies;
Real Property Investments
15. Operating Data Real Property Investments
16. Tax Treatment of Registrant and Its Prospectus Summary; Risk Factors; Federal Income Tax Considerations;
Security Holders ERISA Considerations
17. Market Price of and Distributions on Prospectus Summary; Risk Factors; Principal Stockholders; Investment
the Registrant's Common Equity and Objectives and Policies; Operating Partnership Agreement; Federal
Related Stockholder Matters Income Tax Considerations
18. Description of Registrant's Investment Objectives and Policies; Description of Securities;
Securities Summary of Organizational Documents
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OF HEADING IN PROSPECTUS
- ----------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Prospectus Summary; Principal Stockholders; Structure and Formation
Beneficial Owners and Management of the Company
21. Directors and Executive Officers Management
22. Executive Compensation Management
23. Certain Relationships and Related Prospectus Summary; Risk Factors; Conflicts of Interest; Management;
Transactions Structure and Formation of the Company; Investment Objectives and
Policies; Real Property Investments; Summary of the Organizational
Documents; Operating Partnership Agreement
24. Selection, Management and Custody of Prospectus Summary; Conflicts of Interest; Compensation Table;
Registrant's Investments Management; Investment Objectives and Policies; Real Property
Investments
25. Policies with Respect to Certain Conflicts of Interest; Investment Objectives and Policies; Summary of
Transactions the Organizational Documents
26. Limitations of Liability Certain Responsibilities of Directors and the Advisor;
Indemnification; Operating Partnership Agreement; Plan of
Distribution
27. Financial Statements and Information Appendix F - Index to Financial Statements and Financial Statements
28. Interests of Named Experts and Not Applicable
Counsel
29. Disclosure of Commission Position on Certain Responsibilities of Directors and the Advisor;
Indemnification for Securities Act Indemnification; Plan of Distribution
Liabilities
30. Quantitative and Qualitative Not Applicable
Disclosures About Market Risk
</TABLE>
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
55,250,000 SHARES OF COMMON STOCK*
INLAND RETAIL REAL ESTATE TRUST, INC.
$10.00 PER SHARE** MINIMUM INITIAL PURCHASE--300 SHARES
(100 SHARES FOR TAX-EXEMPT ENTITIES)***
Inland Retail Real Estate Trust, Inc. (the "Company") is a Maryland
corporation which intends to operate as a real estate investment trust (commonly
known as a "REIT") for federal and state income tax purposes. The Company was
formed in September 1998 to acquire and manage a diversified portfolio of real
estate primarily (i) improved for use as retail establishments, principally
multi-tenant shopping centers, or (ii) improved with other commercial facilities
which provide goods or services. Such real estate will be located mainly in the
states east of the Mississippi River in the United States. The Company may also
acquire single-user retail properties located anywhere throughout the United
States if they are leased on a triple-net lease basis by creditworthy tenants.
The Company has rights to acquire the fee simple interests in four shopping
centers and intends to use the net proceeds of the offering (after funding
working capital reserves) to acquire such properties together with additional
properties. See "Investment Objectives and Policies" and "Real Property
Investments."
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AND "CONFLICTS OF INTERESTS" BEGINNING ON PAGES 24 AND 43,
RESPECTIVELY, FOR A DISCUSSION OF THE FOLLOWING AND OTHER RISKS WHICH SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES:
- There is currently no public trading market for the Shares, and,
therefore, the offering price of the Shares may not be indicative of the
price at which the Shares may trade if they were listed on an exchange or
traded by brokers, or of the proceeds that a Stockholder may receive if
the Company were liquidated or dissolved. An investment in the Shares is
suitable only for those able to make a long-term investment;
- The Offering is not conditioned upon the Company raising a minimum amount
of proceeds. The Company may not raise proceeds sufficient to apply to any
use other than payment of organization and offering expenses associated
with the Offering;
- Although the Company intends to purchase properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price in
cash or for Shares, limited partnership interests in Inland Retail Real
Estate Limited Partnership, an Illinois limited partnership (the
"Operating Partnership"), equity interests in certain other entities that
will be owned or controlled, directly or indirectly, by the Operating
Partnership ("Property Partnerships"), or a combination thereof, the
Company also intends, following the acquisition of the properties, to
incur indebtedness which will be secured by mortgages on its properties.
Defaults on this secured indebtedness or the inability to refinance this
indebtedness upon its maturity could result in the Company losing its
investment in such properties;
- Except for four properties, the Company has not specified any additional
properties in which it intends to invest or acquire;
- The Company relies on Inland Retail Real Estate Advisory Services, Inc.
(the "Advisor") and affiliates of the Advisor to operate the Company on a
daily basis and manage its assets. The Company pays the Advisor and
affiliates of the Advisor substantial fees for rendering these services;
- The limitation on ownership of the Company (no one person may own more
than 9.8% of the Shares) and certain provisions in the organizational
documents of the Company and the Maryland General Corporation Law could
make takeovers more difficult, may deter acquisition proposals or may, as
of the date a violation of the limitation occurs, compel a stockholder of
the Company to involuntarily dispose of Shares in excess of such
limitation and, as a result, forfeit the benefit of ownership of such
shares;
- There are conflicts of interest between the Company and certain directors
of the Company and between the Company and the Advisor and affiliates of
the Advisor;
- Stockholders of the Company have no preemptive rights, and, therefore,
further issuances of Shares by the Company may dilute the interests of
investors purchasing Shares in the Offering;
- If the Company fails to qualify as a REIT for federal income tax purposes,
the Company would be taxed as a regular corporation and there would be a
decrease in funds available to make distributions to stockholders of the
Company.
<TABLE>
<CAPTION>
PRICE TO SELLING
PUBLIC(1) COMMISSIONS(2)
<S> <C> <C>
Per Share............................................................. $10.00 $.95
Minimum Purchase-300 Shares........................................... $3,000.00 $285.00
Total Maximum if 54,000,000 Shares Sold............................... $538,000,000.00 $47,500,000.00
<CAPTION>
PROCEEDS TO
COMPANY(3)(4)
<S> <C>
Per Share............................................................. $9.05
Minimum Purchase-300 Shares........................................... $2,715.00
Total Maximum if 54,000,000 Shares Sold............................... $490,500,000.00
</TABLE>
(1) The price per Share is $9.05 for Shares sold to employees and associates of
the Company and its affiliates, the Advisor, affiliates of the Advisor, the
Dealer Manager or the Soliciting Dealers, $9.50 for Shares offered under the
DRP and $12.00 for Shares issued pursuant to the exercise of the Soliciting
Dealer Warrants. Purchasers of Shares will be entitled to a volume discount
payable in additional Shares on purchases of at least 20,000 Shares. See
"Plan of Distribution--Volume Discounts." No volume discounts are reflected
in the above table.
(2) Pursuant to the Offering, the Company will, except as explained below: (i)
pay the Dealer Manager cash selling commissions of 7% of the gross proceeds
of the Offering; (ii) pay the Dealer Manager a marketing contribution of 2%,
and a due diligence expense allowance of up to 0.5% of the gross proceeds of
the Offering; and (iii) in certain instances, issue and sell to the Dealer
Manager a Soliciting Dealer Warrant to purchase one Share for every 40
Shares sold. See "Description of Securities--Soliciting Dealer Warrants" for
the terms of the Soliciting Dealer Warrants. The Dealer Manager, at its
discretion, may retain or reallow all or a part of the selling commissions,
marketing contribution, due diligence expense allowance and Soliciting
Dealer Warrants, to the Soliciting Dealers, unless prohibited by either
federal or state securities laws. No selling commissions, marketing
contribution or due diligence expense allowance will be paid in connection
with (i) the sale of Shares to employees and associates of the Company and
its affiliates, the Advisor, affiliates of the Advisor, the Dealer Manager
or the Soliciting Dealers, (ii) the purchase of Shares under the DRP or
(iii) the issuance of the Soliciting Dealer Warrants or the Shares issuable
upon exercise thereof. Reduced selling commissions are payable on purchases
of at least 20,000 Shares. The above table includes and assumes the maximum
cash selling commissions, marketing contribution and due diligence expense
allowance, but does not include any amount for the value attributable to the
Soliciting Dealer Warrants that may be issued. The Company has agreed to
indemnify the Dealer Manager and the Soliciting Dealers against certain
liabilities including liabilities under the Securities Act of 1933, as
amended. See "Plan of Distribution--Indemnification" for further information
regarding such indemnification.
(3) If all 1,250,000 Soliciting Dealer Warrants are issued, a total of $1,000.00
of additional proceeds will be raised and, if all such Soliciting Dealer
Warrants are exercised at the exercise price of $12.00 per Share, a total of
$15,000,000.00 of additional proceeds will be raised. None of such proceeds
are included in this table.
(4) Before deducting certain organization and offering expenses, estimated at
$14 million if 54,000,000 Shares are sold, which will be charged to the
Company (the "Organization and Offering Expenses"). If the aggregate of all
Organization and Offering Expenses, (i) including selling commissions and
the marketing contribution and due diligence expense allowance, exceeds 15%
of the Gross Offering Proceeds, or (ii) excluding the selling expenses,
exceeds 5.5% of the Gross Offering Proceeds, then the Advisor will pay the
excess expenses.
- ----------------------------------
* All of the 55,250,000 shares of common stock of the Company, $.01 par value
per share (collectively, the "Shares"; individually, a "Share"), offered
hereby are being sold by the Company. Of such Shares, 50,000,000 Shares are
being offered on a "best efforts" basis at $10.00 per Share (the
"Offering"); 4,000,000 Shares will be offered to stockholders of the Company
who elect to participate in the Company's Distribution Reinvestment Program
(the "DRP") at a reduced price ($9.50 per Share) due to lower administrative
costs; and 1,250,000 Shares will be reserved for issuance upon the exercise
of warrants (the "Soliciting Dealer Warrants") to be issued and sold to
Inland Securities Corporation (the "Dealer Manager"), which Soliciting
Dealer Warrants may be reallowed to certain securities dealers who are
members of the NASD and designated by the Dealer Manager to participate in
the Offering (the "Soliciting Dealers").
** See note (1) to the table on the cover page.
*** The minimum initial purchase requirement is higher than 100 Shares in some
states for certain tax-exempt entities.
THE DATE OF THIS PROSPECTUS IS , 1998.
(cover page continued)
<PAGE>
The Company will be the general partner of the Operating Partnership. The
Company's day-to-day operations will be managed by the Advisor. The Dealer
Manager and the Advisor are affiliates of the Company.
The Company has established minimum financial suitability standards and
minimum initial purchase requirements for investors who purchase Shares. See
"Who May Invest."
In order to avoid having the Company violate certain income tax limitations
on share ownership applicable to REITs, there are certain restrictions on
ownership and transferability of Shares. See "Descriptions of
Securities--Restrictions on Ownership and Transfer" and "Federal Income Tax
Considerations--Taxation of the Company--Share Ownership Tests."
Upon the completion of the Offering, if all the 50,000,000 Shares offered
hereby to the public are subscribed for, such 50,000,000 Shares, plus 20,000
Shares issued to the Advisor and in connection with the organization of the
Company for a purchase price of $10.00 per Share (an aggregate purchase price of
$200,000.00), will represent 100% of the common equity of the Company, not
taking into account (i) issuance of up to 4,000,000 Shares under the DRP, (ii)
up to 1,250,000 Shares reserved for issuance upon the exercise of the Soliciting
Dealer Warrants, (iii) 75,000 Shares reserved for issuance upon exercise of
options which may be granted under the Company's Independent Director Stock
Option Plan, (iv) 200 Shares reserved for issuance to the Advisor upon exchange
of the 200 limited partnership interests ("LP Common Units") in the Operating
Partnership issued to the Advisor for $2,000 contributed by the Advisor to the
Operating Partnership, and (v) an undetermined number of Shares, if any, which
might be issued directly for equity interests in properties or upon exchange of
any limited partnership interests in the Operating Partnership (other than the
Advisor's 200 LP Common Units), if any, or upon exchange of any equity interests
in Property Partnerships, if any, which might be issued for equity interests in
properties. There are no existing agreements to issue Shares or any limited
partnership interests in the Operating Partnership or any equity interests in
Property Partnerships for the purposes specified in clause (v) of the preceding
sentence. See "Operating Partnership Agreement--Limited Partner Conversion
Rights" and "--Limited Partner Redemption Rights."
The Shares offered hereby will be sold by the Dealer Manager and the
Soliciting Dealers. The Offering will terminate on or before , 2000.
Subscription proceeds received from investors will be held in escrow at LaSalle
National Bank, N.A., the escrow agent, pending release to the Company. Since no
minimum offering amount has been specified, subscription proceeds are expected
to be released to the Company as subscriptions are accepted. All subscriptions
will be accepted or rejected within 10 days (and generally within 24 hours)
after receipt by the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE COMPANY IS NOT A MUTUAL FUND OR AN INVESTMENT COMPANY WITHIN THE MEANING
OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND, THEREFORE, INVESTORS
WILL NOT HAVE THE BENEFIT OF THE PROTECTIONS PROVIDED BY THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED.
THE USE OF FORECASTS IN CONNECTION WITH THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND, ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCES
WHICH MAY FLOW FROM AN INVESTMENT IN THE COMPANY ARE PROHIBITED.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR REFERENCED IN THIS
DOCUMENT. THE COMPANY HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT.
(end of cover page)
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 1
The Company.............................................................................................. 1
Inland Affiliated Companies.............................................................................. 1
The Types of Real Estate That the Company Intends to Acquire and Manage.................................. 1
The Company's Primary Business Objective and Strategies.................................................. 3
Acquisitions........................................................................................... 3
Operations............................................................................................. 3
Shares Outstanding Before the Offering................................................................... 4
Shares To Be Outstanding Upon Completion of the Offering................................................. 4
Terms of the Offering.................................................................................... 4
Risk Factors and Conflicts of Interest................................................................... 5
Investment Risks....................................................................................... 5
Company Risks.......................................................................................... 7
Risks of Real Estate Ownership......................................................................... 9
Tax Risks.............................................................................................. 9
ERISA Risks............................................................................................ 10
Investment Objectives And Policies....................................................................... 10
Structure and Formation of the Company................................................................... 12
Organizational Chart..................................................................................... 14
Formation Transactions................................................................................... 15
Benefits of the Formation Transactions to Affiliates of the Company...................................... 16
The Advisor.............................................................................................. 17
Compensation to be Paid to the Advisor and its Affiliates................................................ 17
Offering Stage......................................................................................... 17
Acquisition Stage...................................................................................... 18
Operational Stage...................................................................................... 18
Liquidation Stage...................................................................................... 19
Real Property Investments................................................................................ 19
Prior Offerings Summary.................................................................................. 20
Articles of Incorporation................................................................................ 20
Limitation on Accumulation of Shares................................................................... 20
Voting rights.......................................................................................... 21
Roll-Ups and Supermajority voting required in certain instances........................................ 21
Changes in investment objectives and policies.......................................................... 22
Distributions.......................................................................................... 22
Distribution Reinvestment and Share Repurchase Programs.................................................. 22
The Distribution Reinvestment Program.................................................................. 22
The Share Repurchase Program........................................................................... 22
Who May Invest........................................................................................... 23
Annual Valuations........................................................................................ 23
Glossary Of Terms........................................................................................ 23
RISK FACTORS............................................................................................... 24
Investment Risks......................................................................................... 24
Share Price/Limited Liquidity.......................................................................... 24
No Minimum Offering.................................................................................... 24
Partially Specified Fund............................................................................... 24
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Investment Return May Be Affected By Availability of Properties to be Acquired Within One Year of the
Closing of the Offering............................................................................... 25
Limitation on Area in which the Company May Acquire Retail Centers..................................... 25
Limited Experience of Management in Acquiring and Managing Properties Within the Primary Geographical
Area of Investment.................................................................................... 25
Limited Reserves....................................................................................... 26
Mortgage Indebtedness and Other Borrowings May Increase the Company's Business Risks................... 26
Competition with Others for the Acquisition of Properties.............................................. 26
Competition with other Real Estate Investment Programs Sponsored by TIGI Affiliated Companies.......... 27
Limits on Share Accumulation and Provisions in the Organizational Documents of the Company and the
Operating Partnership and the Maryland General Corporation Law May Have an Anti-Takeover Effect and
Inhibit a Change in Control of the Company............................................................ 27
Ownership Limits and Restrictions on Transferability and Ownership in the Articles................... 27
Certain Provisions in the Articles, Bylaws, Operating Partnership Agreement, and Maryland General
Corporation Law..................................................................................... 27
The Articles........................................................................................... 27
The Operating Partnership Agreement.................................................................... 27
MGCL--Business Combinations............................................................................ 29
MGCL--Control Shares................................................................................... 29
Bylaws--Control Share Provisions....................................................................... 29
Objectives of Joint Venture Partners May Conflict with the Company's Objectives........................ 29
Seller Financing by Company May Delay Liquidation or Reinvestment...................................... 30
Loss on Dissolution and Termination.................................................................... 30
Distributions to Stockholders Affected by Many Factors................................................. 30
Changes in Policies.................................................................................... 31
Possible Adverse Effects on Share Price Arising from Shares Eligible for Future Sale................... 31
Fluctuations in Market Interest Rates or Equity Markets................................................ 31
Company Risks............................................................................................ 32
Prices Paid for Properties Acquired from Affiliates may Exceed Prices that would have been Paid by
Non-Affiliates........................................................................................ 32
Conflicts of Interest Between the Company and its Affiliates and Payments to Affiliates................ 32
Dependence on the Directors and Advisor................................................................ 33
Dilution............................................................................................... 33
All Stockholders Bound by Vote of Majority............................................................. 34
Company's and Stockholders' Rights Against the Directors and the Advisor are Limited................... 34
Risks of Investments in Securities Related to Real Estate.............................................. 34
Risks of Real Estate Ownership........................................................................... 34
General................................................................................................ 34
Operating Expenses..................................................................................... 35
Dependence on Geographical Region and Retail Industry.................................................. 35
Inability of Tenants to Meet Their Obligations or Their Election Not to Extend a Lease Upon its
Expiration............................................................................................ 35
Reliance on Certain Tenants............................................................................ 35
Potential Additional Costs in Connection with Acquiring Single-User Retail Properties.................. 36
Effect of Bankruptcy of Tenants........................................................................ 36
Competition for Tenants and Customers.................................................................. 37
Restrictions on Re-leasing Space....................................................................... 37
Costs Associated with Complying with the Americans with Disabilities Act............................... 37
Environmental Laws and Certain Other Governmental Laws and Regulations................................. 37
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Sale of Properties..................................................................................... 38
Uninsured Losses; Unavailability of Insurance.......................................................... 38
Real Estate Related Taxes.............................................................................. 38
Risk of Recharacterization of Sale and Leaseback Transactions.......................................... 39
Potential Additional Costs in Connection with Acquiring Newly Constructed Properties................... 39
Risks Associated with Investments in Unimproved Real Property.......................................... 39
Construction and Development Risks..................................................................... 39
The Company May Acquire Properties with Lock-Out Provisions............................................ 39
Tax Risks................................................................................................ 40
General................................................................................................ 40
Risks Regarding REIT Qualification and Consequences of the Failure to so Qualify....................... 40
Risk of Failing to Qualify as a REIT under the Code.................................................. 40
Adverse Effects of REIT Minimum Distribution Requirements............................................ 41
Limitations on Share Ownership....................................................................... 41
Limitations on Opinion of Counsel.................................................................... 41
Risks Regarding Partnership Qualification and Consequences of Failure to Qualify as a Partnership.... 42
Miscellaneous Tax Risk................................................................................. 42
Other Tax Liabilities................................................................................ 42
Tax Liability on Reinvested Distributions............................................................ 43
ERISA Risks.............................................................................................. 43
Suitability of the Company's Investments for Qualified Pension and Profit-Sharing Trusts............... 43
Annual Statement of Value is an Estimate............................................................... 43
CONFLICTS OF INTEREST...................................................................................... 43
Competition for the Time and Service of the Advisor and Its Affiliates................................... 44
Process for Resolving Conflicting Investment Opportunities............................................... 44
Acquisition from Affiliates.............................................................................. 45
The Company may Purchase Properties from Persons with whom Affiliates of the Advisor have Prior Business
Relationships.......................................................................................... 45
Property Management Services are being Rendered by an Entity owned Principally by Individuals Who are
Affiliates of Inland................................................................................... 45
Receipt of Commissions, Fees and Other Compensation by the Advisor and its Affiliates.................... 46
Non-Arm's-Length Agreements.............................................................................. 46
The Company and the Advisor have the Same Legal Counsel.................................................. 46
Inland Securities Corporation is Participating as Dealer Manager in the Sale of the Shares............... 47
The Advisor may have Conflicting Fiduciary Obligations in the Event the Company Acquires Properties with
Affiliates............................................................................................. 47
The Business of the Advisor and the Management Agent May be Acquired by the Company Without Further
Action by the Company's Stockholders................................................................... 47
COMPENSATION TABLE......................................................................................... 48
Nonsubordinated Payments................................................................................. 48
For and in Connection With the Offering................................................................ 48
Acquisition Stage...................................................................................... 50
Operational Stage...................................................................................... 50
Liquidation Stage...................................................................................... 52
Subordinated Payments.................................................................................... 52
Operational Stage...................................................................................... 52
Liquidation Stage...................................................................................... 53
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES.............................................................. 56
Prior Investment Programs................................................................................ 56
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary Information...................................................................................... 56
Publicly Registered Real Estate Investment Trust......................................................... 57
Publicly Registered Limited Partnerships................................................................. 58
Private Partnerships..................................................................................... 60
Private Placement Real Estate Equity Program............................................................. 61
Private Placement Mortgage and Note Programs............................................................. 62
Loan Modifications and Work-Outs......................................................................... 64
Effects of Property Exchanges on Investors............................................................... 67
Additional Information................................................................................... 67
MANAGEMENT................................................................................................. 68
Inland Affiliated Companies.............................................................................. 68
General Management of the Company........................................................................ 71
Directors and Executive Officers of the Company.......................................................... 73
Committees of the Board of Directors..................................................................... 75
Compensation of Directors and Officers................................................................... 75
The Advisor.............................................................................................. 75
The Advisory Agreement................................................................................... 76
The Management Agent..................................................................................... 79
Inland Securities Corporation............................................................................ 80
Other Services........................................................................................... 82
Independent Director Stock Option Plan................................................................... 82
PRINCIPAL STOCKHOLDERS..................................................................................... 84
CERTAIN RESPONSIBILITIES OF DIRECTORS AND THE ADVISOR; INDEMNIFICATION..................................... 85
General.................................................................................................. 85
Limitation of Liability and Indemnification.............................................................. 85
STRUCTURE AND FORMATION OF THE COMPANY..................................................................... 86
Structure of the Company................................................................................. 86
Ownership Chart.......................................................................................... 88
Formation Transactions................................................................................... 89
Benefits of the UPREIT Structure......................................................................... 90
Comparison of Shares and Common Units.................................................................... 90
Advantages and Disadvantages of the Formation Transactions to Unaffiliated Stockholders.................. 91
Benefits of the Formation Transactions and the Offering to TIGI and its Affiliates....................... 91
SELECTED FINANCIAL DATA.................................................................................... 92
ESTIMATED USE OF PROCEEDS OF OFFERING...................................................................... 93
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 95
General.................................................................................................. 95
Distributions............................................................................................ 95
Types of Investments..................................................................................... 96
Acquisition Standards.................................................................................... 97
Description of Leases.................................................................................... 97
Property Acquisition..................................................................................... 98
Borrowing................................................................................................ 98
Sale or Disposition of Properties........................................................................ 99
Change in Investment Objectives and Policies............................................................. 99
Certain Investment Limitations........................................................................... 100
Appraisals............................................................................................... 100
Return of Uninvested Proceeds............................................................................ 100
Additional Offerings and Exchange Listing................................................................ 100
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Joint Ventures........................................................................................... 101
Construction and Development Activities.................................................................. 101
Other Policies........................................................................................... 101
REAL PROPERTY INVESTMENTS.................................................................................. 102
General.................................................................................................. 102
Insurance Coverage on Properties......................................................................... 103
Initial Properties....................................................................................... 103
Tenants.................................................................................................. 106
Tenant Lease Expirations................................................................................. 107
Additional Information Regarding the Initial Properties.................................................. 107
Countryside Shopping Center, Naples, Florida........................................................... 107
Lake Olympia Square, Ocoee, Florida.................................................................... 110
Lake Walden Square, Plant City, Florida................................................................ 113
The Landings, Sarasota, Florida........................................................................ 116
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION OF THE COMPANY............................. 119
Liquidity................................................................................................ 119
Results of Operations.................................................................................... 120
Initial Properties....................................................................................... 120
Capital Resources........................................................................................ 121
Impact of Accounting Principles.......................................................................... 121
Inflation................................................................................................ 121
Year 2000 Issues......................................................................................... 122
DESCRIPTION OF SECURITIES.................................................................................. 122
Authorized Stock......................................................................................... 122
Common Stock............................................................................................. 123
Preferred Stock.......................................................................................... 123
Soliciting Dealer Warrants............................................................................... 124
Issuance of Additional Securities and Debt Instruments................................................... 124
Restrictions on Issuance of Certain Securities........................................................... 125
Restrictions on Ownership and Transfer................................................................... 125
Certain Provisions of Maryland Law and of the Articles of Incorporation and Bylaws....................... 127
Business Combinations.................................................................................. 127
Control Share Acquisition.............................................................................. 128
Meetings of Stockholders............................................................................... 128
Certain Responsibilities and Indemnification........................................................... 128
SHARES ELIGIBLE FOR FUTURE SALE............................................................................ 128
Shares to be Outstanding or Issuable upon Exercise or Conversion of Other Outstanding Securities......... 128
Securities Act Restrictions.............................................................................. 129
Independent Director Stock Option Plan................................................................... 129
Soliciting Dealer Warrants............................................................................... 130
Effect of Availability of Shares on Market Price of Shares............................................... 130
Conversion and Redemption Rights......................................................................... 130
Registration Rights...................................................................................... 131
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS.................................................................... 131
Certain Articles of Incorporation and By-law Provisions.................................................. 131
Stockholders' Meetings................................................................................... 131
Board of Directors....................................................................................... 131
Stockholder Voting Rights................................................................................ 132
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Stockholder Lists; Inspection of Books and Records....................................................... 132
Amendment of the Organizational Documents................................................................ 133
Dissolution or Termination of the Company................................................................ 133
Advance Notice of Director Nominations and New Business.................................................. 133
Restrictions on Certain Conversion Transactions and Roll-Ups............................................. 133
Limitation on Total Operating Expenses................................................................... 135
Transactions with Affiliates............................................................................. 136
Restrictions on Borrowing................................................................................ 136
Restrictions on Investments.............................................................................. 137
OPERATING PARTNERSHIP AGREEMENT............................................................................ 138
Management of the Operating Partnership.................................................................. 138
Indemnification.......................................................................................... 139
Transferability of Interests............................................................................. 139
Extraordinary Transactions............................................................................... 139
Issuance of Additional Units............................................................................. 141
Capital Contributions.................................................................................... 141
Distributions............................................................................................ 141
Operations............................................................................................... 141
Limited Partner Conversion Rights........................................................................ 142
Limited Partner Redemption Rights........................................................................ 142
Registration Rights...................................................................................... 143
Tax Matters.............................................................................................. 143
Duties and Conflicts..................................................................................... 143
Term..................................................................................................... 144
Lock Out Policy.......................................................................................... 144
FEDERAL INCOME TAX CONSIDERATIONS.......................................................................... 144
General.................................................................................................. 144
Opinion of Tax Counsel................................................................................... 145
Taxation of the Company.................................................................................. 146
Overview............................................................................................... 146
REIT Qualification Tests............................................................................... 147
Ownership of a Partnership Interest.................................................................... 147
Ownership of a Qualified REIT Subsidiary............................................................... 147
Share Ownership Tests.................................................................................. 148
Asset Tests............................................................................................ 149
75% Asset Test....................................................................................... 149
25% Asset Test....................................................................................... 150
Gross Income Tests..................................................................................... 150
75% Gross Income Test................................................................................ 150
95% Gross Income Test................................................................................ 151
Annual Distribution Requirements....................................................................... 152
Failure to Qualify..................................................................................... 153
Prohibited Transactions................................................................................ 153
Tax Aspects of the Company's Investments in Partnerships............................................... 153
Partnership Classification............................................................................. 153
Income Taxation of the Partnerships and Their Partners................................................... 154
Partners, not Partnership, Subject to Tax.............................................................. 154
Partnership Allocations................................................................................ 155
Tax Allocations with respect to the Properties......................................................... 155
Depreciation Deductions Available to the Operating Partnership......................................... 155
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Basis in Partnership Interest.......................................................................... 156
Taxation Of Stockholders................................................................................. 156
Taxation of Taxable Domestic Stockholders.............................................................. 156
Backup Withholding..................................................................................... 157
Taxation of Tax-Exempt Stockholders.................................................................... 157
Taxation of Foreign Stockholders....................................................................... 158
Other Tax Considerations................................................................................. 159
Company's Purchase of Properties with Shares........................................................... 159
Distribution Reinvestment Program...................................................................... 160
State and Local Taxes.................................................................................. 160
President's 1999 Budget Proposals...................................................................... 160
ERISA CONSIDERATIONS....................................................................................... 161
WHO MAY INVEST............................................................................................. 162
PLAN OF DISTRIBUTION....................................................................................... 163
General.................................................................................................. 163
Escrow Conditions........................................................................................ 164
Advisor's Company Contribution and Advisor's Partnership Contribution.................................... 164
Subscription Process..................................................................................... 164
Determination of Investor Suitability.................................................................... 165
Compensation............................................................................................. 165
Volume Discounts......................................................................................... 166
Other Discounts.......................................................................................... 167
Transfer of Shares....................................................................................... 167
Indemnification.......................................................................................... 168
HOW TO SUBSCRIBE........................................................................................... 168
SALES LITERATURE........................................................................................... 169
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS.................................................... 169
Distribution Reinvestment Program........................................................................ 169
Share Repurchase Program................................................................................. 170
REPORTS TO STOCKHOLDERS.................................................................................... 171
LEGAL MATTERS.............................................................................................. 172
EXPERTS.................................................................................................... 173
ADDITIONAL INFORMATION..................................................................................... 173
GLOSSARY................................................................................................... 174
APPENDICES:
PRIOR PERFORMANCE TABLES................................................................................... A-1
DISTRIBUTION REINVESTMENT PROGRAM.......................................................................... B-1
SUBSCRIPTION AGREEMENT..................................................................................... C-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS..................................................... F-i
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. BECAUSE THIS
IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS AND ITS APPENDICES CAREFULLY BEFORE
YOU DECIDE TO INVEST IN THE SHARES. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS INCLUDE INLAND RETAIL REAL ESTATE
TRUST, INC. AND THOSE ENTITIES OWNED OR CONTROLLED, DIRECTLY OR INDIRECTLY, BY
THE COMPANY, INCLUDING INLAND RETAIL REAL ESTATE LIMITED PARTNERSHIP (THE
"OPERATING PARTNERSHIP"), AND ANY ENTITIES OWNED OR CONTROLLED BY THE OPERATING
PARTNERSHIP. CAPITALIZED TERMS USED IN THIS PROSPECTUS AND NOT DEFINED IN THE
TEXT ARE DEFINED IN THE "GLOSSARY" BEGINNING ON PAGE 174.
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The Company............................. The Company is a Maryland corporation formed in September 1998, which
intends to operate as a real estate investment trust (commonly known
as a "REIT") for federal and state income tax purposes. See generally
"Federal Income Tax Considerations."
The Company's principal executive offices are located at 2901 But-
terfield Road, Oak Brook, Illinois 60523 and its telephone number is
(630) 218-8000.
Inland Affiliated Companies............. The Inland Group, Inc. ("Inland" or "TIGI"), a Delaware corporation,
together with its subsidiaries and its and their Affiliates
(collectively, the "Inland Affiliated Companies," or "TIGI Affiliated
Companies" or the "Inland Organization"), is a fully-integrated real
estate company providing property management, leasing, marketing,
acquisition, disposition, development, redevelopment, syndication,
renovation, construction, finance and other related services. Inland
Real Estate Investment Corporation ("IREIC"), a Delaware corporation,
a subsidiary of Inland, and one of the Inland Affiliated Companies, is
the Sponsor of the Company. Inland's and IREIC's principal executive
offices are located at 2901 Butterfield Road, Oak Brook, Illinois
60523 and their telephone number is (630) 218-8000. See
"--Organizational Chart" in this Prospectus Summary and
"Management--Inland Affiliated Companies."
The Types of Real Estate That the
Company Intends to Acquire and
Manage................................ The Company intends to acquire and manage a diversified portfolio of
real estate primarily (i) improved for use as retail establishments,
principally multi-tenant Shopping Centers that are (a) leased
primarily to one or more retail tenants providing for the sale of
convenience goods and personal services for the day-to-day living
needs of the immediate neighborhood, with gross leaseable area ("GLA")
ranging from 10,000 to 100,000 square feet (a "Neighborhood Center"),
or (b) leased primarily to retail tenants providing for the sale of
soft lines and hard lines, in addition to the convenience goods and
personal services provided by a Neighborhood Center, with GLA ranging
from 100,000 to 300,000 or more square feet (a "Community Center"),
but also including single-user retail facilities; or (ii) improved
with other commercial facilities which provide goods or services (all
of the foregoing, collectively "Retail Centers" or individually a
"Retail Center"). See the "Glossary" for more expansive definitions of
"Shopping Center," "Neighborhood Center," "Community Center," and
"Retail Center."
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The Retail Centers will be located mainly in the states east of the
Mississippi River in the United States (the Company's "Primary
Geographical Area of Investment"). The Company may also acquire, among
other real estate, single-user commercial properties located anywhere
throughout the United States if they are leased on a basis pursuant to
which a creditworthy tenant is responsible for the base rent and all
costs and expenses in connection with and related to property taxes,
insurance, repairs and maintenance applicable to the leased space (a
"Triple-Net Lease Basis"), including such properties acquired in sale
and leaseback transactions ("Triple-Net Single-User Retail Properties
Outside the Primary Geographical Area of Investment"). The Retail Cen-
ters in the Primary Geographical Area of Investment and the Triple-Net
Single-User Retail Properties Outside the Primary Geographical Area of
Investment are collectively referred to as the "Company's Primary
Property Investments."
The Company does not intend to invest in any primarily (i) single-
family or multi-family residential properties; (ii) industrial proper-
ties; (iii) hotels or motels; (iv) leisure home sites; (v) farms; (vi)
ranches; (vii) timberlands; (viii) unimproved properties not intended
to be developed; (ix) mining properties; (x) office properties; or
(xi) Super Regional Centers (as defined in the Glossary); provided
however, the Company may invest in an office property or a residential
property if it has a significant retail or commercial use component as
its primary purpose. Subject to compliance with the "REIT
Requirements" (which are technical and highly complex requirements for
qualifying as a REIT under the Internal Revenue Code of 1986, as
amended, and the Regulations thereunder (the "Code")), the Company may
undertake certain construction and development activities and render
services in connection therewith. The aggregate purchase price of real
property investments that are not the Company's Primary Property
Investments will not exceed 10% of the aggregate purchase price of all
of the Company's Primary Property Investments anticipated to be
acquired by the Company.
Each real property and improvements thereon acquired, or considered or
proposed to be acquired, by the Company, directly or indirectly, as
described in the above three paragraphs, is referred to as a
"Property" and all of such properties are collectively referred to as
the "Properties."
See "Real Property Investments" for information regarding the
Properties that the Company has rights to acquire and intends to
acquire with the net proceeds from the offering, provided that the net
proceeds are sufficient to make such acquisitions.
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The Company's Primary Business Objective
and Strategies........................ The Company's primary business objective is to enhance the per-
formance and value of its Properties through management strategies
designed to address the needs of an evolving retail marketplace. Key
elements of the Company's strategy are:
ACQUISITIONS:
- Selectively acquiring well-located Properties of the type described
as the Company's Primary Property Investments.
- Acquiring Properties on an all-cash basis to provide the Company
with a competitive advantage over potential purchasers who must
secure financing. The Company may, however, acquire Properties
subject to existing indebtedness if it believes this is in its best
interest.
- Diversifying geographically within the Primary Geographical Area of
Investment by acquiring Properties primarily located in major
consolidated metropolitan statistical areas ("CMSAs") in order to
minimize the potential adverse impact of economic downturns in
certain markets.
- Use the Company's UPREIT structure to acquire Properties for cash,
shares of the Company's common stock, $.01 par value per share (the
"Shares"), limited partnership interests ("LP Common Units") of the
Operating Partnership, preferred limited partnership interests of
the Operating Partnership ("LP Preferred Units") (LP Common Units
and LP Preferred Units are collectively referred to as "LP Units"),
equity interests ("Interests") in a Property Partnership (as defined
below), or a combination thereof, thereby deferring some or all of a
seller's potential taxable gain, and enhancing the ability of the
Company to consummate transactions and to structure more competitive
acquisitions than other real estate companies in the market that may
lack the Company's ability to acquire Properties for cash, Shares,
LP Units, Interests, or a combination thereof. A "Property
Partnership" (collectively the "Property Partnerships") may be an
entity such as a limited liability company, a general or limited
partnership, or a trust, that owns one or more of the Properties,
and which will be owned or controlled, directly or indirectly, by
the Operating Partnership.
OPERATIONS:
- Actively manage costs and minimize operating expenses by cen-
tralizing all management, leasing, marketing, financing, accounting,
renovation and data processing activities.
- Improve rental income and cash flow by aggressively marketing
rentable space.
- Emphasize regular maintenance and periodic renovation to meet the
needs of tenants and to maximize long-term returns.
- Maintain a diversified tenant base at its Retail Centers, consist-
ing primarily of retail tenants providing consumer goods and
services.
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- In general, limit mortgage indebtedness to an aggregate amount not
to exceed 55% of the combined fair market value of all of its
Properties, and 300% of the Company's Net Assets (as defined in the
Glossary). The proceeds from such mortgages will be used primarily
to allow the Company to acquire additional Properties.
Shares Outstanding Before the
Offering.............................. There are 20,000 Shares outstanding as of the date of this Prospectus
which were issued to Inland Retail Real Estate Advisory Services, Inc.
(the "Advisor") in connection with the organization of the Company for
a purchase price of $10.00 per Share, an aggregate purchase price of
$200,000.00 (the "Advisor's Company Contribution").
Shares To Be Outstanding Upon Com-
pletion of the Offering............... After giving effect to this offering and assuming the sale of all
Shares offered on a "best efforts" basis, the Company will have
50,020,000 Shares outstanding, not taking into account issuance of
Shares, if any (i) under the Company's Distribution Reinvestment
Program (the "DRP"), (ii) upon exercise of warrants (the "Soliciting
Dealer Warrants") to be issued and sold to Inland Securities
Corporation (the "Dealer Manager"), one of the Inland Affiliated
Companies, (iii) upon exercise of options granted and which may be
granted under the Company's Independent Director Stock Option Plan,
(iv) upon the exchange of the LP Common Units issued to the Advisor,
(v) which might be issued directly for equity interests in Properties,
or (vi) upon exchange of any LP Units (other than the Advisor's 200 LP
Common Units) in the Operating Partnerships or of any Interests in a
Property Partnership which might be issued for equity interests in
Properties. Each holder of one or more Shares is hereinafter referred
to as a "Stockholder."
Terms of the Offering................... The Company is offering 55,250,000 Shares, of which (i) 50,000,000
Shares are being offered on a "best efforts" basis at $10.00 per share
(the "Offering"); (ii) up to 4,000,000 Shares will be issued for $9.50
per Share to purchasers of Shares who elect to participate in the
Company's DRP; and (iii) up to 1,250,000 Shares, underlying 1,250,000
Soliciting Dealer Warrants (also offered hereby), which may be issued
upon the exercise of the Soliciting Dealer Warrants that may be issued
and sold to the Dealer Manager for an exercise price of $12.00 per
Share.
An offering on a "best efforts" basis is one in which the securities
dealers participating in the offering are under no obligation to
purchase any of the securities being offered and, therefore, no
specified number of securities are guaranteed to be sold and no
specified amount of money is guaranteed to be raised from the
offering.
Subscribers for Shares must initially purchase a minimum of 300 Shares
($3,000), except that, a minimum of 100 Shares ($1,000) may be
purchased by "Tax-Exempt Entities" (entities exempt from federal
income taxation, including plans qualified under Section 401 of the
Code, endowment funds, or a charitable, religious, scientific or
educational organization). The Company has also
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established certain minimum financial suitability (income and/or net
worth) standards for individual investors. These minimum initial
purchase requirements, minimum financial suitability standards for
individuals and minimum purchase standards for Tax-Exempt Entities are
higher in certain states. See "Who May Invest."
The Offering is being made through the Dealer Manager and other
securities dealers (the "Soliciting Dealers") who are members of the
National Association of Securities Dealers, Inc. (the "NASD") and are
designated by the Dealer Manager to participate in the Offering. The
Offering will terminate no later than , 2000 (the
"Termination Date").
Subscribers for Shares are required to complete and sign a Sub-
scription Agreement in the form included as Appendix C to this
Prospectus. Subscribers' funds will be forwarded to LaSalle National
Bank, N.A., Chicago, Illinois (the "Escrow Agent"), as escrow agent.
Since no minimum offering amount has been specified, subscription
proceeds are expected to be released to the Company as subscriptions
are accepted. All subscriptions will be accepted or rejected within 10
days (and generally within 24 hours) after receipt by the Company. See
"Plan of Distribution-- General" and "--Escrow Conditions."
Risk Factors and Conflicts of
Interest.............................. Investment in the Shares involves various risks which are described in
more detail in the "Risk Factors" and "Conflicts of Interest" sections
of the Prospectus, which begin on pages 24 and 43, respectively. The
following is a summary of the risks which the Company believes are
most relevant to an investment in the Shares. These risks are not
listed in any order of priority.
INVESTMENT RISKS:
- There is currently no public trading market for the Shares, and,
therefore, the Shares constitute an illiquid investment. In addi-
tion, the offering price of the Shares may not be indicative of the
price at which the Shares may trade if they were listed on an
exchange or traded in over-the-counter markets, nor of the proceeds
that a Stockholder may receive if the Company were liquidated or
dissolved.
- There is no assurance that the Shares will ever be listed on a
national stock exchange or included for quotation on a national
market system. However, the Company anticipates that within five
years from the date of this Prospectus, the Company's Board of
Directors (the "Board") will determine whether it is in the best
interests of the Company to apply to have the Shares so listed or
included, provided that the Company meets the then applicable
listing requirements.
- As of the date of this Prospectus, the Company had approximately
$200,000 available for acquisitions of Properties and, except for
the four Properties which it has rights to acquire and initially
intends to acquire (the "Initial Properties"), the Company has not
specified any additional Properties for acquisition.
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- The Company intends to purchase certain Properties (including all of
the Initial Properties) directly from Affiliates of the Advisor.
Even though the Company will be paying such Affiliates' acquisition
costs of those Properties, such acquisitions may be on terms less
favorable to the Company than if the Company conducted arm's-length
transactions directly with an unaffiliated seller. Accordingly, such
acquisitions may result in concessions as to price or otherwise
which may be less advantageous to the Company than a direct
arm's-length transaction.
- The Company competes for the acquisition of Properties with many
other entities engaged in real estate investment activities, some of
which have greater resources than the Company, which may result in
the Company being unable to acquire Properties which it desires and
have an adverse impact on the Company's business.
- The Company will also compete for the acquisition of Properties with
existing and future real estate investment programs sponsored by the
Inland Affiliated Companies.
- Acquisitions of Retail Centers will be made mainly in those areas
located in the Primary Geographical Area of Investment. Adverse
economic conditions affecting that area could affect the Company's
ability to acquire, lease and dispose of such Properties, as well as
the ability of tenants to make lease payments, and, hence, could
affect the Company's results of operations and financial condition,
including the Company's ability to make Distributions (the cash
distributed to Stockholders arising from their interest in the
Company).
- Real estate financing risks, including the potential inability to
refinance mortgage indebtedness upon its maturity, or defaults on
secured indebtedness may result in foreclosure on the Company's
assets, which could result in the Company losing its investment in
the Properties securing such indebtedness.
- To ensure compliance with one of the REIT Requirements (generally,
that no more than 50% of the outstanding stock of a REIT may be
owned by any five or fewer individuals), the Articles of
Incorporation of the Company, as amended (the "Articles") provide
that, commencing as of July 1, 1999, no person may own, or be deemed
to own by virtue of the attribution provisions of the Code, more
than 9.8% of the Shares. This limitation and certain other
provisions in the Articles and the Bylaws of the Company, as amended
(the "Bylaws"), and the Operating Partnership Agreement of the
Operating Partnership, as well as certain provisions in the Maryland
General Corporation Law (the "MGCL"), may discourage, impede or
prevent a merger, tender offer or proxy contest, even if such an
event would be favorable to the interests of Stockholders. In
addition, such limitations and provisions may compel a Stockholder
or its transferee, as of the date any of these limitations is
violated, to involuntarily dispose of Shares in excess of such
limitations and, as a result, to forfeit as of such date any voting
and dividend rights and the right to realize any further
appreciation in the
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value of the Shares causing the violation; or discourage someone
from acquiring Shares.
- Although the Company intends to establish a working capital reserve
with 1% of the Gross Offering Proceeds from this Offering, that
amount may be insufficient to meet the cash needs of the Company and
the Company may have to obtain financing from either affiliated or
unaffiliated sources. Additional financing would increase the
Company's indebtedness and the risks associated therewith.
- The Company may borrow funds to maintain operations of one or more
of its Properties or to enable it to maintain its REIT status, thus
increasing the Company's indebtedness and the risks associated
therewith.
- The Company's future ability to sell Shares for $10 per Share may be
limited by future fluctuations in market interest rates or equity
markets, or the financial condition of the Company or its
Properties. If such conditions lead prospective Stockholders to
demand higher yields, the Company may have to sell Shares at less
than $10 per Share. Accordingly, the Company's ability to raise
equity to finance Property acquisitions, development and
improvements may be limited, thus negatively affecting the Company's
financial condition, including the Company's ability to make
Distributions.
- If the Company is unable to invest a significant portion of the Net
Proceeds of the Offering (the proceeds received by the Company with
respect to the Shares less Organization and Offering Expenses, as
defined in the Glossary) in Properties as those proceeds are
received, the Company may temporarily invest any such proceeds in
certain government securities that could yield lower returns than
other investments, in order to avoid becoming subject to the
substantive requirements of the Investment Company Act of 1940, as
amended (the "Investment Company Act"). Such lower returns may
affect the Company's ability to make Distributions.
- The Company may authorize the issuance of Shares or other securities
(E.G., Preferred Stock) in addition to Shares issued pursuant to
this Offering, thereby diluting the interest of existing
Stockholders, including investors in this Offering, none of whom
have preemptive rights. Shares, together with Preferred Stock, are
hereinafter collectively referred to as "Equity Stock."
- There is no assurance that the Net Proceeds of the Offering will be
sufficient to acquire the Initial Properties or any other
Properties.
COMPANY RISKS:
- There are conflicts of interest between the Company and its
Affiliates. These include: (i) competition for the time and ser-
vices of personnel of the Advisor and its Affiliates; (ii) receipt
by the Advisor and its Affiliates of substantial compensation
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from the Company for their various services which may not be on
market terms; and (iii) the possibility that the Company may do
business with entities that have pre-existing relationships with the
Advisor or its Affiliates which may result in a conflict between the
ongoing business relationship of the Advisor or its Affiliates and
the Company's business. Such conflicts of interest may also arise in
connection with the potential sale or refinancing of Properties or
the enforcement of certain agreements.
- Inland Southeast Property Management Corp. (the "Management Agent"),
which will manage the Company's Properties pursuant to a management
agreement with the Company (the "Management Agreement"), is owned
principally by individuals who are Affiliates of Inland. The Company
has the option to cause the business conducted by the Advisor and/or
the Management Agent to be acquired by or consolidated into the
Company at any time after three years from the date of this
Prospectus. The Advisor and the Management Agent (and/or their
respective shareholders) will receive, in connection with such an
acquisition and in exchange for terminating their contractual
relationships with the Company and the release or waiver of all
their fees payable under the provisions of those contractual
arrangements until their stated termination, but not paid, Shares in
an amount determined in accordance with a prescribed formula. See
paragraph 11 under "Conflicts of Interest" and "Management--The
Advisory Agreement."
- The Company's ability to achieve its goals will depend, to a large
extent, on the quality of management provided by the Advisor and its
Affiliates. During the 10-year period ending June 30, 1998,
Affiliates of the Advisor have sponsored one REIT, six public and
one private real estate equity programs, and nine private placement
note and mortgage programs. Certain of these programs have
experienced setbacks, such as commercial tenant defaults or
move-outs, and defaults by mortgagees under mortgages. These
negative events, which vary by program, have had the effect of
reducing the benefits which investors in those programs have
received. See "Prior Performance of the Company's Affiliates" and
Appendix A--"Prior Performance Tables."
- The Advisor and its Affiliates are paid substantial fees and
payments for services rendered to the Company, in most cases,
whether or not Stockholders receive Distributions.
- Certain matters requiring the approval of a majority of the
outstanding shares of voting Equity Stock may be approved by a vote
of only a majority of such shares present at a meeting at which a
quorum is present. Therefore, all Stockholders, including those not
voting with such majority, may be bound by the decision of the
holders of a minority of the outstanding shares of voting Equity
Stock.
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RISKS OF REAL ESTATE OWNERSHIP:
- All equity real estate investments are subject to some degree of
general economic risks, including lease defaults, which could
adversely affect the Company's results of operations and financial
condition, including the Company's ability to make Distributions.
- Adverse trends for the types of Properties included in the Company's
Primary Property Investments or adverse economic developments in
general or within the Primary Geographical Area of Investment in
particular could have an adverse effect on the Company's results of
operations and financial condition, including the Company's ability
to make Distributions.
- Violation of environmental and other governmental regulations, and
the potential for unknown or future environmental or other
liabilities, or uninsurable losses, could result in substantial
expenditures by, or damages to, the Company and adversely affect the
Company's results of operations and financial condition, including
the Company's ability to make Distributions.
- Unanticipated renovation or remodeling costs incurred to re-lease
the Company's Properties could adversely affect the Company's
results of operations and financial condition, including the
Company's ability to make Distributions.
TAX RISKS:
- The Company's ability to qualify as a REIT involves the application
of the REIT Requirements to various factual matters and
circumstances which are often not within the Company's control. The
Company's qualification as a REIT depends upon its ability to meet
the REIT Requirements through actual operations and various tests
imposed by the Code. There can be no assurance that the Company will
be able to satisfy these requirements. In addition, the actions and
transactions the Company will undertake to maintain its REIT status
may not produce the highest economic profit.
- If the Company fails to qualify as a REIT, its Distributions would
not be deductible to the Company. This would increase its tax
liability and substantially reduce the funds available to make
Distributions to Stockholders. The Company could be forced to
borrow, liquidate certain investments or take other steps to pay
these tax liabilities, which could adversely affect the Company's
results of operations and financial conditions, including its
ability to pay Distributions.
- Although Wildman, Harrold, Allen & Dixon ("Counsel") has rendered
its opinion (as described in this Prospectus) as to certain federal
income tax matters, such opinion is based on
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various assumptions and representations made by the Company and by
the Advisor to Counsel. See "Risk Factors--Tax Risks--Risks
Regarding REIT Qualifications and Consequences of the Failure to so
Qualify--Limitations on Opinion of Counsel," "Federal Income Tax
Considerations" and "ERISA Considerations." Counsel will not review
compliance with the REIT Requirements on a continuing basis after
the initial effective date of the registration statement (of which
this Prospectus is a part) filed with the United States Securities
and Exchange Commission (the "Commission" or "SEC") for this
Offering (the "Registration Statement") or issue any opinions in the
future unless expressly requested to do so. An opinion of Counsel
represents its legal judgment based on the law in effect as of the
date of this Prospectus, is not binding on the Internal Revenue
Service (the "Service") and could be subject to modification or
withdrawal based on future legislative, judicial or administrative
changes to the federal income tax laws (or the interpretation
thereof), any of which could be applied retroactively.
ERISA RISKS:
- In deciding whether to purchase Shares, fiduciaries of an employee
benefit plan subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") should: consult with their advisors to
determine whether the investment is permissible under the plan's
governing instrument, and carefully consider their fiduciary
responsibilities under ERISA, the prohibited transaction rules of
ERISA and the Code, the unrelated business taxable income ("UBTI")
consequences and the effect of the "plan asset" regulations issued
by the United States Department of Labor ("DOL"). See "ERISA
Considerations."
The failure to manage the impact of the foregoing risks effectively
may impair the Company's ability to meet its investment objectives and
may reduce or entirely eliminate the benefits to the Stockholders from
their investment in the Company. See "Risk Factors," "Conflicts of
Interest," "Prior Performance of the Company's Affiliates," and
Appendix A--"Prior Performance Tables."
Investment Objectives And Policies......
The Company's investment objectives are to:
- PROVIDE REGULAR DISTRIBUTIONS TO STOCKHOLDERS. In order for the
Company to maintain its REIT status, the Company must generally make
annual Distributions equal to not less than 95% of its REIT Taxable
Income (as defined in the Glossary). See generally "Federal Income
Tax Considerations."
- HEDGE AGAINST INFLATION. The Company intends to hedge against
inflation by entering into leases with tenants which provide for
scheduled rent escalations or participation in the growth of
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tenant sales designed to provide increased Distributions and capital
appreciation.
- PRESERVE STOCKHOLDERS' CAPITAL. The Company intends to seek capital
preservation by acquiring well-located Properties of the type
described as the Company's Primary Property Investments entirely for
cash, or for Shares, LP Units, Interests, or a combination thereof.
The Company will, in certain instances, utilize borrowing to acquire
Properties.
There can be no assurance the Company will achieve these objectives.
To the extent possible, the Company will seek to avoid fluctuations in
Distributions which might result if Distributions were based on actual
cash received during the Distribution period. To do this, the Company
may use income earned during prior periods, or income earned
subsequent to the Distribution declaration date but prior to the
payment date, in order to distribute annualized Distributions
consistent with the Distribution level established from time to time
by the Board. The Company's ability to utilize this policy is
dependent upon the availability of Cash Flow (as defined in the
Glossary) and the applicable REIT Requirements. In addition, the
accumulation of income for distribution in a later period may increase
the federal taxes the Company must pay, even if it does not affect the
status of the Company as a REIT. The Company will seek, subject to the
applicable REIT Requirements (including requirements regarding
Distributions), to reinvest in additional Properties proceeds from the
sale, financing, refinancing or other disposition of its Properties.
The Company initially intends to pay Distributions to its Stockholders
on a monthly basis, with daily record and Distribution declaration
dates. However, the Company reserves the right, at any time, to
commence paying Distributions on a quarterly basis.
The Company intends to acquire Properties free and clear of permanent
mortgage indebtedness by paying the entire purchase price of each
Property in cash or for Shares, LP Units, Interests, or a combination
thereof. The Company may, however, utilize financing to acquire
Properties where the Board deems it to be in the Company's best
interest. In addition, the Company anticipates pledging selected or
all Properties purchased on an all-cash basis (or for Shares, LP
Units, Interests, or a combination thereof) to secure indebtedness
incurred post-acquisition. The proceeds from these loans will be used
primarily to acquire additional Properties. The Company may also incur
indebtedness to finance improvements to its Properties. The Company
anticipates that, in general, aggregate borrowings secured by all of
the Company's Properties will not exceed 55% of their combined fair
market value, and the aggregate amount of Company borrowings in
relation to the Company's Net Assets (as defined in the Glossary)
shall, in the absence of a satisfactory showing
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that a higher level of borrowing is appropriate, not exceed 300% of
Net Assets. Any excess in borrowing over such 300% of Net Assets level
shall be (i) approved by a majority of the Independent Directors, (ii)
disclosed to Stockholders in the Company's next quarterly report to
Stockholders, along with justification for such excess, and (iii)
subject to approval of the Stockholders. The Company does not
anticipate incurring indebtedness to fund Distributions payable to
Stockholders, unless necessary to maintain its status as a REIT. See
"Investment Objectives and Policies--Borrowing" and "Summary of the
Organizational Documents--Restrictions on Borrowing."
The TIGI Affiliated Companies have extensive experience in acquiring
and managing properties similar to those which the Company anticipates
acquiring. However, there is no assurance that the Company will
achieve its investment objectives. Although the Company has rights to
acquire four Retail Centers, and intends to use a portion of the Gross
Offering Proceeds for that purpose (provided that the Net Proceeds of
the Offering are sufficient to make such acquisitions), it has not
specified any other Properties to be acquired. Due to competition for
suitable Properties, the Company may not be able to acquire other
Properties meeting its investment criteria. See "Risk Factors--
Investment Risks--Partially Specified Fund," "--Competition with
Others for the Acquisition of Properties," and "--Competition with
Other Real Estate Investment Programs Sponsored by TIGI Affiliated
Companies"; "Prior Performance of the Company's Affiliates"; and "Real
Property Investments."
Proceeds of the Offering will be used to acquire Properties and to pay
expenses related to the organization of the Company and of the
Offering and expenses related to the Company's selection, evaluation
and acquisition of, and investment in, Properties (the "Acquisition
Expenses"), with the balance (but not less than 1% of Gross Offering
Proceeds) being applied to working capital reserves. See "Estimated
Use of Proceeds of Offering."
Structure and Formation of the
Company...............................
The Company will be the general partner of the Operating Partnership.
The Company will contribute the $200,000 of proceeds from the
Advisor's Company Contribution and the proceeds of the Offering to the
Operating Partnership in exchange for general partnership interests in
the Operating Partnership ("GP Common Units"). The Company currently
intends to conduct substantially all of its business and to hold most
of its interests in the Properties through the Operating Partnership
or the Property Partnerships. However, the Company may in the future
also conduct some of its business and hold some of its interests in
Properties through wholly owned subsidiaries of the Company (each a
"Qualified REIT Subsidiary" or a "QRS"). As the general partner of the
Operating Partnership (the "General Partner"), the Company will have
the exclusive power to manage and conduct the business of the
Operating Partnership, subject
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to certain exceptions set forth in the Agreement of Limited
Partnership of the Operating Partnership (the "Operating Partnership
Agreement"). LP Common Units in the Operating Partnership valued at
$2,000 were issued to the Advisor in exchange for its capital
contribution of $2,000 to the Operating Partnership (the "Advisor's
Partnership Contribution"). Additional LP Units in the Operating
Partnership may be issued in the future to owners of Properties in
exchange for such Properties. See "Operating Partnership Agreement."
The following Organizational Chart depicts the services to be rendered
to the Company by TIGI Affiliated Companies, and the organizational
structure of the Company and the Operating Partnership upon completion
of the Offering and the Formation Transactions (which are explained in
the next section of this Summary). Because the Company does not intend
to initially have any QRSs, none are shown on the following
Organizational Chart.
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Formation Transactions..................Except as indicated, the following transactions will be completed
prior to or concurrently with the effectiveness of the Registration
Statement (collectively, the "Formation Transactions"):
- The Company was formed as a corporation in Maryland. The Operating
Partnership was formed as a limited partnership in Illinois. The
Company is the general partner of the Operating Partnership.
- The Advisor, an Affiliate of TIGI, purchased from the Company 20,000
Shares in connection with the organization of the Company for $10
per Share, an aggregate purchase price of $200,000 (the "Advisor's
Company Contribution"). The Advisor also contributed $2,000 to the
Operating Partnership for 200 LP Common Units of the Operating
Partnership valued at $2,000 (the "Advisor's Partnership
Contribution"). The Advisor will be the initial Stockholder of the
Company and the initial Limited Partner of the Operating
Partnership.
- Pursuant to the Offering, the Company will offer for sale to the
public on a "best efforts" basis 50,000,000 Shares. In addition,
4,000,000 Shares will be offered by the Company to Stockholders who
elect to participate in the Company's DRP, and up to 1,250,000
Shares will be issued upon exercise of the Soliciting Dealer
Warrants.
- The Company will contribute the proceeds from the Advisor's Company
Contribution and the proceeds from the sale of the 55,250,000 Shares
included in this Offering, as and when received, to the Operating
Partnership.
- The Company will acquire 20,000 GP Common Units of the Operating
Partnership in exchange for the $200,000 of proceeds from the
Advisor's Company Contribution and one GP Common Unit of the
Operating Partnership in exchange for the proceeds of each of the
55,250,000 Shares sold pursuant to this Offering. The Company will
own all of the GP Common Units of the Operating Partnership.
- The Operating Partnership will acquire all of the Initial
Properties, provided that the Net Proceeds of the Offering are
sufficient to make such acquisitions.
- The Operating Partnership will acquire from certain Affiliates of
TIGI (collectively, the "Initial Property Sellers") their interests
in the Initial Properties for a purchase price of approximately
$42.7 million (representing the acquisition costs of the Initial
Properties to the Initial Property Sellers prior to adjustment for
prorations of approximately $400,000), provided that the Net
Proceeds of the Offering are sufficient to make such acquisitions.
- When the Initial Properties are acquired by the Company, they will
be subject to existing mortgage debt of approximately $31.2 million
(the "Initial Mortgage Debt"). In addition, the
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Initial Property Sellers borrowed approximately $11.1 million from
an Affiliate of TIGI in connection with their acquisition of the
Initial Properties (the "Affiliates' Acquisition Debt"). Initially,
the Company will use a portion of the Net Proceeds of the Offering
to (i) retire in full the Affiliates' Acquisition Debt, (ii) reduce
the Initial Mortgage Debt by $300,000 on the first of the Initial
Properties to be acquired, (iii) pay Acquisition Expenses and
establish working capital reserves relating to the acquisition of
the Initial Properties, and (iv) pay approximately $14 million to
IREIC, an Affiliate of TIGI, which IREIC advanced in connection with
the organization of the Company and for the expenses of the
Offering. To the extent that there are additional Net Proceeds of
the Offering available, after establishing working capital reserves,
such proceeds will be used to acquire additional Properties or to
further reduce the Initial Mortgage Debt on the Initial Properties.
See "Estimated Use of Proceeds of Offering."
Benefits of the Formation Transactions
to Affiliates of the Company..........
The consummation of the Formation Transactions will result in benefits
to certain officers, members of the Board ("Directors") and Affiliates
of the Company, which include the following:
- Robert D. Parks, who is a director of TIGI and an officer and
director of various Affiliates of TIGI, and Barry L. Lazarus, who
previously was associated with the TIGI Affiliated Companies, have
agreed to serve on the Board of Directors of the Company. In
addition, Mr. Parks will be Chairman, and Mr. Lazarus will be
President, Chief Executive Officer and Chief Operating Officer of
the Company.
- The Initial Property Sellers, who are Affiliates of TIGI, will be
relieved of principal debt obligations and of interest carrying
costs thereon incurred in connection with their acquisition of the
Initial Properties.
- The Advisor and the Management Agent will enter into agreements with
the Company (which are described below) pursuant to which they will
receive substantial fees from the Company for their respective
advisory and property management services. The Advisor is one of the
TIGI Affiliated Companies. The Management Agent is owned principally
by individuals who are Affiliates of Inland. See paragraph 11 of
"Conflicts of Interest" for an explanation of what the Advisor and
the Management Agent and/or their respective shareholders may
receive if the business conducted by the Advisor and/or the
Management Agent is acquired by or consolidated into the Company.
- Inland Securities Corporation, the Dealer Manager, one of the TIGI
Affiliated Companies, will receive cash selling commissions, a
marketing contribution, a due diligence expense
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allowance, and Soliciting Dealer Warrants, which it may retain or
reallow to certain Soliciting Dealers.
For further information on the compensation payable to the Advisor,
the Management Agent and the Dealer Manager, and on other compensation
to be paid to other Affiliates, see "Compensation Table."
The Advisor.............................
The Advisor is a wholly-owned subsidiary of IREIC. The Advisor is an
Illinois corporation with its principal place of business located at
2901 Butterfield Road, Oak Brook, Illinois 60523, and its telephone
number is (630) 218-8000. As of June 30, 1998, IREIC had an audited
net worth of approximately $95.8 million, much of which is illiquid.
See "--Organizational Chart" in this Summary and "Management."
Compensation to be Paid to the Advisor
and its Affiliates....................
The Advisor and its Affiliates will be paid substantial amounts for
managing the Company's business. The most significant items of
compensation are:
OFFERING STAGE: Cash selling commissions will be payable (except for
the "Special Sales" described below) to the Dealer Manager of 7% of
the Gross Offering Proceeds, which may be retained or reallowed to
Soliciting Dealers. In addition, in lieu of reimbursement of specific
expenses associated with marketing, a contribution of 2% of the Gross
Offering Proceeds (the "Marketing Contribution") and, for BONA FIDE
due diligence expenses, an allowance of up to 0.5% of the Gross
Offering Proceeds (the "Due Diligence Expense Allowance"), will be
payable (except for the "Special Sales" described below) to the Dealer
Manager, which may be retained or reallowed to Soliciting Dealers.
Generally, no portion of the Marketing Contribution will be reallowed
to Soliciting Dealers unless they reach prescribed minimum annual
sales volumes.
No selling commissions, Marketing Contribution or Due Diligence
Expense Allowance will be paid with respect to: (i) sales of Shares to
employees and associates of the Company and its Affiliates, the
Advisor, Affiliates of the Advisor, the Dealer Manager or the
Soliciting Dealers, (ii) sales of Shares pursuant to the Company's
DRP, or (iii) the issuance of the Soliciting Dealer Warrants or the
Shares underlying the Soliciting Dealer Warrants issuable upon the
exercise thereof; and, reduced selling commissions will be paid with
respect to sales of Shares which are entitled to volume discounts, all
of which transactions are hereinafter collectively referred to as the
"Special Sales." See "Plan of Distribution--Compensation," "--Volume
Discounts" and "--Other Discounts."
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In certain cases, the Company will issue and sell to the Dealer
Manager one Soliciting Dealer Warrant for each 40 Shares sold during
the Offering, some or all of which may be retained or reallowed to the
Soliciting Dealers who sold such Shares. Each Soliciting Dealer
Warrant will be sold for $.0008 and will entitle the holder to
purchase one Share from the Company at a price of $12.00 per Share
during the Exercise Period. The "Exercise Period," for any Soliciting
Dealer Warrant, is the time period beginning one year from the date
such Soliciting Dealer Warrant is issued by the Company to the Dealer
Manager and ending on the date which shall be five years from the
issue date of the first Soliciting Dealer Warrant issued by the
Company to the Dealer Manager. The exercise price of any unexercised
Soliciting Dealer Warrants will be adjusted in the event the offering
price of Shares pursuant to this Prospectus for this Offering is
increased, which is not presently anticipated. See "Compensation
Table," "Description of Securities--Soliciting Dealer Warrants," and
"Plan of Distribution--Compensation."
ACQUISITION STAGE: The Advisor and its Affiliates will be reimbursed
for actual out-of-pocket Acquisition Expenses (as defined in the
Glossary), which are anticipated to be equal to 0.5% of the aggregate
of the (i) Gross Offering Proceeds, (ii) gross proceeds from the sale
of up to 4,000,000 Shares pursuant to the DRP, and (iii) gross
proceeds from the issuance and exercise of the Soliciting Dealer
Warrants. See "Compensation Table."
OPERATIONAL STAGE: An annual "Advisor Asset Management Fee" of not
more than 1% of the Company's Average Invested Assets (as defined in
the Glossary) will be payable quarterly to the Advisor. Payment of
this fee is subordinated to the payment of Distributions to
Stockholders in an amount equal to a non-compounded return equal to 7%
per annum on Invested Capital (the "Current Return"). "Invested
Capital" is the net amount that a Stockholder has invested, being the
amount paid for the Shares less the Distributions received on those
Shares from the sale or financing of the Company's Properties.
The Management Agent, which is owned principally by individuals who
are Affiliates of Inland, will receive a fee for management of the
Company's Properties (the "Property Management Fee") equal to not more
than 90% of the fee which would be payable to an unrelated party
providing such services, which fee shall initially be 4.5% of the
gross revenues of each of the Company's Properties, payable monthly.
The Management Agent may in certain instances subcontract its duties
for a fee that may be less than the fee provided for in the Management
Agreement.
Inland Mortgage Servicing Corporation, one of the TIGI Affiliated
Companies, will receive a fee for servicing the Company's mortgage
loans. Such fee will be equal to no more than .08% of
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the principal amount of the loans serviced, up to the first $100
million in aggregate loan balances, and a lesser percentage on a
sliding scale basis thereafter, which will be prorated on an annual
basis and, be payable monthly.
See "Compensation Table."
LIQUIDATION STAGE: A fee will be payable when a Property is sold (the
"Property Disposition Fee"), equal to the lesser of: (i) 3% of the
sale price of a Property; or (ii) 50% of the commission customarily
paid to third parties. In addition, after receipt by the Stockholders
of a cumulative, non-compounded 7% per annum return on Invested
Capital (the "Cumulative Return") and a return of their Invested
Capital, an "Incentive Advisory Fee" will be payable equal to 15% of
the net proceeds from the sale of a Property. See "Compensation
Table."
The Advisor and its Affiliates may receive a number of other
incidental fees for services or expense reimbursement during the
operational and liquidation stages of the Company. For an explanation
of such other fees and expense reimbursements, see generally,
"Compensation Table" and "Management--Other Services."
Real Property Investments............... The Initial Properties contain an aggregate of approximately 510,000
square feet of GLA, are located in the State of Florida, and will be
acquired for an aggregate purchase price of approximately $42.7
million. Of the Initial Properties, three are Neighborhood Centers and
one is a Community Center. When the Initial Properties are acquired by
the Company, they will be encumbered by Initial Mortgage Debt of
approximately $31.2 million, which will be reduced by $300,000 upon
acquisition of the Initial Properties. In addition, Affiliates'
Acquisition Debt of approximately $11.1 million was incurred in
connection with the acquisition of the Initial Properties. The Company
has approximately $200,000 available for investment in Properties
(from the Advisor's Company Contribution) as of the date of this
Prospectus, but will have an additional approximately $468,430,000 of
Net Proceeds from the Offering available if this Offering is fully
sold, to acquire the Initial Properties and other Properties or to
further reduce the Initial Mortgage Debt on the Initial Properties.
The terms of the Company's acquisitions of the Initial Properties and
other Properties will be approved by a majority of the Board
(including a majority of the Independent Directors) as being fair and
reasonable to the Company. The purchase prices of the Initial
Properties will not exceed the appraised values of the Initial
Properties at the time of acquisition. All of the Initial Properties
will be acquired from Affiliates of the Advisor. Even though the
Company will be paying such Affiliates' acquisition costs of these
Initial Properties, there can be no assurance that the prices paid to
the Affiliates for these Properties did not
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exceed that which would be paid by an unaffiliated buyer. See "Risk
Factors--Company Risks--Prices Paid for Properties Acquired from
Affiliates may be More than Prices Paid by Non-Affiliates" and "Real
Property Investments."
The Company may invest in general partnerships or joint venture
arrangements with Affiliates, or with non-affiliated third parties, as
co-owners of a Property. With respect to investments made with
Affiliates, the Company will be able to increase its equity
participation in such entity as additional proceeds of the Offering
are received by the Company, with the result that the Company can
ultimately own 100% of the Property; provided, however, that the
affiliated general or joint venture partner will not be entitled to
any profit or other benefit on such sale of its equity participation
to the Company. See "Investment Objectives and Policies--Joint
Ventures."
Prior Offerings Summary................. The Inland Organization, during the 10-year period ending June 30,
1998, has sponsored six public and one private real estate equity
programs which have raised $147,350,520 from 13,965 investors. In
addition, IREIC sponsored one other REIT, which through June 30, 1998,
has raised $423,290,000 from 17,000 investors. Also, the TIGI
Affiliated Companies have sponsored nine private placement mortgage
and note programs during the mentioned 10 year period which have
raised $22,641,000 from 545 investors.
The investment objectives of the Company are similar to those of
several of these investment programs which have owned retail
properties, except, however, those other programs primarily invested
in different geographical areas than the Company's Primary
Geographical Area of Investment. The vast majority of these investment
programs were dissimilar from the Company in that the partnerships
owned apartment properties, pre-development land and whole or partial
interests in mortgage loans. Certain programs sponsored or managed by
Affiliates of IREIC have experienced setbacks during the course of
business, including commercial tenant defaults or move-outs. These
negative events, which vary by program, have had the effect of
reducing the benefits which investors in those programs have received
from those originally contemplated. See "Prior Performance of the
Company's Affiliates" and Appendix A--"Prior Performance Tables."
Articles of Incorporation............... Investors should be particularly aware of the following provisions
contained in the Articles:
- LIMITATION ON ACCUMULATION OF SHARES: In order for the Company to
qualify as a REIT, no more than 50% of the outstanding Shares may be
owned, directly or indirectly, by five or fewer individuals at any
time during the last half of the Company's taxable year. To ensure
that the Company will not fail to qualify as a REIT under this test,
the Articles contain
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restrictions on the number of Shares that may be owned by a single
Stockholder, with certain exceptions. These restrictions may: (i)
discourage a change of control of the Company; (ii) deter
individuals and entities from making tender offers for Shares, which
offers may be attractive to Stockholders; (iii) limit the
opportunity for Stockholders to receive a premium for their Shares
in the event an investor is making purchases of Shares in order to
acquire a block of Shares; or (iv) compel a Stockholder to
involuntarily dispose of Shares in excess of such limitation. See
"Description of Securities-- Restrictions on Ownership and
Transfer."
- VOTING RIGHTS: Each Share is entitled to one vote and, the Articles
do not provide for cumulative voting, nor for the division of
Directors into classes. The Articles authorize 10,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock"),
which may be issued from time to time, in one or more series, with
such preferences, rights, terms and conditions as determined by the
Board. There is no present intention to issue any Preferred Stock.
Stockholders owning a majority of the outstanding Shares and voting
Preferred Stock, have the right to: (i) amend the Articles subject
to certain limitations; (ii) dissolve or liquidate the Company;
(iii) elect or remove the Board; and (iv) approve or disapprove
certain mergers, consolidations or share exchanges of the Company or
the sale of all or substantially all of the assets of the Company
other than in the ordinary course of the Company's business or in
connection with a dissolution or liquidation of the Company, except,
in each case, as permitted by the MGCL. All Stockholders are bound
by the vote of Stockholders owning a majority of the outstanding
Shares and voting Preferred Stock, even if a Stockholder does not
vote with the majority. Stockholders owning in the aggregate at
least 10% of the outstanding Shares may request the Directors to
call a meeting for the purpose of voting on any of the foregoing
matters.
- ROLL-UPS AND SUPERMAJORITY VOTING REQUIRED IN CERTAIN INSTANCES: So
long as the Company qualifies as a REIT, the Articles prohibit it
from participating in transactions commonly known as "Roll-Ups,"
which affect certain Stockholder rights. In addition, with certain
exceptions, the MGCL requires supermajority approval of Business
Combinations (as defined in the MGCL) with an Interested Stockholder
(a 10% beneficial owner) within five years after becoming an
Interested Stockholder; and eliminates the voting rights, and
permits the redemption, of "control shares" (additional shares
increasing the holder's voting power over specified levels) except
as approved by two-thirds of the votes cast on the matter (excluding
the control shares) at a meeting of stockholders. Affiliates of TIGI
are excluded from these restrictions by the Articles and Bylaws.
These provisions may have the effect of:
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(i) discouraging a change in control of the Company; (ii) deterring
individuals and entities from making tender offers for Shares, which
offers may be attractive to Stockholders; and (iii) limiting the
opportunity for Stockholders to receive a premium for their Shares
in the event an investor is making purchases of Shares in order to
acquire a block of Shares.
- CHANGES IN INVESTMENT OBJECTIVES AND POLICIES: So long as the
Company is a REIT, certain of the Company's investment objectives or
policies set forth in the Articles may only be changed by amending
the Articles, which requires the affirmative vote of Stockholders
holding a majority of the outstanding Shares and voting Preferred
Stock. Otherwise, a majority of the Directors (including a majority
of the Independent Directors) may set the investment policies.
- DISTRIBUTIONS: Distributions are payable out of funds legally
available to pay Distributions.
See "Description of Securities" and "Summary of the Organizational
Documents". See also "Operating Partnership Agreement--Extraordinary
Transactions" for a description of certain restrictions in the
Operating Partnership Agreement on the ability of the Company to
engage in certain types of transactions.
Distribution Reinvestment and Share
Repurchase Programs................... The Company provides the following programs to facilitate investment
in the Shares and to provide limited liquidity for Stockholders:
- THE DISTRIBUTION REINVESTMENT PROGRAM (the "DRP") allows
Stockholders who purchase Shares in this Offering to automatically
reinvest Distributions by purchasing additional Shares from the
Company, subject to the limitations on Share ownership contained in
the Articles. These purchases may be made at $9.50 per share, a
reduction from the initial Offering price of $10.00 per share,
reflecting lower costs associated with the issuances of these
Shares. See "Distribution Reinvestment and Share Repurchase
Programs--Distribution Reinvestment Program."
- THE SHARE REPURCHASE PROGRAM (the "SRP") allows, subject to certain
restrictions, Stockholders to sell Shares back to the Company at a
price equal to $9.05 per Share (a reduction of $0.95 from the $10.00
initial Offering price per share, reflecting selling commissions and
the Marketing Contribution and Due Diligence Expense Allowance). The
Company repurchases Shares under the SRP on a first come, first
served basis, subject to the following limits: (i) not more than
$500,000 worth of the outstanding Shares may be repurchased in any
given year; and (ii) the funds utilized to repurchase
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Shares are limited to available proceeds received by the Company
from the sale of Shares under the DRP. Shares purchased by the
Company under the SRP are not available for resale. The Company may
terminate the SRP if a secondary market for the Company's Shares
develops or if the Shares are listed on a national securities
exchange or included for quotation on a national market system. See
"Distribution Reinvestment and Share Repurchase Programs--Share
Repurchase Program."
Who May Invest.......................... The section of the Prospectus titled "Who May Invest" describes
minimum net worth, income and other financial suitability requirements
which investors must satisfy prior to subscribing for Shares. In
particular, investors must have either: (i) a minimum annual gross
income of $45,000 and a minimum net worth (exclusive of home, home
furnishings and automobiles) of $45,000; or (ii) a minimum net worth
(determined with the foregoing exclusions) of $150,000. Suitability
standards may be higher for investors residing in certain states. See
"Who May Invest."
Annual Valuations....................... Stockholders that are subject to ERISA will be provided with an annual
statement of value reporting the value of each Share based upon an
estimated amount they would receive if the Company's assets were sold
as of the close of the Company's fiscal year and if such proceeds
(without reduction for selling expenses) and all the other funds of
the Company were distributed in liquidation of the Company; provided,
however, the Net Asset Value (as defined in the Glossary) of each
Share will be deemed to be $10.00 per Share for the first three annual
statements of value following the termination of the Offering. There
can be no assurance that: (i) Stockholders will actually receive such
value upon liquidation (in part because estimates of value do not
necessarily indicate the price at which assets could be sold, and
because no attempt will be made to estimate the expenses of selling
any asset of the Company); (ii) Stockholders would receive such value
on sale of their Shares; or (iii) this valuation would comply with the
ERISA requirements. The Company will cease providing these annual
statements of value if the Shares become listed on a national stock
exchange or included for quotation on a national market system. See
"ERISA Considerations."
Glossary Of Terms....................... For definitions of capitalized terms used in this Prospectus that are
not defined in the text, see "Glossary."
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RISK FACTORS
In addition to the other information presented in this Prospectus,
prospective purchasers should carefully consider the following risk factors
before purchasing Shares in the Offering. These factors, which are not listed in
any order of priority, could adversely affect the ability of the Company to make
expected Distributions to Stockholders.
This prospectus contains "forward-looking statements" within the meaning of
the Federal Private Securities Litigation Reform Act of 1995, which represent
the Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, the acquisition, financing or leasing of
Properties, and the Company's operations, performance, financial condition,
plans, strategies, growth and prospects. Any statements contained in this
Prospectus that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
such statements can be identified by the use of forward-looking terminology such
as "may," "will," "could," "should," "expect," "anticipate," "estimate," or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The cautionary statements set forth under the captions "Risk
Factors" and "Conflicts of Interest" and elsewhere in the Prospectus identify
important factors with respect to such forward-looking statements, including
certain known and unknown risks, uncertainties and other factors, that could
cause actual results, performance or achievements to be materially different
from those expressed or implied in such forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors, including those
described below under the captions "Risk Factors" and "Conflicts of Interest"
and elsewhere in this Prospectus.
1. INVESTMENT RISKS
SHARE PRICE/LIMITED LIQUIDITY. The offering price of the Shares was
determined by the Board in the exercise of its business judgment but may not be
indicative of the price at which Shares may trade if they were listed on an
exchange or actively traded by brokers nor of the proceeds that a Stockholder
may receive if the Company were liquidated or dissolved. Further, there is
currently no public trading market for the Shares and no assurance exists that
one will develop. An investor may not be able to liquidate his or her investment
on favorable terms, if at all. The Shares may not ever be listed for trading on
a national stock exchange or included for quotation on a national market system.
However, the Company anticipates that within five years from the date of this
Prospectus, the Board will determine whether it is in the best interests of the
Company to apply to have the Shares so listed or included, provided that the
Company meets the then applicable listing requirements. See "Investment
Objectives and Policies--Additional Offerings and Exchange Listing."
NO MINIMUM OFFERING. The Offering is not conditioned upon the Company
raising a minimum amount of proceeds and the release of subscription proceeds
from the escrow is not conditioned upon the Company's selling a minimum number
of Shares. As a result, the Company may not raise proceeds sufficient to apply
to any use other than payment of the Organization and Offering Expenses
associated with the Offering. Accordingly, there is no assurance that the Net
Proceeds of the Offering will be sufficient to acquire the Initial Properties or
any other Properties.
PARTIALLY SPECIFIED FUND. The Company intends to initially acquire four
Retail Centers comprising the Initial Properties, provided that the Net Proceeds
of the Offering are sufficient to make such acquisitions. All of the Initial
Properties will be acquired from Affiliates of TIGI. These Initial Properties
will be acquired with the approval of a majority of the Directors (including a
majority of the then Independent Directors). Although this Prospectus describes
the parameters the Company will use to acquire additional Properties, as of the
date of this Prospectus no Properties have been specified for acquisition by the
Company other than the Initial Properties. Accordingly, no information is
available as to the identification, location, operating histories, lease terms
or other relevant economic and financial data of any Properties to be purchased
by the Company other than the Initial Properties. There may be a delay between
the sale of
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the Shares and the Company's purchase of Properties other than the Initial
Properties (assuming that the Net Proceeds of the Offering are sufficient to
acquire the Initial Properties), which could result in a delay in the benefits
to investors, if any, of an investment in the Company.
The Advisor evaluates potential additional Property acquisitions and Inland
Real Estate Acquisitions, Inc. ("IREA"), one of the TIGI Affiliated Companies,
engages in discussions with sellers on behalf of the Company. During the
pendency of the Offering, as soon as the Advisor believes a reasonable
probability exists that a Property will be acquired on specified terms upon
completion of due diligence, which includes review of the title insurance
commitment, an appraisal and an environmental analysis, the Company will issue a
supplement to this Prospectus setting forth certain details concerning the
proposed acquisition. Investors should be aware, however, that proposed
acquisitions at this stage require negotiation of final binding agreements and
there can be no assurance that a Property will be acquired on the same terms as
described in the relevant supplement or other disclosure document prepared with
respect thereto. In addition, Properties which are identified for potential
acquisition by the Company prior to the termination of the Offering may not be
acquired unless sufficient Shares are sold. Investors should be aware that
audited financial statements of prior operations of existing Properties acquired
by the Company, or of the lessees or of the Property or guarantor of the
underlying leases, generally will not be available until after a supplement to
this Prospectus describing the acquisition has been provided to potential
investors, and financial statements for recently constructed Properties may not
be available at all.
INVESTMENT RETURN MAY BE AFFECTED BY AVAILABILITY OF PROPERTIES TO BE
ACQUIRED WITHIN ONE YEAR OF THE CLOSING OF THE OFFERING. In order to maintain
the Company's exemption from regulation under the Investment Company Act, the
Investment Company Act requires, among other things, that the Company be
primarily engaged in the business of purchasing or otherwise acquiring mortgages
and other liens on and interests in real estate, within one year of the closing
of the Offering. If the Company does not invest a significant portion of the Net
Proceeds of this Offering in Properties within one year of the closing date of
the Offering, the Company may decide to temporarily invest any unused proceeds
in certain government securities that could yield lower returns than other
investments in order to avoid registering as an investment company and becoming
subject to the substantive requirements of the Investment Company Act. Such
lower returns may affect the Company's ability to make Distributions.
LIMITATION ON AREA IN WHICH THE COMPANY MAY ACQUIRE RETAIL
CENTERS. Acquisition of Retail Centers (but not Single-User Retail Properties
Outside the Primary Geographical Area of Investment) is limited primarily to the
Company's Primary Geographical Area of Investment (the states east of the
Mississippi River in the United States). Adverse economic conditions affecting
that area could adversely affect the Company's ability to acquire, lease and
dispose of such Retail Centers.
LIMITED EXPERIENCE OF MANAGEMENT IN ACQUIRING AND MANAGING PROPERTIES WITHIN
THE PRIMARY GEOGRAPHICAL AREA OF INVESTMENT. TIGI Affiliated Companies have
sponsored one public REIT, six other public real estate equity programs, one
private real estate equity program and nine private placement mortgage and note
programs during the 10-year period ending June 30, 1998. During that period, the
REIT raised $423,290,000 from 17,000 investors, the public and private real
estate equity programs raised $147,350,520 from 13,965 investors, and the
private placement mortgage and note programs raised $22,641,000 from 545
investors. That REIT, and several of the prior investment programs sponsored by
TIGI Affiliated Companies which have owned and operated retail properties, had
investment objectives which were similar to those of the Company, except,
however, they invested in geographical areas different than what will be the
Company's Primary Geographical Area of Investment. Also, the vast majority of
the other investment programs sponsored by TIGI Affiliated Companies were
dissimilar from the Company in that the programs owned apartment properties,
pre-development land and whole or partial interests in mortgage loans.
Therefore, there can be no assurance that the Company will attain its investment
objectives since the Company's management, the Advisor and its Affiliates have
limited experience in acquiring, as well as managing and operating, Properties
within the Company's Primary Geographical Area of Investment.
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LIMITED RESERVES. The Company will establish a working capital reserve
equal to 1% of the Gross Offering Proceeds from this Offering. However, if these
reserves prove insufficient to meet the Company's cash needs, the Company may
have to obtain financing from either affiliated or unaffiliated sources to fund
its cash requirements. There is no assurance that ample financing will be
available or, if available, will be available on terms acceptable to the
Company.
MORTGAGE INDEBTEDNESS AND OTHER BORROWINGS MAY INCREASE THE COMPANY'S
BUSINESS RISKS. The Company intends to acquire Properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
Property in cash, or with Shares, LP Units, Interests, or a combination of the
foregoing. However, if it is determined to be in the best interests of the
Company, the Company may, in certain instances, utilize either existing or new
borrowings to acquire Properties. Furthermore, the Company intends to incur or
increase mortgage indebtedness by obtaining loans secured by selected or all of
the Properties. The proceeds from these loans will be used to acquire additional
Properties. The Company may incur indebtedness if necessary to satisfy the
requirement that the Company distribute at least 95% of its REIT taxable income
(as defined in the Code), or otherwise as is necessary or advisable to assure
that the Company maintains its qualification as a REIT for federal income tax
purposes. The Company anticipates that, in general, aggregate borrowings secured
by all of the Company's Properties will not exceed 55% of their combined fair
market value, and the aggregate amount of borrowing in relation to the Company's
Net Assets shall, in the absence of a satisfactory showing that a higher level
of borrowing is appropriate, not exceed 300% of Net Assets. Any excess in
borrowing over such 300% of Net Assets level shall be (i) approved by a majority
of the Independent Directors, (ii) disclosed to Stockholders in the Company's
next quarterly report to Stockholders, along with justification for such excess,
and (iii) subject to approval of the Stockholders.
Incurring mortgage indebtedness increases the risk of loss since defaults on
indebtedness secured by the Properties may result in foreclosure actions
initiated by the lenders and loss by the Company of the Property securing the
loan which is in default. For tax purposes, any such foreclosure would be
treated as a sale of the Property for a purchase price equal to the outstanding
balance of the debt secured by the mortgage. If the outstanding balance of the
debt secured by the mortgage exceeds the Company's basis in the Property, the
Company would recognize taxable income on foreclosure, but would not receive any
cash proceeds. The Company will seek to limit its indebtedness to "non-recourse"
indebtedness, meaning that the lender may look only to the Property or
Properties securing the mortgage indebtedness for satisfaction of the
indebtedness. See "Investment Objectives and Policies--Borrowing" and "Real
Property Investments."
There are risks of (i) potential unavailability of permanent financing,
either initially or after the acquisition of a Property, (ii) an inability to
refinance mortgage indebtedness upon its maturity, or (iii) an inability to
refinance mortgage indebtedness on advantageous terms. Furthermore, there is a
risk of a potential increase in interest cost resulting from increases in market
interest rates upon the refinancing of a mortgage indebtedness. To the extent
the Company's exposure to increases in interest rates is not eliminated through
interest rate protection or cap agreements, such increases will adversely affect
the Company's Net Income, Funds from Operations and cash available for
Distributions and, thus may affect the amount of Distributions the Company can
make to Stockholders, as well as inhibit the Company's ability to raise capital
and issue equity securities in public and private markets.
COMPETITION WITH OTHERS FOR THE ACQUISITION OF PROPERTIES. The Company
competes with many other entities engaged in real estate investment activities,
some of which have greater resources than the Company. Larger, national REITs
may enjoy significant competitive advantages that accrue from, among other
things, a lower cost of capital and enhanced operating efficiencies. In
addition, the number of entities and the amount of funds available for
investment in Properties of a type suitable for investment by the Company may
increase, resulting in increased competition for such investments and possible
increases in the prices paid therefor. All of these factors could have a
material adverse effect on the Company's results of operations, financial
condition and prospects.
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COMPETITION WITH OTHER REAL ESTATE INVESTMENT PROGRAMS SPONSORED BY TIGI
AFFILIATED COMPANIES. TIGI Affiliated Companies have previously sponsored
another REIT, private real estate equity programs and private placement mortgage
and note programs, and TIGI Affiliated Companies in the future may sponsor other
real estate investment programs. The Company will compete with such existing and
future real estate investment programs for the acquisition of Properties of a
type suitable for investment by the Company, for the time and services of
personnel of the Advisor and Affiliates of the Advisor in connection with the
operation of the Company and the management of its assets, and for obtaining and
retaining investors for its Shares. See "Conflicts of Interest" and "Prior
Performance of the Company's Affiliates."
LIMITS ON SHARE ACCUMULATION AND PROVISIONS IN THE ORGANIZATIONAL DOCUMENTS
OF THE COMPANY AND THE OPERATING PARTNERSHIP AND THE MARYLAND GENERAL
CORPORATION LAW MAY HAVE AN ANTI-TAKEOVER EFFECT AND INHIBIT A CHANGE IN CONTROL
OF THE COMPANY. Provisions which may have an anti-takeover effect and inhibit a
change in control of the Company include:
- OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFERABILITY AND OWNERSHIP IN THE
ARTICLES. In order for the Company to qualify as a REIT, no more than 50% of
the outstanding Shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of each taxable year (other than the first taxable year for
which the election to be treated as a REIT has been made). To ensure that the
Company will not fail to qualify as a REIT under this test, the Articles provide
that, commencing July 1, 1999, subject to certain exceptions, no person may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.8% (the "Ownership Limit") of the number or value of the issued and
outstanding Shares and/or Preferred Stock of the Company. The Board, upon
receipt of a ruling from the Service, an opinion of counsel or other evidence
satisfactory to the Board, and upon such other conditions as the Board may
establish, may exempt a proposed transferee from such Ownership Limit; provided
that such exemption would not result in the termination of the Company's status
as a REIT. The Articles place additional restrictions on Share ownership and
transfer. See "Description of Securities--Restrictions on Ownership and
Transfer."
These restrictions may: (i) have the effect of delaying, deferring or
preventing a tender offer, other transaction or a change in control of the
Company that might involve a premium price for the Shares or otherwise be in the
best interest of the Stockholders; (ii) limit the opportunity for Stockholders
to receive a premium for their Shares in the event an investor is making
purchases of Shares in order to acquire a block of Shares in excess of such
restrictions or to otherwise effect a change in control; or (iii) compel a
Stockholder or its transferee, as of the date the restriction is violated, to
involuntarily dispose of Shares in excess of such restrictions and, as a result,
to forfeit as of such date any voting and dividend rights and the right to
realize any further appreciation in the value of the Shares causing the
violation of the restriction; or (iv) discourage someone from acquiring Shares.
- CERTAIN PROVISIONS IN THE ARTICLES, BYLAWS, OPERATING PARTNERSHIP
AGREEMENT, AND MARYLAND GENERAL CORPORATION LAW. Certain provisions contained
in the Articles, the Bylaws, the Operating Partnership Agreement and the MGCL
may have the effect of discouraging a third party from making an acquisition
proposal for the Company or the removal of existing management and, as a result,
could prevent Stockholders from being paid a premium for their Shares over
then-prevailing market prices.
THE ARTICLES. The Articles permit the Board to issue up to 10 million
shares of Preferred Stock, issuable in one or more classes or series. The Board
may classify or reclassify any unissued Preferred Stock and establish the
preferences and rights (including the right to participate in earnings and to
convert into Shares) of any such Preferred Stock. Thus, the Board could
authorize the issuance of Preferred Stock with terms and conditions which could
have the effect of discouraging a takeover or other transaction in which holders
of some or a majority of the Shares might receive a premium for their Shares
over the then-prevailing market price of such Shares.
THE OPERATING PARTNERSHIP AGREEMENT. The Operating Partnership Agreement
provides that neither the Company nor the Operating Partnership may generally
engage in any merger, consolidation or other
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combination with or into another Person or sale of all or substantially all of
its assets, a liquidation, or any reclassification, recapitalization or change
of outstanding Shares (a "Business Combination"), in which the Company conducted
a vote of the Stockholders unless the Business Combination would have been
approved had holders of voting Units (the units of partnership interests
representing the equity in the Operating Partnership, being the LP Units and the
GP Common Units collectively) been entitled to vote together with the
Stockholders of the Company on such Business Combination. The foregoing
provision of the Operating Partnership Agreement would under no circumstances
enable or require the Company to engage in a Business Combination which required
the approval of the Stockholders if the Stockholders did not in fact give the
requisite approval. Rather, if the Stockholders did approve a Business
Combination, the Company would not consummate the transaction unless (i) the
Company, as General Partner of the Operating Partnership, first conducts a vote
of holders of voting Units (including the Company) on the matter; (ii) the
Company votes the Units held by it in the same proportion as the Stockholders
voted on the matter at the Stockholder vote; and (iii) the result of such vote
of the Unit holders (including the proportionate vote of the Company's Units) is
that had such vote been a vote of Stockholders, the Business Combination would
have been approved. In addition, the Company generally may not engage in a
Business Combination in which a vote of the Stockholders was conducted unless
(i) Limited Partners holding more than 50% of the total voting power held by
Limited Partners in the Operating Partnership approve the Business Combination
or (ii) each holder of an LP Unit will either receive or will have the right to
elect to receive for each such Unit an amount of cash, securities or other
property paid to the holder of one Share (exclusive of tax consequences), if
any, pursuant to the terms of the Business Combination, multiplied by a
conversion factor (initially one, but adjusted to reflect the effect of prior
Share dividends, Share splits, and reverse Share splits); provided that, if in
connection with the Business Combination, a purchase, tender or exchange offer
shall have been made to and accepted by the holders of a majority of the
outstanding Shares, each holder of an LP Unit shall receive, or shall have the
right to elect to receive, the greatest amount of cash, securities or other
property which such holder would have received had it exercised its conversion
rights and received Shares in exchange for its Units immediately prior to the
expiration of such purchase, tender or exchange offer.
In the event that the conditions described in the preceding paragraph are
not met, the Operating Partnership Agreement provides that the Company generally
may still engage in a Business Combination in which a vote of the Stockholders
was conducted if (i) immediately after the Business Combination, substantially
all of the assets directly or indirectly owned by the surviving entity, other
than Units held by the Company, are owned directly or indirectly by the
Operating Partnership or another limited partnership or limited liability
company which is the survivor of a Business Combination with the Operating
Partnership (the "Surviving Entity"); (ii) the Limited Partners own an interest
in the Surviving Entity based on the relative fair market value of the net
assets of the Operating Partnership and the other net assets of the Surviving
Entity prior to the consummation of the Business Combination; (iii) the rights,
preferences and privileges of the Limited Partners in the Surviving Entity are
at least as favorable as those in effect immediately prior to the consummation
of such Business Combination and as those generally applicable to limited
partners or non-managing members of the Surviving Entity holding a comparable
class of interest; and (iv) such rights of the Limited Partners include the
right to exchange their interests in the Surviving Entity for at least one of
the following: (a) the consideration available to such Limited Partner under the
preceding paragraph or (b) if the ultimate controlling person of the Surviving
Entity has publicly traded common equity securities, such common equity
securities, to be issued pursuant to an exchange ratio based on the relative
fair market value of such securities and the Shares immediately prior to the
consummation of such transaction.
As a result of these provisions of the Operating Partnership Agreement, a
third party may be inhibited from making an acquisition proposal that it would
otherwise make, or the Company, despite having the requisite authority under its
Articles, may not be authorized to engage in a proposed Business Combination.
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MGCL--BUSINESS COMBINATIONS. Under the MGCL certain Business Combinations
(including certain issuances of equity securities) between a corporation such as
the Company and any Person who owns 10% or more of the voting power of the
Shares or an affiliate or associate of the Company which, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the Company (an "Interested Stockholder"), or
between a corporation and an affiliate of an Interested Stockholder, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such Business
Combination must be approved by the Board and a super-majority Stockholder vote
unless, among other things, the holders of Shares receive a minimum price (as
defined in the MGCL) for their Shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
Shares. As permitted by the MGCL, the Articles provide that the Business
Combinations provisions of the MGCL do not apply to any Business Combination
involving the Company and TIGI or any of its Affiliates. Accordingly, the
five-year prohibition and the super-majority Stockholder vote requirement will
not apply to any Business Combinations between TIGI or any of its Affiliates and
the Company. As a result, TIGI or any of its Affiliates may be able to enter
into Business Combinations with the Company, which may or may not be in the best
interests of the Stockholders, without the super-majority Stockholder approval
and with only approval of a majority of outstanding Shares. Further, the
Business Combinations statute could have the effect of discouraging offers from
third parties to acquire the Company and increasing the difficulty of
consummating any such offer. See "Description of Securities--Certain Provisions
of Maryland Law and of the Articles of Incorporation and Bylaws--Business
Combinations."
MGCL--CONTROL SHARES. Maryland law provides that Control Shares (as defined
below) of a Maryland corporation acquired in a Control Share Acquisition (as
defined hereinafter) have no voting rights except to the extent approved by a
vote of two-thirds of the votes eligible under the statute to be cast on the
matter. "Control Shares" are voting shares of stock or beneficial interest
which, when added to all other such shares of stock or beneficial interest
previously acquired by the acquirer, would entitle the acquirer to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more but
less than a majority or (iii) a majority of all voting power. A "Control Share
Acquisition" means the acquisition of Control Shares, subject to certain
exceptions. If voting rights for the Control Shares are not approved at a
meeting of Stockholders then, subject to certain conditions and limitations, the
Company may redeem any or all of the Control Shares (except those for which
voting rights have previously been approved) for fair value. If voting rights
for Control Shares are approved at a Stockholders' meeting and the acquirer
becomes entitled to vote a majority of the Shares entitled to vote, all other
Stockholders may exercise appraisal rights.
BYLAWS--CONTROL SHARE PROVISIONS. The Bylaws contain a provision exempting
only TIGI or any of its Affiliates from the control share acquisition statute
and all acquisitions by such Persons of the Shares. The control share
acquisition statute could have the effect of discouraging offers to acquire the
Company and of increasing the difficulty of consummating any such offer by, in
each case, Persons other than TIGI or any of its Affiliates and may permit TIGI
or any of its Affiliates to make acquisitions of Control Shares which may or may
not be in the best interests of the Stockholders. See "Description of
Securities--Certain Provisions of Maryland Law and of the Articles of
Incorporation and Bylaws--Control Share Acquisition."
OBJECTIVES OF JOINT VENTURE PARTNERS MAY CONFLICT WITH THE COMPANY'S
OBJECTIVES. The Company may, from time to time, make Property investments in
joint ventures or other partnership arrangements between the Company and
Affiliates of the Advisor or with third parties unaffiliated with the Advisor or
its Affiliates. Investments in joint ventures which own Properties may involve
risks not otherwise present when the Company purchases the Property directly.
For example, the Company's co-venturer may file for bankruptcy protection, may
have economic or business interests or goals which are inconsistent with the
interests or goals of the Company or take actions contrary to the Company's
instructions, requests, policies or objectives. Among other things, actions by
such co-venturer might subject the Property owned by the
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joint venture to liabilities in excess of those contemplated by the terms of the
joint venture or other adverse consequences. See "Investment Objectives and
Policies--Joint Ventures."
SELLER FINANCING BY COMPANY MAY DELAY LIQUIDATION OR REINVESTMENT. If the
Company determines to sell any of its Properties, it intends to use its best
efforts to sell for cash. However, the Company may sell its Properties by
providing financing to purchasers. When the Company provides financing, it will
bear the risk of default by the borrower and will be subject to remedies
provided by law. A purchase money obligation secured by a mortgage may be taken
as part payment and there are no limitations or restrictions on the Company
taking such purchase money obligations. The terms of payment to the Company will
be affected by custom in the area where the Property being sold is located and
the then prevailing economic conditions. To the extent the Company receives
promissory notes or other property in lieu of cash from Property sales, the
distribution of the proceeds of such sales to the Stockholders, or their
reinvestment in other Properties, will be delayed until such time as the
promissory notes or other property are actually paid, sold, refinanced or
otherwise disposed of. In some cases, the Company may receive initial down
payments (cash and other property) in the year of sale in an amount less than
the selling price and subsequent payments will be spread over a number of years.
See "Investment Objectives and Policies-- Sale or Disposition of Properties."
LOSS ON DISSOLUTION AND TERMINATION. At the date of dissolution or
termination of the Company, the undistributed proceeds realized from the
liquidation of assets, if any, will be distributed to Stockholders after
satisfying claims of creditors. Accordingly, a Stockholder's ability to recover
all of his or her investment under such circumstances will depend on the amount
of funds so realized and claims to be satisfied therefrom. There can be no
assurance that any proceeds will be available after satisfying the claims of
creditors and paying the expenses of liquidation.
DISTRIBUTIONS TO STOCKHOLDERS AFFECTED BY MANY FACTORS. Distributions by
the Company to its Stockholders will be based principally on cash available for
Distributions from the Properties. Cash availability will be based on many
factors, including but not limited to, the ability of the Company to make
additional acquisitions, investment of the Net Proceeds of this Offering, and
the anticipated operating expense levels, which may not prove accurate, and
actual results may vary substantially from estimates. Some of the factors are
beyond the control of the Company, and a change in any such factor could affect
the Company's ability to pay future Distributions. Contractual increases in rent
under the leases of the Properties or the receipt of rental revenue in
connection with future acquisitions will increase the Company's cash available
for Distribution to Stockholders. However, in the event of a default or a lease
termination by a tenant, there could be a decrease or cessation of rental
payments and thereby a decrease in cash available for Distribution. Also, funds
available for Distributions may be affected by the necessity to expend funds to
correct defects or to make improvements to Properties. In addition, the amount
available to make Distributions may decrease if Properties acquired in the
future yield lower than expected returns.
No assurance can be given as to the Company's ability to pay or maintain
Distributions. Neither is there an assurance that the level of Distributions
will increase over time, that there will be contractual increases in rent under
the leases of the Properties or that the receipt of rental revenue in connection
with future acquisitions of Properties will increase the Company's cash
available for Distribution to Stockholders.
The distribution requirements for REITs under federal income tax laws may
limit the Company's ability to finance future developments, acquisitions and/or
expansions without additional debt or equity financing. If the Company incurs
additional indebtedness in the future, it will require additional funds to
service such indebtedness and as a result amounts available to make
Distributions may decrease. Distributions by the Company will also be dependent
on a number of other factors, including the Company's financial condition, any
decision to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT Requirements
and such other factors as the Company deems relevant. In addition, the Company
may issue from time to time additional Shares in
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connection with the acquisition of Properties or in certain other circumstances.
No prediction can be made as to the number of such Shares which may be issued,
if any, and, if issued, the effect on cash available for Distributions on a per
Share basis to holders of Shares. Such issuances, if any, will have a dilutive
effect on cash available for Distribution on a per Share basis to holders of
Shares. The possibility exists that actual results of the Company may differ
from the assumptions used by the Board in determining the initial distribution
rate.
The Company intends to make Distributions to its Stockholders to comply with
the distribution requirements of the Code and to eliminate, or at least
minimize, exposure to federal income taxes and the nondeductible excise tax.
Differences in timing between the receipt of income and the payment of expenses
in arriving at taxable income and the effect of required debt amortization
payments could require the Company to borrow funds on a short-term basis to meet
the distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT.
CHANGES IN POLICIES. The major policies of the Company, including its
policies with respect to implementing its investment objectives or policies,
financing, growth, debt capitalization, REIT qualification and Distributions,
are determined by the Board. Although it has no present intention to do so, the
Board may amend or revise these and other policies from time to time without a
vote of the Stockholders. Accordingly, Stockholders will have limited control
over changes in policies of the Company.
POSSIBLE ADVERSE EFFECTS ON SHARE PRICE ARISING FROM SHARES ELIGIBLE FOR
FUTURE SALE. No prediction can be made as to the effect, if any, of future
sales of Shares, or the availability of Shares for future sales, on the market
price of the Shares. Sales of substantial amounts of Shares (including Shares
issuable upon the exchange of LP Units or Interests, exercise of options granted
to Independent Directors under the Independent Director Stock Option Plan, and
exercise of the Soliciting Dealer Warrants), or the perception that such sales
could occur, may adversely affect prevailing market prices, if any, for the
Shares. The issuance of additional Shares, LP Units or Interests in private
offerings not registered under the Securities Act of 1933, as amended (the
"Act"), will be deemed to be "restricted securities" within the meaning of Rule
144 under the Act and may not be transferred unless such Shares, LP Units or
Interests have been registered under the Act or an exemption from registration
is available, including any exemption from registration provided under Rule 144.
Holders of restricted Shares will be eligible to sell such Shares pursuant to
Rule 144 at prescribed times and subject to the manner of sale, volume, notice
and information restrictions of Rule 144. In general, upon satisfaction of
certain conditions, Rule 144 permits the sale of certain amounts of restricted
securities one year following the date of acquisition of the restricted
securities from the Company and, after two years, permits unlimited sales by
persons unaffiliated with the Company.
The Company may issue from time to time additional Shares, LP Units or
Interests in connection with the acquisition of Properties. The Company
anticipates that it will file a registration statement with respect to the
Shares issuable upon exercise of options under the Independent Director Stock
Option Plan following or concurrent with the completion of this Offering. Such
registration statement generally will allow Shares covered thereby to be
transferred or resold with fewer restrictions under the Act.
FLUCTUATIONS IN MARKET INTEREST RATES OR EQUITY MARKETS. Fluctuations in
market interest rates and equity markets have to be expected over time. If these
fluctuations, or the financial condition of the Company, lead prospective
Stockholders to demand higher yields from their investments, it may adversely
affect the Company's ability to sell Shares for $10 per Share to raise capital
to finance future Property acquisitions, developments and improvements, and the
Company may have to sell Shares for less than $10 per Share. On the other hand,
conditions may be such that the Company could sell Shares for in excess of $10
per Share. One of the factors that may influence the price of the Shares in the
future will be the annual yield on the price paid for Shares from Distributions
made by the Company.
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2. COMPANY RISKS
Many of the risk factors identified and discussed in this "--Company Risks"
section involve potential conflicts of interest between and among the Company,
the Sponsor, the Advisor and/or Affiliates of the Company, the Sponsor and/or
the Advisor. For a more extensive explanation of such potential conflicts of
interest, see generally "Conflicts of Interest."
PRICES PAID FOR PROPERTIES ACQUIRED FROM AFFILIATES MAY EXCEED PRICES THAT
WOULD HAVE BEEN PAID BY NON-AFFILIATES. The Articles provide that the Company
may not purchase any Property from an Affiliate unless: (i) a majority of the
Directors (including a majority of the Independent Directors) not interested in
the transaction approve the purchase as fair and reasonable to the Company; and
(ii) the price to the Company is no greater than the cost of the asset to the
Affiliate (such cost would include the purchase price paid plus any cost
associated with the purchase plus any capital improvements made by the Affiliate
plus any loan fees or points or any fee of a similar nature, however designated,
paid by the Affiliate in connection with financing for the Property) unless
substantial justification for a greater price exists and the additional price is
reasonable. In no event may the cost to the Company exceed the Property's
appraised value at the time of its acquisition by the Company. A majority of the
Directors (including a majority of the then Independent Directors) approved the
Company's intended purchases of the Initial Properties. However, there can be no
assurance that the prices paid for Properties which may in the future be
acquired from Affiliates would not exceed that which would be paid by an
unaffiliated buyer.
CONFLICTS OF INTEREST BETWEEN THE COMPANY AND ITS AFFILIATES AND PAYMENTS TO
AFFILIATES. The operation and management of the Company may be influenced or
affected by conflicts of interest arising out of the Advisor's relationship with
its Affiliates on the one hand, and the Company on the other hand. For example,
the Company will compete with the Affiliates for the time and services of
personnel of the Advisor and of certain Affiliates of the Advisor.
Further, the due diligence investigation of the Company by the Dealer
Manager, also an Affiliate, cannot be considered to be an independent review of
the Company and, therefore, may not be as meaningful as a review conducted by an
unaffiliated broker-dealer or investment banker. Additionally, except for
Special Sales, a substantial portion of the proceeds of the Offering will be
paid to the Dealer Manager, an Affiliate, for managing the Offering, including
cash selling commissions of 7% of the Gross Offering Proceeds ($35,000,000
assuming the Offering is fully subscribed and there are no Special Sales), a
marketing contribution of 2% of Gross Offering Proceeds and a due diligence
expense allowance of up to 0.5% of Gross Offering Proceeds (collectively, up to
$12,500,000 for the Marketing Contribution and Due Diligence Expense Allowance,
assuming the Maximum Offering is sold and there are no Special Sales). The
selling commissions and Marketing Contribution and Due Diligence Expense
Allowance are payable only on the 50,000,000 Shares sold on a "best efforts"
basis, all of which the Dealer Manager may retain or reallow to Soliciting
Dealers. The Dealer Manager currently also serves as the dealer manager for an
offering of shares of common stock of another REIT sponsored by IREIC.
IREIC, one of the TIGI Affiliated Companies, will be reimbursed for costs
related to the organization of the Company and the offering of the Shares for
sale, which are estimated to be $14,000,000 (excluding the selling commissions,
Marketing Contribution and Due Diligence Expense Allowance) if the Maximum
Offering is sold. An Affiliate of TIGI will also be reimbursed for actual
out-of-pocket acquisition expenses of up to approximately 0.5% of Gross Offering
Proceeds ($2,765,005 assuming all 50,000,000 Shares offered on a "best efforts"
basis are sold, all 4,000,000 Shares are sold under the DRP, and all of the
Soliciting Dealer Warrants are issued and exercised).
In addition, an Advisor Asset Management Fee of not more than 1% per annum
of the Average Invested Assets will be paid quarterly to the Advisor. The
Advisor will also receive a Property Disposition Fee equal to the lesser of (i)
3% of the sale price of a Property; or (ii) 50% of the commission customarily
paid to third parties. After receipt by Stockholders of a cumulative
noncompounded 7% per annum return
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on Invested Capital and a return of their Invested Capital, an Incentive
Advisory Fee equal to 15% of the net proceeds from the sale of Properties will
be paid to the Advisor.
Also, a Property Management Fee equal to not more than 90% of the fee which
would be payable to an unrelated party providing such services, which fee shall
initially be 4.5% of the gross income earned from each of the Properties, will
be paid on a monthly basis to the Management Agent, which is owned principally
by individuals who are Affiliates of TIGI, which fee is dependent upon results
of operations.
The Advisor and its Affiliates will provide other property-level services to
the Company and may receive compensation for such services, such amounts
received will be dependent upon results of operations and, therefore cannot be
determined at the present time. The fees received by the Advisor may cause the
Advisor to delay the sale of Properties or liquidation of the Company.
The Advisor, the Management Agent and their Affiliates will receive
substantial fees and payments for services rendered to the Company irrespective
(except for the Advisor Asset Management Fee and Incentive Advisory Fee) of
whether Stockholders receive Distributions or the Current Return or the
Cumulative Return to Stockholders. These fees may result in greater costs to the
Company than if the Company was self-administered and performed these services
in-house. If an Affiliate breaches its fiduciary obligations to the Company, or
does not resolve conflicts of interest in the manner described in the section of
this Prospectus titled "Conflicts of Interest--Process for Resolving Conflicting
Investment Opportunities," the Company may not meet its investment objectives.
See "Compensation Table," and "Management--The Advisory Agreement" and "--The
Management Agent," and "Certain Responsibilities of Directors and the Advisor;
Indemnification."
See also "Conflicts of Interests" for additional discussion of various
conflicts of interest, including the Company's option to have the business
conducted by the Advisor and/or the Management Agent acquired by or consolidated
into the Company.
DEPENDENCE ON THE DIRECTORS AND ADVISOR. The Board has supervisory control
over all aspects of the Company's operations. The Company's ability to achieve
its investment objectives will depend to a large extent on the Board's ability
to oversee, and the quality of, the management provided by the Advisor, the
Management Agent, their Affiliates and employees for day-to-day operations.
Therefore, the Company is dependent, in large part, on the ability of the
Advisor and its Affiliates to retain the services of each of its executive
officers and key employees; however, none of these individuals has an employment
agreement with the Advisor or its Affiliates. The loss of any of these
individuals could have a materially adverse effect on the Company. The Company
does not currently maintain key man life insurance policies on any of the
individuals employed by the Advisor or its Affiliates. See "Management."
DILUTION. Stockholders have no preemptive rights, and therefore, in the
event the Company: (i) commences a subsequent public offering of its Shares or
of convertible debt or Preferred Stock; or (ii) issues Preferred Stock or Shares
upon exercise of warrants, including the Soliciting Dealer Warrants, or to
sellers of Properties acquired directly or indirectly (E.G., upon exchange of LP
Units of the Operating Partnership or Interests in a Property Partnership) by
the Company in lieu of or in addition to cash consideration, investors
purchasing Shares in this Offering who do not participate in any future stock
issuance will experience dilution of their equity investment in the Company. The
Soliciting Dealer Warrants to be issued to the Dealer Manager in connection with
this Offering, options to purchase Shares issued and to be issued to Independent
Directors under the Company's Independent Director Stock Option Plan, and/or
convertible securities, if any, likely would be exercised or converted at a time
when the Company would be able to obtain needed capital through a new offering
of its securities on terms more favorable than those provided by such
securities. As long as such securities remain unexercised or unconverted, the
terms on which the Company could raise additional capital may be adversely
affected. See "Conflicts of Interest."
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ALL STOCKHOLDERS BOUND BY VOTE OF MAJORITY. The Articles require a majority
of the outstanding voting Shares of Equity Stock to constitute a quorum to vote
on those matters on which holders of voting Equity Stock are required to vote
(such as elections of Directors) and a majority of a quorum can vote approval.
Therefore, a substantial majority of the Stockholders may be bound by the
decision of the holders of a minority of the outstanding shares of Equity Stock
with respect to any matters submitted to a vote of the holders of voting Equity
Stock other than those matters (such as mergers and sales of substantially all
assets other than in the ordinary course of business) which require approval of
a majority of all outstanding shares of Equity Stock.
COMPANY'S AND STOCKHOLDERS' RIGHTS AGAINST THE DIRECTORS AND THE ADVISOR ARE
LIMITED. The MGCL provides that a Director who performs his duties in good
faith and in a manner he or she reasonably believes to be in the best interests
of the Company and with the care that an ordinarily prudent person in a like
position would use under similar circumstances has no liability by reason of
being or having been a Director. The Articles, in the case of the Directors,
officers, employees and agents of the Company, and the Advisory Agreement, in
the case of the Advisor, require the Company to indemnify the Directors,
officers, employees and agents of the Company and the Advisor for certain
actions taken by them in good faith and without negligence or misconduct. As a
result, the Company and the Stockholders may have more limited rights against
the Directors, officers, employees and agents of the Company, and the Advisor
than they would otherwise have under common law and, furthermore, may be
obligated to fund the defense costs incurred by the Directors, officers,
employees and agents of the Company or the Advisor in certain cases. Neither the
Directors, nor officers of the Company, nor the Advisor, may be held liable to
the Company or the Stockholders for monetary damages unless: (i) it is proven
that the person actually received an improper benefit or profit in money,
property or services; and (ii) to the extent that a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active or deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. See "Certain Responsibilities of Directors and
the Advisor; Indemnification."
RISKS OF INVESTMENTS IN SECURITIES RELATED TO REAL ESTATE. The Company may
partially pursue its investment objectives through the ownership of securities
of entities engaged in the ownership of real estate. Ownership of such
securities may not entitle the Company to control the ownership, operation and
management of the underlying real estate. In addition, the Company may have no
ability to control the distributions with respect to such securities, which may
adversely affect the Company's ability to make required Distributions to
Stockholders. Furthermore, if the Company desires to control an issuer of
securities, it may be prevented from doing so by the limitations on the assets
and gross income tests which must be satisfied by the Company in order for the
Company to qualify as a REIT for federal income tax purposes. The Company
intends to operate its business in a manner that will not require the Company to
register under the Investment Company Act and Stockholders will therefore not
have the protection of the Investment Company Act.
The Company also may invest in mortgages or other debt instruments secured
by real estate and may do so as a strategy for ultimately acquiring the
underlying real estate. In general, investments in mortgages include the risk
that borrowers may be unable to make debt service payments or pay principal when
due, the risk that the value of the mortgaged property may be less than the
principal amount of the mortgage note securing such property and the risk that
interest rates payable on the mortgages may be lower than the Company's cost of
funds to acquire these mortgages. In any of these events, funds from operations
and the Company's ability to make required Distributions to Stockholders could
be adversely affected.
3. RISKS OF REAL ESTATE OWNERSHIP
GENERAL. All real property investments are subject to some degree of risk.
Equity real estate investments are generally illiquid and, therefore, the
Company's ability to promptly vary its portfolio in response to changing
economic, financial and investment conditions is limited. Real property
investments
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are also subject to adverse changes in general economic conditions or local
conditions which reduce the demand for the goods or services of tenants, as well
as other factors affecting real estate values, including: (i) possible federal,
state or local regulations and controls affecting rents, prices of goods, fuel
and energy consumption and prices, water and environmental restrictions; (ii)
increasing labor and material costs; and (iii) the attractiveness of the
Property to tenants in the neighborhood.
The yields available from equity investments in real estate depend in large
part on the amount of rental income earned and capital appreciation generated,
as well as the property operating and other expenses incurred. If the Company's
Properties do not generate revenues sufficient to meet operating expenses, the
Company may have to borrow amounts to cover fixed costs, and the Company's cash
available for Distributions may be adversely affected.
OPERATING EXPENSES. The Properties will be subject to operating risks
common to commercial real estate in general, any or all of which may adversely
affect the Company. If any Property is not occupied or if rent is not being paid
or is being paid in an amount that is insufficient to cover operating expenses,
the Company could be required to expend funds with respect to that Property for
operating expenses. The Properties will be subject to increases in tax rates,
utility costs, operating expenses, insurance costs, repairs and maintenance and
administrative expenses. While some of the Properties may be leased on a
Triple-Net Lease Basis or require the tenants to pay some of such expenses,
renewals of leases or future leases may not be negotiated on that basis, in
which event the Company will have to pay those costs. If the Company is unable
to lease Properties on a Triple-Net Lease Basis or on a basis requiring the
tenants to pay all or some of such expenses, or if the tenants fail to pay
required tax, utility and other impositions, the Company could be required to
pay those costs which could adversely affect funds available for future
acquisitions or the Company's cash available for Distributions.
DEPENDENCE ON GEOGRAPHICAL REGION AND RETAIL INDUSTRY. The Company's
Properties are to be located mainly in the states east of the Mississippi River
in the United States. Such Properties will primarily be improved for use as
retail establishments, principally multi-tenant shopping centers, or improved
with other commercial facilities which provide goods and services. The Company's
performance therefore is linked to economic conditions in this region and in the
market for retail space generally. Therefore, to the extent that there are
adverse economic conditions in this region and in the market for retail space
generally that impact the market rents for retail space, such conditions could
result in a reduction of Net Income, Funds from Operations and cash available
for Distributions and, thus affect the amount of Distributions the Company can
make to its Stockholders.
In addition, the Company intends to predominantly own and operate retail
shopping centers catering to retail tenants. To the extent that the investing
public has a negative perception of the retail sector, the value of Shares may
be negatively impacted, thereby resulting in the Shares trading at a discount
below the inherent value of the assets of the Company as a whole.
INABILITY OF TENANTS TO MEET THEIR OBLIGATIONS OR THEIR ELECTION NOT TO
EXTEND A LEASE UPON ITS EXPIRATION. The Company is subject to the risk that
tenants, as well as lease guarantors (a "Guarantor"), if any, may be unable to
make their lease payments or may decline to extend a lease upon its expiration.
A default by a tenant, the failure of a Guarantor to fulfill its obligations or
other premature termination of a lease, or a tenant's election not to extend a
lease upon its expiration, could, depending on the size of the leased premises
and the Advisor's ability to successfully find a suitable substitute tenant,
have an adverse effect on the Company's results of operations and financial
condition, including its ability to pay Distributions. See "Prior Performance of
the Company's Affiliates--Loan Modifications and Work-Outs."
RELIANCE ON CERTAIN TENANTS. The Company's results of operations and
financial condition and ability to make Distributions may be adversely affected
by the bankruptcy or insolvency, or a downturn in the business, of (i) any
tenant generally occupying approximately 30% or more of the GLA of a Retail
Center, or (ii) the tenant of any of the Triple-Net Single-User Retail
Properties Outside the Primary Geographical
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Area of Investment (each an "Anchor Tenant"), including the decision by an
Anchor Tenant not to renew its lease. Three of the Initial Properties have one
or more tenants which individually occupy 30% or more of the GLA of such
Properties and there are a total of eight Anchor Tenants in the Initial
Properties. See "Real Property Investments." In addition, a lease termination by
any Anchor Tenant could result in lease terminations or reductions in rent by
other tenants whose leases permit cancellation or rent reduction in the event an
Anchor Tenant's lease is terminated. In such event, the Company's ability to
re-lease the vacated space could be adversely affected. Similarly, the leases of
certain Anchor Tenants may permit the Anchor Tenant to transfer its lease to
another retailer. The transfer to a new Anchor Tenant could adversely affect
customer traffic in the Retail Center and thereby reduce the income generated by
that Retail Center and could also allow other tenants to make reduced rental
payments or to terminate their leases at the Retail Center.
POTENTIAL ADDITIONAL COSTS IN CONNECTION WITH ACQUIRING SINGLE-USER RETAIL
PROPERTIES. Certain of the Properties or portions thereof may be designed or
built primarily for a particular tenant or a specific type of use. If the tenant
fails to renew its lease or defaults on its lease obligations, the Property may
not be readily marketable to a new tenant without substantial capital
improvements or remodeling which may adversely affect the Company's results of
operation and financial condition.
EFFECT OF BANKRUPTCY OF TENANTS. Any or all of the tenants (or a guarantor
of the tenant's lease obligations, hereinafter a "Lease Guarantor") could be
subject to a bankruptcy proceeding pursuant to the United States Bankruptcy
Code, Title 11, United States Code. A bankruptcy filing would bar all efforts to
collect pre-bankruptcy debts from these entities or their property, absent an
enabling order from the bankruptcy court. Post-bankruptcy debts would be paid
current.
Should a lease be assumed, all pre-bankruptcy balances owing thereunder must
be paid in full. Should a lease be rejected, the rejection would be treated as a
pre-bankruptcy breach, and the Company would have a general unsecured claim for
damages resulting from the breach. This claim is capped at the rent reserved
under the lease, without acceleration, for the greater of one year or 15% (but
not more than three years) of the remaining term of the lease, plus rent already
due but unpaid (hereinafter, the "Rejection Damages Cap"). This claim could only
be paid to the extent that funds were available, and then only in the same
percentage as that realized on other unsecured claims in the case.
If the bankruptcy is filed by or against a Lease Guarantor, but not by or
against the underlying tenant, the whole range of remedies against the tenant
will remain, and the automatic stay will not prevent the enforcement of these
remedies (absent an affirmative order to the contrary by the bankruptcy court).
However, the Rejection Damages Cap may still be applicable to claims asserted
against the Lease Guarantor.
Following a bankruptcy filing, the tenant or its trustee generally has 60
days to decide whether to assume or reject a lease. Such deadline may be
extended by the court, and there can be no assurances to what extent (if at all)
the deadline may be deferred. Under some circumstances (going-out-of business
sales and the like), a bankruptcy court may override certain non-monetary
provisions of a lease.
In addition to assumption and rejection of a lease, a tenant has the option
of assigning its lease. There can be no assurances as to how a specific request
for assignment will be treated, or how such assignment (if approved) will affect
other tenants.
In summary, a tenant or Lease Guarantor bankruptcy could delay efforts to
collect past due balances under the relevant leases, and could ultimately
preclude full collection of these sums. Such an event could cause a reduction in
the Company's cash flow and the amounts available for Distributions to its
Stockholders. In the event of a bankruptcy, no assurance can be given that the
tenant or its trustee will assume its lease. If a given lease (or guaranty of
such lease) is not assumed, the Company's cash flow and the amounts available
for Distributions to its Stockholders may be adversely affected.
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COMPETITION FOR TENANTS AND CUSTOMERS. The Properties will be located in
developed areas. Therefore, there will undoubtedly be numerous other retail
properties within the market area of each of the Properties which will compete
with the Company for tenants. The number of competitive properties could have a
material effect on the Company's ability to rent space at the Properties and the
amount of rents charged. The Company could be adversely affected if additional
competitive types of properties are built in locations competitive with the
Properties, causing increased competition for customer traffic and creditworthy
tenants. This could result in decreased cash flow from tenants and may require
the Company to make capital improvements to the Properties which it would not
have otherwise made.
RESTRICTIONS ON RE-LEASING SPACE. In many cases, tenant leases contain
provisions giving the tenant the exclusive right to sell certain types of
merchandise or provide certain types of services within the particular Retail
Center, or limit the ability of other tenants to sell such merchandise or
provide such services. When re-leasing space after a vacancy occurs, these
provisions may limit the number and types of prospective tenants for the vacant
space.
COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES
ACT. The Company's Properties will be subject to the Americans with
Disabilities Act of 1990 (the "ADA"). Under the ADA, all places of public
accommodation are required to comply with certain federal requirements related
to access and use by disabled persons. The ADA has separate compliance
requirements for "public accommodations" and "commercial facilities" but
generally requires that buildings and services (including restaurants and retail
stores) be made accessible and available to people with disabilities. The ADA
requirements could require removal of access barriers and could result in the
imposition of injunctive relief, monetary penalties, or, in some cases, an award
of damages. The Company will attempt to acquire Properties which comply with the
ADA or place the burden on the seller or other third party (such as a tenant) to
ensure compliance with the ADA, although there can be no assurance that the
Company will be able to acquire Properties or allocate responsibilities in this
manner.
ENVIRONMENTAL LAWS AND CERTAIN OTHER GOVERNMENTAL LAWS AND REGULATIONS. All
real property and the operations conducted on real property are subject to
federal, state and local laws and regulations relating to environmental
protection and human health and safety, including those governing wastewater
discharges, air emissions, the operation and removal of underground and
above-ground storage tanks, the use, storage, treatment, transportation and
disposal of solid and hazardous materials and the remediation of contamination
associated with such disposal. Certain of these laws and regulations may impose
joint and several liability on certain statutory classes of persons including
tenants, owners or operators, for the costs of investigation or remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. Under various federal, state and local laws, ordinances and
regulations, a current or previous owner, developer or operator of real estate
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances at, on, under or in its property. The costs of such removal or
remediation could be substantial. In addition, the presence of such substances,
or the failure to properly remediate such substances, may adversely affect the
Company's ability to sell or rent such Property or to use such Property as
collateral for its borrowings.
Certain laws and regulations, including those governing air emissions,
underground and above-ground storage tanks, and solid waste management and
disposal, have been amended so as to require compliance with new or more
stringent standards as of future dates. Compliance with new or more stringent
laws or regulations, stricter interpretation of existing laws or the future
discovery of environmental contamination may require expenditures by the
Company, some of which may be material. There can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability, or (ii) the current environmental condition of the
Properties will not be affected by the operations of the tenants, by the
existing condition of the land, or by operations in the vicinity of the
Properties (such as the presence of underground storage tanks) or by the
activities of unrelated third parties.
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These laws typically allow liens to be placed on the affected property. In
addition, there are various local, state and federal fire, health, life-safety
and similar regulations which the Company may, under certain circumstances, be
required to comply with, and be subject to liability in the form of fines or
damages for noncompliance.
State and federal laws in this area are constantly evolving, and the Company
intends to monitor these laws and take commercially reasonable steps to protect
itself from the impact thereof, including obtaining environmental assessments of
each Property acquired. No assurance can be given that such assessments will
reveal all environmental liabilities or that a prior owner of a Property did not
create a material environmental condition not known to the Company. The Company
cannot predict what other environmental legislation or regulations will be
enacted in the future, how existing or future laws or regulations will be
administered or interpreted, or what environmental conditions may be found to
exist in the future. However, there can be no assurance that the Company's
business, assets, results of operations, liquidity or financial condition will
not be adversely affected by these laws.
SALE OF PROPERTIES. The Company may not be able to sell a Property if or
when the Company decides to do so. The real estate market is affected by many
factors, such as general economic downturns, availability of financing, interest
rates and other factors, including supply and demand, that are beyond the
control of the Company. The Company cannot predict whether it would be able to
sell any Property for the price or on the terms set by the Company, or whether
any price or other terms offered by a prospective purchaser would be acceptable
to the Company. The Company cannot predict the length of time needed to find a
willing purchaser and to close the sale of a Property.
The Company may be required to expend funds to correct defects or to make
improvements before a Property can be sold. There is no assurance that the
Company will have funds available to correct defects or to make improvements.
In connection with the acquisition of a Property, the Company may agree to
restrictions that prohibit the sale of that Property for a period of time or
impose other restrictions, such as a limitation on the amount of debt that can
be placed or repaid on that Property. Such provisions would restrict the ability
of the Company to sell a Property.
UNINSURED LOSSES; UNAVAILABILITY OF INSURANCE. Each lessee is responsible
for insuring its goods and premises and, in certain circumstances, may be
required to reimburse the Company for a share of the cost of acquiring
comprehensive insurance for the Property, including casualty, liability, fire
and extended coverage customarily obtained for similar properties in amounts
which the Advisor determines are sufficient to cover reasonably foreseeable
losses. Tenants of single-user properties leased on a Triple-Net Lease Basis
typically are required to pay all insurance costs associated with those
properties. There is no assurance that material losses in excess of insurance
proceeds will not occur with respect to any Property. However, there are certain
types of losses (generally of a catastrophic nature, such as losses due to wars,
earthquakes, floods, hurricanes, pollution or environmental matters) which are
either uninsurable or not economically insurable or may be insured subject to
certain limitations, such as large deductibles or copayments. If such an event
occurred to, or caused the destruction of, a Property owned by the Company, the
Company could lose both its invested capital and anticipated profits from such
Property. See "Investment Objectives and Policies--Description of Leases" and
"Real Property Investments--Insurance Coverage on Properties."
REAL ESTATE RELATED TAXES. Certain local real property tax assessors may
seek to reassess certain of the Properties as a result of the Company's
acquisition thereof. An increase in the assessed valuation of a Property for
real estate tax purposes will result in an increase in the related real estate
taxes on that Property. Although some tenant leases may permit the Company to
pass through such tax increases to the tenants for payment, there is no
assurance that renewal leases or future leases will be negotiated on the same
basis.
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RISK OF RECHARACTERIZATION OF SALE AND LEASEBACK TRANSACTIONS. The Company
may enter into sale and leaseback transactions, pursuant to which the Company
would purchase a Property and then lease such Property to the Person from whom
it was purchased. In the event of the bankruptcy of such a lessee, a transaction
structured as a sale and leaseback may be recharacterized as either a financing
or as a joint venture, which may result in adverse consequences to the Company.
To the extent the sale and leaseback is treated as a financing, the Company
might not be considered the owner of such Property and as such would have the
status of a creditor with respect to the Property in question.
POTENTIAL ADDITIONAL COSTS IN CONNECTION WITH ACQUIRING NEWLY CONSTRUCTED
PROPERTIES. The Company intends primarily to acquire existing or newly
constructed Properties. Although the Company presently intends to acquire newly
constructed buildings only on a "turnkey basis," the builder's failure to
perform may necessitate legal action by the Company to rescind its purchase of a
Property, to compel performance or to sue for damages. Any such legal action may
result in increased costs to the Company.
RISKS ASSOCIATED WITH INVESTMENTS IN UNIMPROVED REAL PROPERTY. The Company
may invest up to 10% of its assets in Properties other than the Company's
Primary Property Investments, which may include unimproved real property.
Investment in unimproved properties, in addition to the risks of real estate
investment in general, are also subject to risks and uncertainties associated
with re-zoning the land for a higher use or development and environmental
concerns of governmental entities and/or community groups. The Company does not
intend to invest in any unimproved property not intended to be developed.
CONSTRUCTION AND DEVELOPMENT RISKS. Construction and development activities
will expose the Company to certain risks such as cost overruns, carrying costs
of projects under construction or development, availability and costs of
materials and labor, weather conditions and government regulation. Should the
Company elect to engage in construction and development activities, in
accordance with current pronouncements of the Service, and until there is a
change in such pronouncements, the Company intends to have its employees only
perform certain oversight and review functions, including reviewing the
construction and tenant improvement design proposals, negotiating and
contracting for feasibility studies and supervising compliance with local, state
or federal laws and regulations, and the Company will retain independent
contractors to perform the actual physical construction work on tenant
improvements, the installation of HVAC systems or the development of an entirely
new project.
THE COMPANY MAY ACQUIRE PROPERTIES WITH LOCK-OUT PROVISIONS. Lock-out
provisions may prohibit the Company from selling a Property (except in certain
events, including certain transactions that would not result in the recognition
of any gain for tax purposes), or may require the Company to maintain certain
debt levels for a period of years on certain Properties. Thus, the lock-out
provisions could materially restrict the Company from selling or otherwise
disposing of or refinancing such Properties. The lock-out provisions may apply
even if it would otherwise be in the best interests of the Stockholders for the
Company to sell one or more of such Properties, reduce the outstanding
indebtedness with respect to any of such Properties or not refinance such
indebtedness on a nonrecourse basis at maturity, or increase the amount of
indebtedness with respect to such Properties. Such lock-out provisions may
restrict the ability of the Company to sell substantially all of its assets,
even if such a sale would be in the best interests of its Stockholders.
The lock-out provisions could impair the ability of the Company to take
actions during the lock-out period that would otherwise be in the best interests
of the Stockholders and, therefore, may have an adverse impact on the value of
the Shares (relative to the value that would result if the lock-out provisions
did not exist). In particular, the lock-out provisions could preclude the
Company from participating in certain major transactions that could result in a
disposition of the Company's assets or a change in control of the Company even
though that disposition or change in control might be in the best interests of
the Stockholders.
The Company, as the General Partner of the Operating Partnership, will not
permit the Operating Partnership to acquire Properties containing lock-out
provisions if the lock-out period exceeds three years.
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4. TAX RISKS
GENERAL. There are various federal income tax risks associated with
investing in the Company. Although the provisions of the Code relevant to an
investment in the Company are generally described in the Section of the
Prospectus titled "Federal Income Tax Considerations," each potential investor
is strongly urged to consult his or her own tax advisor concerning the effects
of federal income tax law on an investment in the Company and on his or her
individual tax situation.
Investors should recognize that many of the advantages and economic benefits
of investing in the Company depend upon the continued treatment of the Company
as a REIT for federal income tax purposes. If the Company were no longer taxed
as a REIT, the Company would pay a corporate level tax on its income which would
reduce its cash available to pay Distributions and the yield from investing in
the Company. The continued treatment of the Company as a REIT is dependent on
laws and regulations, and administrative and judicial interpretations thereof,
all of which are subject to change, which changes may be applied retroactively,
and on the Company's ability to continue to satisfy a variety of objective tests
set forth in the Code.
RISKS REGARDING REIT QUALIFICATION AND CONSEQUENCES OF THE FAILURE TO SO
QUALIFY. Among the various risks associated with the federal income tax aspects
of the Offering of which investors should be aware are:
- RISK OF FAILING TO QUALIFY AS A REIT UNDER THE CODE. The Company intends
to operate its business so as to qualify as a REIT under the Code commencing
with its taxable year ending December 31, 1998. Although the Company believes
that it will be organized and will operate in such a manner, no assurance can be
given that the Company will be able to operate in a manner so as to qualify or
remain so qualified. For example, it is possible that future economic, market,
legal, tax or other considerations may cause the Company to fail to qualify as a
REIT or may cause the Board to revoke the Company's REIT election. Further, the
Company's desire to maintain REIT status could cause it not to acquire certain
Properties or undertake certain activities that could affect the return on an
investment in the Shares.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and others on a quarterly basis) established under highly
technical and complex Code provisions for which there are only limited judicial
and administrative interpretations and involves the determination of various
factual matters and circumstances not entirely within the Company's control. For
example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources and the Company must
make distributions to Stockholders aggregating annually at least 95% of its REIT
Taxable Income (determined without regard to the dividends paid deduction and by
excluding net capital gains). The complexity of these provisions and of the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets through a partnership, as
the Company intends to do through the Operating Partnership. In addition, no
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions, which could apply retroactively, will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. The Company, however, is
not aware of any pending tax legislation that would adversely affect the
Company's ability to qualify or operate as a REIT. The Company has received an
opinion of Counsel to the Company regarding the Company's ability to qualify as
a REIT. However, see "--Limitations on Opinion of Counsel" below in this section
and "Federal Income Tax Considerations--Opinion of Tax Counsel" and "--Other Tax
Considerations--President's 1999 Budget Proposals".
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the value of the REIT's
total assets on certain testing dates. In addition to the 5% limitation, a REIT
is not permitted to own more than 10% of the voting securities of any particular
issuer. If the Company fails to satisfy the 5% or 10% limitation or otherwise
fails to qualify as a REIT in any taxable year, except as to certain failures
for which there may be statutory relief or imposition of intermediate sanctions
in the form of monetary penalties, or loses its REIT status for any other
reason, its
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Distributions will not be deductible and its taxable income will be subject to
federal income tax (including any applicable alternative minimum tax) at regular
corporate rates. The resulting reduction in net earnings would reduce or
eliminate the cash available for investment and for Distributions. In addition,
the Company may be required to borrow funds, liquidate certain of its
investments or take other steps which could affect its operating results due to
this tax liability. Moreover, if the Company's REIT status is terminated because
of the failure to meet a technical REIT test or it voluntarily revokes its
election, the Company would be disqualified from electing treatment as a REIT
for the four taxable years following the year in which REIT status is lost. If
the Company loses its REIT status, Distributions would no longer be required to
be made.
- ADVERSE EFFECTS OF REIT MINIMUM DISTRIBUTION REQUIREMENTS. The Company
will be subject to income tax on any undistributed REIT Taxable Income and net
capital gain, and to a 4% non-deductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year are
less than the sum of (i) 85% of its ordinary income for the calendar year, (ii)
95% of its capital gain net income for such year, and (iii) 100% of its
undistributed income from prior years.
The Company intends to make Distributions to its Stockholders to comply with
the distribution provisions of the Code and to avoid federal income taxes and
the non-deductible 4% excise tax payable at the Company level. The Company's
income will consist primarily of its share of the income of the Operating
Partnership, and the Company's cash flow will consist primarily of its share of
distributions from the Operating Partnership. Differences in timing between the
receipt of income and the payment of expenses in arriving at taxable income (of
the Company or of the Operating Partnership), the effect of non-deductible
capital expenditures, and the creation of reserves or required debt amortization
payments could in the future require the Company to borrow funds on a short-term
or long-term basis to meet the distribution requirements that are necessary to
comply with the REIT Requirements. In such circumstances, the Company might need
to borrow funds to avoid adverse tax consequences, even if management believes
that the then prevailing market conditions generally are not favorable for such
borrowings or that such borrowings would not be advisable in the absence of such
tax considerations.
Distributions by the Operating Partnership are determined by the Company, as
General Partner of the Operating Partnership, and are dependent on a number of
factors, including the amount of cash available for distribution, the Operating
Partnership's financial condition, any decision by the Company's Board to
reinvest funds rather than to distribute such funds, the Operating Partnership's
capital expenditure requirements, the annual distribution requirements under the
REIT Requirements and such other factors as the Board deems relevant. There can
be no assurance that the Company will be able to continue to satisfy the annual
distribution requirement so as to avoid corporate income taxation of the
earnings that it distributes.
- LIMITATIONS ON SHARE OWNERSHIP. In order for the Company to qualify as a
REIT, no more than 50% of its outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of the
Company's taxable year. However, this requirement does not apply until after the
first taxable year for which an entity seeks REIT status. Because the Company
intends to seek REIT status for the fiscal year ended December 31, 1998, this
requirement would become applicable to the Company for its fiscal year
commencing January 1, 1999. To ensure that the Company will not fail to qualify
as a REIT under this test, the Articles provide that, commencing as of July 1,
1999, no person may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% of the number or value of the issued and
outstanding stock of the Company. See "Description of Securities-- Restrictions
on Ownership and Transfer."
- LIMITATIONS ON OPINION OF COUNSEL. The opinion of Counsel is based and
conditioned on various assumptions and representations made by the Company and
the Advisor to Counsel as to certain factual matters. As more fully set forth
under "Federal Income Tax Considerations," Counsel has expressed its opinion
based on the facts described in this Prospectus and the Articles and on certain
representations
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made by the Company and the Advisor to Counsel that, as of the date of this
Prospectus: (i) the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and that its prior, current and anticipated methods of
operation have enabled and will enable the Company to satisfy the REIT
Requirements; and (ii) distributions to a Stockholder which is a Tax-Exempt
Entity will not constitute UBTI under current law, unless: (a) such Stockholder
has financed the acquisition of its Shares with "acquisition indebtedness"
(within the meaning of the Code); or (b) a Qualified Trust owns more than 10% of
the Shares and the Company is a "Pension-Held REIT." Counsel has not
independently verified the factual assumptions and representations relied upon
in rendering its opinion, but is not aware of any facts that would make such
assumptions or representations false. Counsel will not review compliance with
the REIT Requirements on an on-going basis after the initial effective date of
the Registration Statement or issue additional opinions unless expressly
requested to do so by the Company. Accordingly, no assurance can be given that
the actual operating results of the Company will allow it to satisfy the REIT
Requirements, or would not result in the recognition of UBTI by Tax Exempt
Entities. See "Federal Income Tax Considerations--Taxation of the
Company--Failure to Qualify." In addition, these opinions represent Counsel's
legal judgment. An opinion of counsel is not binding on the Service or a court
and there can be no assurance that the Service or a court will not take a
position different from that expressed by such opinion. These opinions are based
on the Code and Treasury Regulations, and judicial and administrative
interpretations thereof, in effect as of the date of this Prospectus, any of
which are subject to change, possibly with retroactive effect.
The Company's qualification as a REIT will depend upon the Company's ability
to meet, through actual operating results, various tests imposed by the Code.
The Company's ability to maintain its REIT status will depend upon its ability
(based on its actual operating results) to meet the requirements necessary to
maintain status as a REIT, and Counsel will not review compliance with the REIT
Requirements on a continuing basis after the initial effective date of the
Registration Statement or issue any opinions in the future unless expressly
requested to do so. Accordingly, no assurance can be given that the Company's
actual operating results will allow the Company to satisfy the REIT
Requirements. In addition, this opinion represents Counsel's legal judgment
based on the law in effect as of the initial effective date, and is not binding
on the Service or any court and could be subject to modification or withdrawal
due to future changes in the law.
RISKS REGARDING PARTNERSHIP QUALIFICATION AND CONSEQUENCES OF FAILURE TO
QUALIFY AS A PARTNERSHIP. If the Service were to successfully challenge the
status of the Operating Partnership as a partnership for federal income tax
purposes, the Operating Partnership would be taxable as a corporation. In such
event, the Company would cease to qualify as a REIT for federal income tax
purposes. The imposition of a corporate tax on the Operating Partnership with a
resulting loss of REIT status of the Company, would reduce substantially the
amount of cash available for Distribution to the Company's Stockholders. In
addition, in the event that any Property Partnerships were classified as an
association taxable as a corporation for federal income tax purposes rather than
as a partnership, it is unlikely that the Company could continue to satisfy the
REIT Requirements. See "Federal Income Tax Considerations--Taxation of the
Company--Failure to Qualify." In addition, classification as an association
taxable as a corporation would affect the character of the income received from
any Property Partnerships and subject profits of any such Property Partnerships
to corporate double taxation. See "Federal Income Tax Considerations-- Taxation
of the Company--Partnership Classification."
MISCELLANEOUS TAX RISKS. Among various miscellaneous tax risks are the
following:
- OTHER TAX LIABILITIES. Even if the Company qualifies as and maintains
its status as a REIT, it may be subject to certain federal income taxes. For
example, if the Company has net income from a "prohibited transaction," such
income will be subject to a 100% tax. See "Federal Income Tax Considerations--
Taxation of the Company." In addition, the Company may be subject to state and
local taxes on its income and property.
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- TAX LIABILITY ON REINVESTED DISTRIBUTIONS. Stockholders that participate
in the DRP will be deemed to have received, and will for income tax purposes be
taxed on, the amount reinvested in Shares. Therefore, Stockholders (other than
Tax-Exempt Entities) will have to use funds from other sources to pay their tax
liability on the value of the Shares received. See "Federal Income Tax
Considerations--Other Tax Considerations--Distribution Reinvestment Program."
IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS OF THE OFFERING, PARTICULARLY
IN LIGHT OF THE FACT THAT CERTAIN OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE
THE SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO
CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION
PRIOR TO INVESTMENT IN THE COMPANY.
5. ERISA RISKS
SUITABILITY OF THE COMPANY'S INVESTMENTS FOR QUALIFIED PENSION AND
PROFIT-SHARING TRUSTS. When considering an investment in Shares of the Company,
a fiduciary of a Qualified Plan should consider: (i) whether the investment
satisfies the diversification requirements of Section 404(a)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and other
applicable standards imposed by ERISA; and (ii) whether the investment is
prudent and meets Plan liquidity requirements as there may be only a limited
market in which to sell or otherwise dispose of the Shares. The Company has not,
and will not, evaluate whether an investment in the Shares is suitable for any
particular plan, and will accept such entities as Stockholders if an entity
otherwise meets the suitability standards. See "ERISA Considerations."
If the Company is considered a Pension-Held REIT, an investment in the
Company may also produce UBTI which may cause a Qualified Plan holding 10% or
more of the Shares to pay a tax on a portion of the income distributed to it by
the Company. The determination of whether the Company will constitute a
Pension-Held REIT will depend on the concentration of ownership by one or more
Qualified Plans, a factor that is not within the control of the Company. See
"Federal Income Tax Considerations" and "Description of Securities--Restrictions
on Ownership and Transfer."
In addition to considering their fiduciary responsibilities under ERISA and
the prohibited transaction rules of ERISA and the Code, fiduciaries of Qualified
Plans should also consider the effect of the "Plan Asset" regulations issued by
the Department of Labor. See "ERISA Considerations."
ANNUAL STATEMENT OF VALUE IS AN ESTIMATE. Stockholders subject to ERISA
will be provided with an annual statement of value reporting the value of each
Share based upon an estimated amount (as determined by the Company) they would
receive if the Company's Properties were sold as of the close of the Company's
fiscal year and if such proceeds (without reduction for selling expenses),
together with the other funds of the Company, were distributed in liquidation of
the Company; provided, however, the Net Asset Value of each Share will be deemed
to be $10 for the first three years following the termination of this Offering.
This annual valuation may be revised by the Company from time to time. There can
be no assurance that: (i) such value could actually be realized by the Company
or by Stockholders upon liquidation (in part because estimates of value do not
necessarily indicate the price at which assets could be sold, and because no
attempt will be made to estimate the expenses of selling any asset of the
Company); (ii) Stockholders could realize such value if they were to attempt to
sell their Shares; or (iii) such value would comply with the ERISA requirements.
Should the Shares become listed for trading on a national stock exchange or
included for quotation on a national market system, the Company will no longer
provide such valuations.
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of its
relationship with the Sponsor, the Advisor or its Affiliates. All agreements and
arrangements, including those relating to compensation,
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between the Company and the Advisor and its Affiliates are not the result of
arm's-length negotiations. The limitations on the Advisor described below have
been adopted to control when the Company enters into transactions with the
Advisor and its Affiliates. With respect to the conflicts of interest described
herein, the Advisor and its Affiliates will endeavor to balance the interests of
the Company with the interests of the Advisor and its Affiliates in making any
determination. These conflicts of interest are not listed in any order of
priority.
1. COMPETITION FOR THE TIME AND SERVICE OF THE ADVISOR AND ITS
AFFILIATES. The Company relies on the Advisor and its Affiliates for the daily
operation of the Company and the management of its assets. Personnel of the
Advisor and Affiliates of the Advisor have conflicts of interest in allocating
management time, services and functions among various existing real estate
investment programs and any future real estate investment programs or other
entities which they may organize or serve, as well as other business ventures in
which they are involved. The Advisor and its Affiliates believe they have
sufficient staff to be fully capable of discharging their responsibilities in
connection with various real estate programs and other business ventures.
The Company believes that the compensation payable to the Advisor and its
Affiliates pursuant to the Advisory Agreement and the Management Agreement is on
terms no less favorable to the Company than those customary for similar services
performed by independent firms in the relevant geographic area. See
"Compensation Table" and "Management--The Advisory Agreement" and "--The
Management Agent."
2. PROCESS FOR RESOLVING CONFLICTING INVESTMENT OPPORTUNITIES. Affiliates
of the Advisor and Inland have sponsored publicly and privately offered entities
and may in the future sponsor publicly and privately offered REITs or other
entities which may have investment objectives very similar to the Company's. The
Advisor and its Affiliates could, therefore, be subject to conflicts of interest
between the Company and other real estate investment programs in connection with
the acquisition of properties. To the extent possible, the resolution of
conflicting investment opportunities between the Company and other investment
entities advised or managed by the Advisor and its Affiliates will, as a general
rule, be resolved by giving priority to the investment entity whose primary
geographic area of investment is the area where the prospective Property is
located.
An agreement (the "Property Acquisition Service Agreement") among the
Company, the Advisor, Inland Real Estate Corporation ("IREC", another REIT
sponsored by IREIC), Inland Real Estate Advisory Services, Inc. ("IREAS," the
advisor to IREC), and Inland Real Estate Acquisitions, Inc. ("IREA," one of the
Inland Affiliated Companies), has been entered into to resolve these conflicting
opportunities. Subject to the exception described below, the Property
Acquisition Service Agreement grants the Company the first opportunity to
purchase a prospective Property in the Company's Primary Geographical Area of
Investment placed under contract by IREA, the Advisor or the Affiliates of the
Advisor, provided the Company is able to close the purchase of the prospective
Property within 60 days. Similarly, IREC is granted the first opportunity to
purchase a prospective Property in its primary geographic area of investment (a
400 mile radius of TIGI's headquarters in Oak Brook, Illinois), provided it is
able to close the purchase of the prospective Property within 60 days. However,
if the prospective Property is located in both the Company's and IREC's primary
geographic area of investment, and both the Company and IREC have funds
available to make the purchase, the prospective Property will first be offered
to IREC. If IREC does not purchase the prospective Property, it will then be
offered to the Company.
If (i) the prospective Property is outside the primary geographic area of
investment of both the Company and IREC, (ii) the Company, IREC and any other
real estate investment program sponsored by IREIC have funds available to make
the purchase, and (iii) the prospective Property meets each of their respective
acquisition criteria, then the prospective Property will (x) first be offered to
IREC, (y) if IREC does not purchase the prospective Property, it will then be
offered to the Company, and (z) if the Company
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does not purchase the prospective Property, it will then be offered to such
other real estate investment program.
Other factors which may be considered in connection with evaluating the
suitability of the prospective Property for investment by a particular entity
include: (i) the effect of the acquisition on the diversification of each
entity's portfolio; (ii) the amount of funds available for investment; (iii)
cash flow; and (iv) the estimated income tax effects of the purchase and
subsequent disposition.
The Company has been informed that IREC expects to have all of its
anticipated funds available for investment from its current offering of
securities fully invested by September 1999. Accordingly, material conflicting
investment opportunities between IREC and the Company are not currently expected
after that date. However, if such conflicts do arise, they will be resolved as
provided in the Property Acquisition Service Agreement.
The Independent Directors must, by a majority vote, approve all actions by
the Advisor or its Affiliates which present potential conflicts with the
Company. See "Management--The Advisory Agreement."
The Company believes that these factors, together with the obligations of
the Advisor and the Affiliates to present the Company with any investment
opportunity which could be suitable for the Company, will help to lessen the
competition or conflicts with respect to the purchase of Properties by other
entities and the Company.
3. ACQUISITION FROM AFFILIATES. The Company intends to acquire all of its
Initial Properties from the Initial Property Sellers (who are Affiliates of
TIGI) and may acquire other Properties from Affiliates. The purchase prices for
the Initial Properties were not, and the purchase prices of such other
Properties which may be purchased from Affiliates will not be, the subject of
arm's-length negotiations. Such acquisitions may be on terms less favorable to
the Company than arm's length transactions and may result in concessions as to
price or otherwise which may be less advantageous to the Company than an arm's
length transaction. However, the Articles provide that the purchase price of any
Property acquired from an Affiliate: (i) may not exceed its fair market value as
determined by a competent independent appraiser who is a member in good standing
of the Appraisal Institute; and (ii) must be approved by a majority of the
Directors (including a majority of the Independent Directors) not interested in
the transaction as being fair and reasonable to the Company and at a price to
the Company no greater than the cost of the asset to such Affiliate, or if the
price to the Company is in excess of such cost, that substantial justification
for such excess exists and such excess is reasonable. A majority of the
Directors (including a majority of the then Independent Directors) approved the
acquisition of the Initial Properties; however, there can be no assurance that
the prices to be paid to the Affiliates will not exceed those which would have
been paid by an unaffiliated purchaser.
4. THE COMPANY MAY PURCHASE PROPERTIES FROM PERSONS WITH WHOM AFFILIATES OF
THE ADVISOR HAVE PRIOR BUSINESS RELATIONSHIPS. The Company may purchase
Properties from third parties who have sold Properties in the past or who may
sell Properties in the future to the Advisor or its Affiliates. In the event the
Company purchases Properties from these third parties, the Advisor will
experience a conflict between the current interests of the Company and its
interests in preserving any ongoing business relationship. Nevertheless, the
Advisor will not consummate purchases in a manner which would cause it to breach
its fiduciary obligations to the Company. See "Management."
5. PROPERTY MANAGEMENT SERVICES ARE BEING RENDERED BY AN ENTITY OWNED
PRINCIPALLY BY INDIVIDUALS WHO ARE AFFILIATES OF INLAND. The Management Agent,
which is owned principally by individuals who are Affiliates of Inland, provides
property management services to the Company on a competitive basis in a manner
consistent with customary business practices. See "Compensation
Table--Nonsubordinated Payments--Operational Stage." The Advisor and the
Management Agent believe that the Management Agent has sufficient personnel and
other required resources to discharge all responsibilities to the Company.
45
<PAGE>
Pursuant to the property management services agreement between the Company and
the Management Agent (the "Management Agreement"), the Company pays the
Management Agent a monthly management fee of no greater than 90% of the fee
which would be payable to an unrelated party providing such services, which fee
shall initially be 4.5% of gross income for the month for which the payment is
made. There will be a separate Management Agreement for each Property for an
initial term ending as of December 31 in the year in which the Property is
acquired, and each Management Agreement will be subject to three successive
three-year renewals unless, 30 days prior to the expiration of the initial or
renewed term of the agreement, the Management Agent notifies the Company in
writing that it elects to terminate the agreement. The Company's right to
terminate will be limited so that the Management Agreement will be terminable by
the Company only in the event of gross negligence, willful misconduct or
deliberate malfeasance on the part of the Management Agent. Such termination by
the Company shall become effective 30 days following delivery of proper notice
thereof. The Management Agent may, in certain instances, subcontract the
required property management services for an amount that may be less than the
fee provided for in the Management Agreement.
6. RECEIPT OF COMMISSIONS, FEES AND OTHER COMPENSATION BY THE ADVISOR AND
ITS AFFILIATES. The Advisor and its Affiliates will receive the compensation
described in the "Compensation Table." Certain compensation is payable
notwithstanding the lack of cash available to make Distributions to the
Stockholders. To that extent, the Advisor and its Affiliates benefit from the
Company's retaining ownership of its Properties and leveraging its Properties,
while Stockholders may be better served by sale or disposition or not incurring
indebtedness secured by the Properties. Furthermore, the receipt and retention
of certain fees and reimbursements is dependent upon the Company continuing to
invest in Properties. Therefore, the interest of the Advisor and its Affiliates
in receiving such fees may conflict with the interest of the Stockholders in
earning income on their investment in Shares. The Advisor and its Affiliates
recognize that they have a fiduciary duty to the Company and the Stockholders,
and have represented to the Company that their actions and decisions will be
made in the manner most favorable to the Company and its Stockholders, so as not
to breach their respective fiduciary duties. See also "Risk Factors--Company
Risks--Dilution" regarding issuance of Soliciting Dealer Warrants to the Dealer
Manager.
7. NON-ARM'S-LENGTH AGREEMENTS. The agreements and arrangements, including
those relating to compensation, between the Company and the Advisor or any of
its Affiliates are not the result of arm's-length negotiations, but the Company
believes that these agreements and arrangements approximate the terms of
arm's-length transactions.
While the Company does not make loans to the Advisor or its Affiliates, the
Company may borrow money from the Advisor or its Affiliates for various purposes
including funding working capital requirements, but only on terms as to interest
rate, security, fees and other charges at least as favorable to the Company as
determined by a majority of the Directors (including a majority of the
Independent Directors) as those charged by unaffiliated lending institutions in
the same locality on comparable loans for the same purpose. Any money borrowed
from an Affiliate is expected to be repaid within 90 days.
The Advisor and its Affiliates may provide services to, and otherwise deal
or do business with, persons who deal with the Company, although there are no
present arrangements with respect to any such services. However, no rebates or
"give-ups" may be received by the Advisor or its Affiliates, nor may the Advisor
or any such Affiliates participate in any reciprocal business arrangements which
would have the effect of circumventing any provision of the Advisory Agreement.
8. THE COMPANY AND THE ADVISOR HAVE THE SAME LEGAL COUNSEL. Wildman,
Harrold, Allen & Dixon ("Counsel") serves as general legal counsel to the
Company, as well as to the Advisor. Wildman, Harrold, Allen & Dixon is not
acting as legal counsel for the Stockholders or any potential investor. There is
a possibility that in the future the interests of the various parties may become
adverse, and under the Code of Professional Responsibility of the legal
profession in effect in Illinois, Counsel may be precluded from representing any
one or all of these parties. If any situation arises in which the interests of
the Company
46
<PAGE>
appear to be in conflict with those of the Advisor or its Affiliates, additional
counsel may be retained by one or more of the parties to assure adequate
protection of their respective interests.
9. INLAND SECURITIES CORPORATION IS PARTICIPATING AS DEALER MANAGER IN THE
SALE OF THE SHARES. Inland Securities Corporation, a securities dealer and one
of the TIGI Affiliated Companies, is the Dealer Manager of the Offering and is
entitled to selling commissions, a Marketing Contribution, a Due Diligence
Expense Allowance, and Soliciting Dealer Warrants, some or all of which may be
retained or reallowed to Soliciting Dealers. See "Risk Factors--Company
Risks--Dilution," "Compensation Table--Nonsubordinated Payments--For and in
Connection With the Offering" and "Plan of Distribution--Compensation" regarding
such compensation and allowances and the issuance of the Soliciting Dealer
Warrants to the Dealer Manager. The Dealer Manager may be subject to a conflict
of interest, which may arise out of its participation in the Offering and its
affiliation with the Advisor, in performing its "due diligence" obligations
which arise under the Act. However, the Dealer Manager has informed the Company
that it believes it has properly performed and will properly perform these "due
diligence" activities. Further, the Dealer Manager is currently serving as the
dealer manager for IREC's offering of its shares of common stock.
10. THE ADVISOR MAY HAVE CONFLICTING FIDUCIARY OBLIGATIONS IN THE EVENT THE
COMPANY ACQUIRES PROPERTIES WITH AFFILIATES. The Advisor may cause the Company
to acquire an interest in a Property through a joint venture with an Affiliate
of the Advisor. In such instance, the Advisor will have a fiduciary duty to both
the Company and the Affiliate participating in the joint venture. In order to
minimize the conflict between these fiduciary duties, the Advisory Agreement
provides guidelines for investments in joint ventures with Affiliates. In
addition, the Articles require a majority of the Directors (including a majority
of the Independent Directors) not otherwise interested in the transaction to
determine that the transaction is fair and reasonable to the Company and is on
terms and conditions no less favorable than from unaffiliated third parties to
the Company entering into the venture. See "Investment Objectives and
Policies--Joint Ventures."
11. THE BUSINESS OF THE ADVISOR AND THE MANAGEMENT AGENT MAY BE ACQUIRED BY
THE COMPANY WITHOUT FURTHER ACTION BY THE COMPANY'S STOCKHOLDERS. During the
term of the Company's agreements with the Advisor and the Management Agent, the
Company has the option to cause the business conducted by the Advisor and/or the
Management Agent (including all of their assets) to be acquired by or
consolidated into the Company, without any consent of the Stockholders, the
Advisor or the Management Agent or their respective Board of Directors or
shareholders. The Company may elect to exercise such right at any time after
three years from the date of this Prospectus. The Company's decision to exercise
such right will be determined by a vote of a majority of the Directors not
otherwise interested in the transaction (including a majority of the Independent
Directors). The Advisor and the Management Agent and/or their respective
shareholders will receive in connection with such an acquisition and in exchange
for the transfer of all of the stock or assets of the Advisor and/or the
Management Agent, as the case may be, and for terminating their contractual
relationships with the Company and the release or waiver of all their fees
payable under the provisions of those contractual arrangements until their
stated termination, but not paid, a determinable number of Shares. The Company
will be obligated to pay any fees accrued under such contractual arrangements
for services rendered through the closing of such acquisitions. See
"Management--The Advisory Agreement" for an explanation of how such number of
Shares will be determined. In the event such an acquisition transaction is
structured as a purchase of assets by the Company or a share exchange in which
the Company is the acquiring corporation, the Company's Articles and the MGCL
permit the Company to enter into and to consummate such a transaction without
obtaining the approval of the Stockholders. The Company does not presently
intend to seek such Stockholder approval if it is not then required by the MGCL
or the Articles. Any such transaction will occur, if at all, only if the Board
obtains a fairness opinion from a recognized financial advisor or institution
providing valuation services to the effect that the consideration to be paid
therefor is fair, from a financial point of view, to the Stockholders.
47
<PAGE>
COMPENSATION TABLE
The compensation arrangements between the Company and the Advisor and its
Affiliates (being TIGI Affiliated Companies) were not determined by arm's-length
negotiations. See "Conflicts of Interest." The following table discloses the
significant compensation which may be received by the Advisor and its Affiliates
from the Company. In those instances in which there are maximum amounts or
ceilings on the compensation which may be received by the Advisor and its
Affiliates for services rendered to the Company, the Advisor and its Affiliates
may not recover any excess amounts for those services by reclassifying such
services under a different compensation or fee category. See "Conflicts of
Interest-- Receipt of Commissions, Fees and Other Compensation by the Advisor
and its Affiliates" and "Management--The Advisory Agreement" and "--The
Management Agent."
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation, allowances and fees payable
to the Advisor and its Affiliates by the Company are not subordinated to the
Current Return or Cumulative Return to the Stockholders.
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
FOR AND IN CONNECTION WITH THE
OFFERING:
Selling Commissions (payable to the Except for Special Sales, the Dealer The actual amount depends upon the
Dealer Manager and Soliciting Manager will receive $0.70 per Share number of Shares sold. A total of
Dealers) for each of the 50,000,000 Shares $35,000,000 in selling commissions
sold on the "best efforts" basis will be paid if the Maximum Offering
and, under certain circumstances, is sold and there are no Special
one Soliciting Dealer Warrant for Sales.
each 40 Shares sold; provided that
the Company will not issue more than
1,250,000 Soliciting Dealer
Warrants. The Dealer Manager will
reallow the selling commissions and,
subject to applicable federal and
state securities laws, the
Soliciting Dealer Warrants, to
Soliciting Dealers for each Share
they sell. A selling commission will
not be payable for (i) the sale of
Shares to employees and associates
of the Company and its Affiliates,
the Advisor, Affiliates of the
Advisor, the Dealer Manager or the
Soliciting Dealers, or (ii) Shares
purchased under the DRP, because
those Shares will be purchased at a
reduced price to reflect decreased
administrative costs. Also, a
selling commission will not be
payable in connection with the
issuance of the
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
Soliciting Dealer Warrants or the
Shares issuable upon exercise
thereof. Reduced selling commis-
sions will be payable with respect
to sales of Shares which are enti-
tled to volume discounts. (1)
<S> <C> <C>
Marketing Contribution and Due An amount equal to 2% of the Gross The actual amount depends upon the
Diligence Expense Allowance (payable Offering Proceeds will be paid to number of Shares sold. A total of
to the Dealer Manager and Soliciting the Dealer Manager, all or some $12,500,000 will be paid for the
Dealers) portion of which may be reallowed to Marketing Contribution and the Due
Soliciting Dealers, in lieu of Diligence Expense Allowance if the
reimbursement of specific expenses Maximum Offering is sold and there
associated with marketing are no Special Sales.
(collectively, the "Marketing
Contribution"). An additional 0.5%
of the Gross Offering Proceeds may
be paid to the Dealer Manager, which
may be reallowed to the Soliciting
Dealers, for BONA FIDE due dili-
gence expenses (the "Due Diligence
Expense Allowance"). The Marketing
Contribution and Due Diligence
Expense Allowance will not be
payable (i) in connection with the
sale of Shares to employees and
associates of the Company and its
Affiliates, the Advisor, Affiliates
of the Advisor, the Dealer Manager
or the Soliciting Dealers, (ii) in
connection with the issuance of the
Soliciting Dealer Warrants or the
Shares issuable upon exercise
thereof, or (iii) for Shares
purchased under the DRP because
those Shares will be purchased at a
reduced price to reflect decreased
costs associated with those
issuances.
Reimbursable Expenses (payable to IREIC, one of the Inland Affiliated Reimbursable Expenses of
the Advisor and its Affiliates) Companies, has advanced Organization approximately $157,000 have been
and Offering Expenses for the advanced by IREIC through August 31,
Company and will be reimbursed for 1998 in connection with the Offering
actual costs incurred in connection (for Organization and Offering
with the Offering on behalf of the Expenses, but excluding selling
Company, including legal and commissions and the Marketing
accounting fees, registration and Contribution and Due Diligence
Expense
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
filing fees, printing costs and Allowance). In the event the
selling expenses. However, if the Offering is not successful, then
aggregate of all Organization and IREIC shall be solely responsible
Offering Expenses, including sell- for the Organization and Offering
ing commissions and the Marketing Expenses. It is estimated that
Contribution and Due Diligence approximately $14,000,000 of
Expense Allowance, exceeds 15% of Organization and Offering Expenses
the Gross Offering Proceeds, or if (excluding selling commissions and
the aggregate of all Organization the Marketing Contribution and Due
and Offering Expenses, excluding the Diligence Expense Allowance) will be
selling expenses, exceeds 5.5% of incurred if the Maximum Offering is
the Gross Offering Proceeds, the sold.
Advisor or its Affiliates will
promptly pay such excess expenses
and the Company will have no
liability for such expenses at any
time thereafter.
<S> <C> <C>
ACQUISITION STAGE:
Acquisition Expenses for the costs An amount, for the expenses If the Maximum Offering is sold and
and expenses of the acquisition of associated with Property acquisi- all of the 4,000,000 Shares pursuant
Properties including surveys, tions, estimated to be in an to the DRP are sold, and all of the
appraisals, title insurance and aggregate amount up to 0.5% of (i) Soliciting Dealer Warrants are
escrow fees, legal and accounting the Gross Offering Proceeds, (ii) issued and exercised, Acquisition
fees and expenses, computer use the gross proceeds from the sale of Expenses may not exceed $2,765,005;
related expenses, architectural and up to 4,000,000 Shares pursuant to however, the actual amounts cannot
engineering reports, environmental the DRP, and (iii) the gross be determined at the present time.
and asbestos audits, travel and com- proceeds from the issuance and See note (4) to the table under
munication expenses and other exercise of the Soliciting Dealer "Estimated Use of Proceeds of
related expenses (payable to the Warrants. (2) Offering."
Advisor and its Affiliates). The Acquisition Expense for any
particular Property will not exceed
6% of the purchase price of any
single Property.
OPERATIONAL STAGE (3):
Property Management Fee (payable to A Property Management Fee equal to The actual amounts are dependent
the Management Agent) not more than 90% of the fee which upon results of operations and,
would be payable to an unrelated therefore, cannot be determined at
party providing such services, which the present time.
fee shall initially be 4.5% of the
gross revenues from the Properties,
will be paid monthly to Inland
Southeast Property Management Corp.
(the "Management Agent"), which is
owned principally by individuals
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
who are Affiliates of Inland, in
exchange for the Management Agent's
services in connection with the
rental, leasing, operation and
management of the Properties. The
Management Agent may in certain
instances sub-contract its duties
for a fee that may be less than the
fee provided for in the Management
Agreement. (4)
<S> <C> <C>
Compensation for Other Prop- An Affiliate of the Advisor will The actual amounts are dependent
erty-Level Services provide loan servicing services to upon the amount of loans serviced
the Company, for which it will be and results of operations and,
paid fees, payable monthly, that for therefore, cannot be determined at
each full year will be equal to no the present time.
more than .08% of the aggregate
principal amount of the loans it is
servicing for the Company during
that year, up to the first $100
million in aggregate principal loan
balances and a lesser percentage on
a sliding scale basis thereafter.
In addition, the Affiliates of the
Advisor may, from time to time,
provide other property-level ser-
vices to the Company, such as sales
brokerage, construction management,
loan origination, property tax
reduction, and risk management
services. Affiliates of the Advisor
will provide such services and will
receive compensation therefor from
the Company only if the parties
agree upon the scope of such
services. Any such compensation for
these agreed upon services will not
exceed 90% of that which would be
paid to third parties for any such
services and all such compensation
must be approved by a majority of
the Independent Directors. See
"Management-- Other Services."
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Reimbursable Expenses (payable to Certain expenses of the Advisor and The actual amounts are dependent
the Advisor and its Affiliates) its Affiliates will be reimbursed by upon results of operations and,
the Company. (5)(6) therefore, cannot be determined at
the present time.
LIQUIDATION STAGE:
Property Disposition Fee (payable to A Property Disposition Fee, payable The actual amounts to be received
the Advisor and its Affiliates) upon the sale of each of the depend upon the sale price of
Company's Properties, may be paid to Company Properties and, therefore,
the Advisor and its Affiliates in an cannot be determined at the present
amount equal to the lesser of: (i) time.
3% of the contract sales price of
the Property; or (ii) 50% of the
commission which would be payable to
a third party which is reasonable,
customary and competitive in light
of the size, type and location of
such Property ("Competitive Real
Estate Commission"). The amount
paid, when added to the sums paid to
unaffiliated parties, shall not
exceed the lesser of the Competitive
Real Estate Commission or an amount
equal to 6% of the contracted for
sales price. Payment of such fees
shall be made only if the Advisor
provides a substantial amount of
services in connection with the sale
of the Property. See "Manage-
ment--The Advisory Agreement." (4)
</TABLE>
SUBORDINATED PAYMENTS
The following additional fees payable to the Advisor by the Company will be
payable only after specified returns have been paid to the Stockholders as set
forth below:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
OPERATIONAL STAGE (3):
Advisor Asset Management Fee An Advisor Asset Management Fee of The actual amounts are dependent
(payable to the Advisor) not more than 1% of the Average upon results of operations and,
Invested Assets will be paid to the therefore, cannot be determined at
Advisor. The fee will be payable the present time.
quarterly in an amount equal to 1/4
of 1% of the Average Invested Assets
of the
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM
TYPE OF COMPENSATION METHOD OF COMPENSATION DOLLAR AMOUNT
- ------------------------------------ ------------------------------------ ------------------------------------
Company, as of the last day of the
immediately preceding quarter,
pursuant to the Advisory Agreement.
For any year in which the Company
qualifies as a REIT, the Advisor
must reimburse the Company for (i)
the amounts, if any, by which the
Advisor Asset Management Fee plus
Other Operating Expenses paid during
the previous calendar year exceed
the greater of (a) 2% of the
Company's Average Invested Assets
for that calendar year or (b) 25% of
the Company's Net Income for that
calendar year; PLUS (ii) an amount
equal to any deficit between the
total amount of Distributions to
Stockholders for that year and the
Current Return. See "Man-
agement--The Advisory Agreement" for
an explanation of circumstances
where the excess specified in clause
(i) of the preceding sentence may
not need to be reimbursed.
<S> <C> <C>
LIQUIDATION STAGE (3):
Incentive Advisory Fee (payable to After the Stockholders have first The actual amounts to be received
the Advisor) received: (i) their 7% Cumulative depend upon the sale price of
Return; and (ii) a return of their Company Properties and, therefore,
Invested Capital, an Incentive cannot be determined at the present
Advisory Fee equal to 15% of the net time.
proceeds from the sale of a Property
will be paid to the Advisor. If the
business conducted by the Advisor is
acquired by or consolidated into the
Company, the Incentive Advisory Fee
shall terminate at that time. (4)
</TABLE>
- ------------------------
(1) Each Soliciting Dealer Warrant grants the holder a right to purchase one
Share at a price of $12.00 per Share during the Exercise Period. No
Soliciting Dealer Warrants will be exercisable until one year from the date
of issuance. The exercise price of any unexercised Soliciting Dealer
Warrants will be adjusted in the event the offering price of Shares pursuant
to this Prospectus for this Offering is increased, which is not presently
anticipated. See "Plan of Distribution--Compensation."
53
<PAGE>
(2) The total of all Acquisition Expenses paid by the Company in connection with
the purchase of a Property by the Company may not exceed an amount equal to
6% of the Contract Price for the Property (as defined herein), unless a
majority of the Directors (including a majority of the Independent
Directors), not otherwise interested in the transaction, approve the
transaction as being commercially competitive, fair and reasonable to the
Company. Notwithstanding the foregoing, the total of all Acquisition
Expenses paid by the Company in connection with the purchase of a Property
by the Company from an Affiliate may not exceed 6% of the Contract Price for
the Property. Acquisition Expenses will accrue and be paid on Properties
purchased with the Gross Offering Proceeds, gross proceeds from Shares sold
via the DRP pursuant to this Prospectus and gross proceeds received from the
issuance and exercise of the Soliciting Dealer Warrants issued by the
Company in connection with the Offering, as well as on the entire purchase
price of all Properties including any acquisition financing related thereto.
(3) The Advisor and its Affiliates assist the Company in determining the types
of transactions entered into by the Company. The Advisor benefits, in the
form of fees, by the Company retaining ownership of its Properties and
leveraging its Properties, while Stockholders may be better served by the
sale or disposition of the Properties or not incurring indebtedness secured
by the Properties. Furthermore, the Advisor's ability to receive or retain
certain fees and reimbursements is dependent upon the Company continuing to
invest in Properties. Therefore, the interest of the Advisor in receiving
such fees may conflict with the interest of the Stockholders to earn income
on their investment in Shares and may result in the Company entering into
transactions which may not be in the best interest of the Stockholders.
(4) The business conducted by the Advisor and/or the Management Agent may be
acquired by or consolidated into the Company and if either or both of such
transactions occur, the Advisor and/or the Management Agent, as the case may
be, and/or their respective shareholders, will receive in exchange for
terminating their contractual relationship with the Company and the release
and waiver of all their fees payable under the provisions of those
contractual arrangements until their stated termination, but not paid,
Shares in an amount determined in accordance with a prescribed formula. The
Company will be obligated to pay any fees accrued under such contractual
arrangements for services rendered through the closing of such acquisition.
Upon consummation of any such transactions, the Advisory Agreement and/or
the Management Agreement, as the case may be, would be terminated. See
paragraph 11 under "Conflicts of Interest" and "Management--The Advisory
Agreement" and "--The Management Agent."
(5) (i) The Advisor and its Affiliates are reimbursed for: (a) the cost to the
Advisor or its Affiliates of goods and services used for and by the
Company and obtained from unaffiliated parties; and (b) administrative
services related thereto. "Administrative services" include ministerial
services such as typing, record keeping, preparing and disseminating
Company reports, preparing and maintaining records regarding
Stockholders, record keeping and administration of the DRP and Share
Repurchase Programs, preparing and disseminating responses to
Stockholder inquiries and other communications with Stockholders and
any other record keeping required for the Company.
(ii) In extraordinary circumstances fully justified to the official or
agency administering the state securities laws, the Advisor and its
Affiliates may provide other goods and services to the Company if all
of the following criteria are met: (a) the goods or services must be
necessary to the prudent operation of the Company; (b) the
compensation, price or fee must be equal to the lesser of 90% of the
compensation, price or fee the Company would be required to pay to
independent parties who are rendering comparable services or selling or
leasing comparable goods on competitive terms in the same geographic
location, or 90% of the compensation, price or fee charged by the
Advisor or its Affiliates for rendering comparable services or selling
or leasing comparable goods on competitive terms; and (c) if at least
95% of gross revenues attributable to
54
<PAGE>
the business of rendering such services or selling or leasing such
goods are derived from persons other than Affiliates, the compensation,
price or fee charged by an unaffiliated person who is rendering
comparable services or selling or leasing comparable goods must be on
competitive terms in the same geographic location. Extraordinary
circumstances shall be presumed only when there is an emergency
situation requiring immediate action by the Advisor or its Affiliates
and the goods or services are not immediately available from
unaffiliated parties. Services which may be performed in such
extraordinary circumstances include emergency maintenance of Company
properties, janitorial and other related services due to strikes or
lock-outs, emergency tenant evictions and repair services which require
immediate action, as well as operating and re-leasing properties with
respect to which the leases are in default or have been terminated.
(iii) Permitted reimbursements include salaries and related salary expenses
for non-supervisory services which could be performed directly for the
Company by independent parties such as legal, accounting, transfer
agent, data processing and duplication. The Advisor believes that its
employees and the employees of its Affiliates who perform services for
the Company for which reimbursement is allowed pursuant to clause (ii)
above, or this clause (iii) will have the experience and educational
background, in their respective fields of expertise, appropriate for
the performance of such services.
(iv) The Total Operating Expenses of the Company may not (in the absence of
a satisfactory showing to the contrary) in any fiscal year exceed the
greater of: (a) 2% of the Average Invested Assets; or (b) 25% of its
Net Income for such year. The Independent Directors may, upon a finding
of unusual and non-recurring factors which they deem sufficient,
determine that a higher level of expenses is justified in any given
year. There are certain additional restrictions on expenses that will
be borne by the Company.
(6) The compensation and reimbursements paid by the Company to the Advisor and
its Affiliates shall be approved by a majority of the Directors (including a
majority of the Independent Directors), as being fair and reasonable to the
Company and not less favorable to the Company than would be available from
an unaffiliated source.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
55
<PAGE>
PRIOR PERFORMANCE OF THE COMPANY'S AFFILIATES
PRIOR INVESTMENT PROGRAMS
During the 10-year period ending June 30, 1998, TIGI Affiliated Companies
have sponsored one REIT, six public real estate equity programs, one private
real estate equity program, and nine private placement mortgage and note
programs, which have in the aggregate raised in excess of $593,000,000 from
31,510 investors. During that 10-year period, those public real estate equity
programs raised $145,075,520 from 13,880 investors; the private real estate
equity program raised $2,275,000 from 85 investors; the private placement
mortgage and note programs raised $22,641,000 from 545 investors; and Inland
Real Estate Corporation ("IREC"), a REIT, sponsored by IREIC (one of the TIGI
Affiliated Companies), has raised $423,290,000 from 17,000 investors. IREC has
investment objectives and policies similar to the Company and has invested
principally in Neighborhood Centers, except however, IREC invests principally in
a geographical area different than the Company's Primary Geographical Area of
Investment. See "--Publicly Registered Real Estate Investment Trust--Inland Real
Estate Corporation" below in this Section. The investment objectives and
policies of the Company are similar to those of several of the prior investment
programs sponsored by TIGI Affiliated Companies which have owned and operated
retail properties. However, the vast majority of the other investment programs
sponsored by TIGI Affiliated Companies were dissimilar from the Company in that
the programs owned apartment properties, pre-development land and whole or
partial interests in mortgage loans.
The information in this Section and in the Prior Performance Tables included
in this Prospectus as Appendix A shows relevant summary information concerning
real estate programs sponsored by the TIGI Affiliated Companies, the purpose of
which is to provide information on the prior performance of these programs so
that potential investors may evaluate the experience of the TIGI Affiliated
Companies in sponsoring such programs. The following discussion is intended to
briefly summarize the objectives and performance of the prior programs and to
disclose any material adverse business developments sustained by them.
SUMMARY INFORMATION
The table below provides certain summarized information concerning prior
programs sponsored by TIGI Affiliated Companies for the 10-year period ending
June 30, 1998, and is qualified in its entirety by reference to the foregoing
introductory discussion and the detailed information appearing in the Prior
Performance Tables in Appendix A of this Prospectus. Investors should not
construe inclusion of the succeeding tables, which cover the 10-year period
ending June 30, 1998, as implying in any manner that the Company will have
results comparable to those reflected in the tables; because the yield and cash
available and other factors could be substantially different for the Company's
Properties. Investors should note that by acquiring Shares in the Company, they
will not be acquiring any interests in any prior programs.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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<TABLE>
<CAPTION>
PRIOR PUBLIC PRIOR PRIVATE
PRIOR REAL ESTATE REAL ESTATE EQUITY
REIT EQUITY AND MORTGAGE AND NOTE
PROGRAM PROGRAMS PROGRAMS
-------------- ----------------- ---------------------
<S> <C> <C> <C>
Number of programs sponsored......................... 1 6 10
Aggregate amount raised from investors............... $ 423,290,000 $ 145,075,520 $ 24,916,000
Aggregate number of investors........................ 17,000 13,880 630
Number of properties purchased....................... 67 77 7
Aggregate cost of properties (1)..................... $ 466,699,000 $ 119,292,939 $ 1,951,930
Number of mortgages/notes............................ 0 7 517
Principal amount of mortgages/notes.................. 0 $ 2,302,064 $ 22,584,000
Percentage of properties (based on cost) that were:
Commercial--
Retail........................................... 89.6% 1.9% 0.0%
Single-user retail net-lease..................... 10.4% 7.1% 0.0%
Nursing homes.................................... 0.0% 6.3% 0.0%
Offices.......................................... 0.0% 0.0% 0.0%
Industrial....................................... 0.0% 0.0% 0.0%
Health clubs..................................... 0.0% 3.8% 0.0%
Mini-storage..................................... 0.0% 0.0% 0.0%
Total commercial............................... 100.0% 19.1% 0.0%
Multi-family residential........................... 0.0% 3.4% 0.0%
Land............................................... 0.0% 77.5% 100.0%
Percentage of properties (based on cost) that were:
Newly constructed (within a year of acquisition)... 16.5% 0.0% 0.0%
Existing........................................... 83.5% 100.0% 0.0%
Construction....................................... 0.0% 0.0% 0.0%
Number of properties sold............................ 0 11 3
25.9%(2)
Number of properties exchanged....................... 0 0 0
Number of mortgages/notes repaid..................... 0 5 199
</TABLE>
- ------------------------
(1) Includes purchase price and acquisition fees and expenses.
(2) Based on costs of the properties sold and costs capitalized subsequent to
acquisition at June 30, 1998, not including portions of land parcels.
During the three years prior to December 31, 1997, (i) IREC, a REIT
sponsored by IREIC (one of the TIGI Affiliated Companies), purchased 44
commercial properties, and (ii) other publicly registered investment programs
sponsored by IREIC purchased one parcel of land. Upon written request of the
Company, any potential investor may obtain, without charge, a copy of Table VI,
filed with the Commission in connection with this Offering, which provides more
detailed information concerning these acquisitions.
PUBLICLY REGISTERED REAL ESTATE INVESTMENT TRUST
INLAND REAL ESTATE CORPORATION ("IREC")--On October 14, 1994, IREC commenced
an initial public offering (the "Initial Offering") of 5,000,000 shares of
common stock at $10 per share. As of July 24, 1996, IREC had received
subscriptions for a total of 5,000,000 shares, thereby completing the Initial
Offering. On July 24, 1996, IREC commenced an offering of an additional
10,000,000 shares of common stock (the "Second Offering") at $10 per share. As
of July 10, 1997, IREC had received subscriptions for a total of
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10,000,000 shares, thereby completing the Second Offering. On July 14, 1997,
IREC commenced an offering of an additional 20,000,000 shares of common stock
(the "Third Offering") at $10 per share. As of March 19, 1998, IREC had received
subscriptions for a total of 20,000,000 shares, thereby completing the Third
Offering. On April 7, 1998, IREC commenced an offering of an additional
25,000,000 shares (the "Fourth Offering") at $11 per share. As of June 30, 1998,
IREC had received subscriptions for a total of 5,751,948 shares from the Fourth
Offering. In addition, as of June 30, 1998, IREC had distributed 1,070,917
shares of common stock through its Distribution Reinvestment Program. As of June
30, 1998, IREC had repurchased 69,575 shares of common stock through its Share
Repurchase Program. As a result, IREC's gross offering proceeds totaled
approximately $423,290,000 for all of such offerings, net of shares repurchased
through its Share Repurchase Program, as of June 30, 1998. IREC's objective is
to purchase Neighborhood Centers and Community Centers located within an
approximate 400-mile radius of its headquarters in Oak Brook, Illinois, to
provide, at a minimum, cash distributions on a quarterly basis and to provide a
hedge against inflation through capital appreciation. IREC may also acquire
single-user retail properties throughout the United States. It is IREC's
intention, whenever possible, to acquire properties free and clear of permanent
mortgage indebtedness by paying the entire purchase price of each property in
cash or shares of IREC's stock, although, IREC does, in certain instances,
utilize borrowings to acquire properties. As of June 30, 1998 the properties
owned by IREC were generating sufficient cash flow to cover operating expenses
plus pay a monthly cash distribution of 8.8% per annum.
As of June 30, 1998 IREC raised $423,290,000 from 17,000 investors. IREC has
placed financing totaling approximately $167,500,000 on 50 of its 67 properties
as of June 30, 1998. IREC's 67 properties, a total investment of $466,699,000 at
June 30, 1998, were purchased with proceeds received from the above described
offerings of shares of its common stock and financings. Through June 30, 1998,
cash distributions have totaled $32,223,481, all of which were from operating
cash flow. In the opinion of IREIC, IREC is substantially meeting its investment
objective for cash flow.
PUBLICLY REGISTERED LIMITED PARTNERSHIPS
INLAND MONTHLY INCOME FUND II, L.P. ("MONTHLY INCOME FUND II")--The offering
period for Monthly Income Fund II began August 4, 1988 and ended August 4, 1990.
The objectives were to invest in improved residential, retail, industrial and
other income-producing properties on an all-cash basis to provide monthly cash
distributions of at least 8% per annum through the first five years of the
partnership and to provide a hedge against inflation through capital
appreciation.
Monthly Income Fund II raised $25,323,569 from more than 2,100 investors and
purchased five properties, a net-leased Wholesale Club retail property in
Indiana, a net-leased health club in Ohio, a net-leased nursing center in
Illinois, a net-leased retail store in Arizona and the Euro-Fresh Market Plaza
(formerly Eagle Plaza), a Neighborhood Center in Illinois, for a total
acquisition cost of $21,224,542. Through June 30, 1998, cash distributions have
been maintained at or above an 8% level and on an accrual basis have totaled
$432.84 per $500 unit or $20,456,235, including $16,060,670 from operations and
an additional $4,395,565 which constitutes the net proceeds from the sale of the
Wholesale Club.
One of Monthly Income Fund II's properties, which represents 35.44% of its
total assets, as measured by its original purchase price, is a nursing center
which is 100% leased to Elite Care Corporation ("Elite"). Monthly Income Fund
II's lease with Elite became effective in February 1991, following the
termination of a lease with Adventist Living Centers, Inc. ("ALC"), the tenant
which was in place when Monthly Income Fund II purchased the property. After ALC
began experiencing financial difficulties, IREIC sought out Elite as a
replacement nursing home operator/tenant. The net effect to Monthly Income Fund
II was an 8% decrease in the effective rent from the nursing center facility
over the term of the lease, from $77,368 per month when ALC was the tenant to
$71,895 from Elite. Under the terms of the lease agreement for the nursing
center, any sublease transaction requires the approval of the partnership. The
partnership has approved a sublease transaction for this facility with no
significant changes to the terms of the lease.
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In January 1991, Monthly Income Fund II sold its Wholesale Club property in
Indiana for $4,400,000. Net sales proceeds of $4,395,565 were distributed to
investors in February 1991. The property was purchased by Monthly Income Fund II
in December 1988 for $3,427,278, which included acquisition fees of $275,013 and
acquisition costs of $9,265. The gain on sale for financial reporting purposes
was $847,467, which is net of selling expenses and commissions.
In January 1994, Eagle Foods, the anchor tenant at Eagle Plaza, a
Neighborhood Center, closed its store. In February 1994 and with the approval of
the partnership, Eagle Foods assigned its lease to Certified Grocers Midwest,
Inc. ("Certified"), which vacated in August 1995. During May 1996, Euro-Fresh
Market ("Euro-Fresh") began its occupancy of the anchor store and the shopping
center has been renamed Euro-Fresh Market Plaza. Under the original lease, as
well as the assignment of the lease, Eagle Foods has guaranteed payments until
November 1998.
In the opinion of IREIC, the partnership is meeting its investment objective
to provide a minimum 8% cash distribution and has, through an early and
profitable sale of the Wholesale Club, achieved capital appreciation on 16% of
the partnership's investment in properties.
INLAND REAL ESTATE GROWTH FUND II, L.P. ("GROWTH FUND II")--The offering
period for Growth Fund II began September 21, 1987 and ended September 21, 1989.
The objectives were to invest in improved residential, retail, industrial and
other income-producing properties on a moderately leveraged basis for capital
appreciation through increases in property values, tax-sheltered quarterly cash
distributions and the build-up of equity through reduction of mortgage
indebtedness.
Growth Fund II raised $4,038,250 from 336 investors and purchased two
properties, a multi-family residential property in Illinois and a health club in
Ohio. These properties were purchased for a total acquisition cost of
$5,615,826. The health club is currently approximately 60% financed with 40%
equity. Cash distributions to limited partners through June 30, 1998 totaled
$1,164.14 per $1,000 unit or $4,624,084, including $957,313 from operations and
$3,666,771 as a return of capital from the sale of the multi-family residential
property in Illinois as 18 individual six-unit apartment buildings. All 18 of
the six-unit buildings were sold to third-party buyers on an installment basis
for from $245,334 to $250,000 per building or a total of $4,261,895 (net of
selling expenses). Growth Fund II's cost basis in the buildings was $4,112,195.
The partnership extended financing to buyers to allow buyers to make monthly
interest payments to Growth Fund II for a period of not more than seven to ten
years, at which time the balance of the purchase price would be due. However, as
of December 31, 1995, 13 of the installment sale loans had been prepaid in full
and five had been substantially pre-paid. In addition, since 1994 the limited
partners have continued to receive double digit returns on their remaining
invested capital. As of June 30, 1998, the remaining $80,000 owed on these
loans, which were secured by second mortgages, was paid in full. In the opinion
of IREIC, the sale of the multi-family property as individual six-unit apartment
buildings has resulted in modest capital appreciation within a short holding
period. IREIC is evaluating strategies to sell the partnership's remaining asset
(the health club in Ohio) and bring the partnership to a profitable conclusion.
INLAND LAND APPRECIATION FUND, L.P. ("LAND FUND I")--The offering period for
Land Fund I began October 12, 1988 and ended October 6, 1989. The objectives
were to invest in pre-development land on an all-cash basis and realize
appreciation of such land upon resale.
Land Fund I raised $30,001,000 from 3,425 investors and purchased 25 land
parcels, all in suburban counties surrounding Chicago, Illinois, for an
aggregate purchase price of $25,187,069. As of June 30, 1998, Land Fund I has
had multiple sales transactions involving all or portions of 15 parcels which
generated $17,897,139 in net sales proceeds, including notes receivable of
$6,012,641. Land Fund I's cost basis in the land parcels sold was $13,775,558
resulting in a gain, net of selling expenses and commissions, of $4,121,581 for
financial reporting purposes. In the opinion of IREIC, the partnership is
currently meeting its investment objectives and has, through completed sales
transactions, realized significant capital appreciation on the assets sold. Cash
distributions to limited partners through June 30, 1998 totaled $5,996,219, all
from the sale of land parcels.
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INLAND LAND APPRECIATION FUND II, L.P. ("LAND FUND II")--The offering period
for Land Fund II began October 25, 1989 and ended October 24, 1991. The
objectives were to invest in pre-development land on an all-cash basis and
realize appreciation of such land upon resale.
Land Fund II raised $50,476,170 from 5,055 investors and purchased, with the
net proceeds available for investment, 27 land parcels and two buildings, all in
suburban counties surrounding Chicago, Illinois, for an aggregate purchase price
of $41,314,301. As of June 30, 1998, Land Fund II has had multiple sales
transactions involving all or portions of nine parcels which generated
$13,718,098 in net sales proceeds. Land Fund II's cost basis in the land parcels
sold was $8,748,853 resulting in a gain, net of selling expenses and
commissions, of $4,969,245 for financial reporting purposes. In the opinion of
IREIC, the partnership is currently meeting its investment objectives and has,
through completed sales transactions, realized significant capital appreciation
on the assets sold. Cash distributions to limited partners through June 30, 1998
totaled $6,836,753, including $6,115,753 from sales and $721,000 from
operations.
INLAND CAPITAL FUND, L.P. ("LAND FUND III")--The offering period for Land
Fund III began December 13, 1991 and ended August 23, 1993. The objectives were
to invest in pre-development land on an all-cash basis and realize appreciation
of such land upon resale.
Land Fund III raised $32,399,282 from 2,683 investors and purchased, with
the net proceeds available for investment, 18 land parcels, one of which
included a house and several outbuildings, for an aggregate purchase price of
$25,945,989. As of June 30, 1998, Land Fund III has had multiple sales
transactions involving the house and portions of five parcels which generated
$2,286,436 in net sales proceeds. Land Fund III's cost basis in the land parcels
sold was $909,224 resulting in a gain, net of selling expenses and commissions,
of $1,377,212 for financial reporting purposes. In the opinion of IREIC, the
partnership is currently meeting its investment objectives and has, through
completed sales transactions, realized significant capital appreciation on the
assets sold. Cash distributions to limited partners through June 30, 1998
totaled $1,646,334, all from the sale of land parcels.
INLAND MORTGAGE INVESTORS FUND III ("MORTGAGE FUND III")--The offering
period for Mortgage Fund III began January 9, 1989 and ended January 9, 1991.
The objectives were to make or acquire loans secured by mortgages on improved
income-producing properties, to provide investors with quarterly cash
distributions of at least 8% per annum for the first five years of the
partnership and to maximize cash distributions over the life of the partnership
by participating in capital appreciation and increased cash flows of properties
securing the partnership's loans.
Mortgage Fund III raise $2,837,249 from 281 investors and originally funded
seven mortgages totaling $2,302,064 between October 1990 and June 1992. As of
June 30, 1998, the partnership has two mortgage loans receivable totaling
$553,365 remaining. Cash distributions to limited partners through June 30, 1998
totaled $3,001,916, including $1,820,750 from operations, $306,874 in
supplemental capital contributions from the general partner in order to meet the
8% per annum distribution requirement and $874,292 as a return of capital from
the repayment of mortgage loans receivable and prepayment penalties.
In the opinion of IREIC, the delay in locating suitable investment
opportunities for the partnership, along with the small size of the partnership
and its fixed expenses, has resulted in lower than anticipated earnings from
operations. However, to date, the limited partners have received total
distributions in excess of invested capital.
PRIVATE PARTNERSHIPS
Since inception and through June 30, 1998 (including the programs described
below under "--Private Placement Real Estate Equity Program," and "--Private
Placement Mortgage and Note Programs," in this Section), Affiliates of Inland
have sponsored 514 private placement limited partnerships which have raised more
than $524,201,000 from approximately 17,000 investors and invested in properties
for an aggregate price of more than $1 billion in cash and notes. Of the 522
properties purchased, 93% have been in Illinois. Approximately 90% of the funds
were invested in apartment buildings, 6% in shopping centers, 2% in
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office buildings and 2% in other properties. Including sales to Affiliates, 299
partnerships have sold their original property investments. Officers and
employees of IREIC and its Affiliates invested more than $17,000,000 in these
private placement limited partnerships.
From 1990 and through June 30, 1998, investors in Inland's private
partnerships have received total distributions in excess of $184,578,200,
consisting of cash flow from partnership operations, interest earnings, sales
and refinancing proceeds and cash received during the course of property
exchanges. Following a proposal by the former corporate general partner, which
was an Affiliate of TIGI, investors in 301 private partnerships voted in 1990 to
make IREIC the corporate general partner for those partnerships.
Beginning in December 1993 and continuing into the first quarter of 1994,
investors in 101 private limited partnerships for which IREIC is the general
partner received letters from IREIC informing them of the possible opportunity
to sell the 66 apartment properties owned by those partnerships to a to-be-
formed REIT (the "Apartment REIT") in which Affiliates of IREIC would receive
stock and cash and the limited partners would receive cash. In connection
therewith, the underwriters for the Apartment REIT subsequently advised IREIC to
sell to a third party its management and general partner's interests in those
remaining limited partnerships not selling their apartment properties to the
Apartment REIT (approximately 30% of the Inland-sponsored limited partnerships
owning apartment buildings). The prospective third-party buyers of IREIC's
interests in the remaining partnerships, however, would make no assurance to
support those partnerships financially. As a result, in a March 1994 letter from
IREIC, investors were informed of IREIC's decision not to go forward with the
formation of the Apartment REIT. Following this decision, two investors filed a
complaint in April 1994 in the Circuit Court of Cook County, Illinois, Chancery
Division, purportedly on behalf of a class of other unnamed investors, alleging
that IREIC had breached its fiduciary responsibility to those investors whose
partnerships would have sold apartment properties to the Apartment REIT. The
complaint sought an accounting of information regarding the Apartment REIT
matter, an unspecified amount of damages and the removal of IREIC as general
partner of the partnerships that would have participated in the sale of
properties to the Apartment REIT. In August 1994, the court granted IREIC's
motion to dismiss, finding that plaintiffs lacked standing to bring this case
individually. Plaintiffs were granted leave to file an amended complaint.
Thereafter, in August 1994, six investors filed an amended complaint,
purportedly on behalf of a class of other investors, and derivatively on behalf
of six limited partnerships of which IREIC is the general partner. The
derivative counts sought damages from IREIC for alleged breach of fiduciary duty
and breach of contract, and assert a right to an accounting. IREIC filed a
motion to dismiss in response to the amended complaint. The suit was dismissed
in March 1995 with prejudice. The plaintiffs filed an appeal in April 1996.
After the parties briefed the issue, arguments were heard by the Appellate Court
in February 1997. In September 1997, the Appellate Court affirmed the trial
court decision in favor of IREIC.
PRIVATE PLACEMENT REAL ESTATE EQUITY PROGRAM
WISCONSIN CAPITAL LAND FUND, L.P., an Illinois limited partnership, was
formed in October 1992. The objectives were to invest in pre-development land in
the Madison, Wisconsin area on an all-cash basis and realize appreciation of
such land upon resale. The offering period for units in this privately offered
partnership began in October 1992 and ended on June 14, 1993 with the maximum
amount, $2,275,000, raised. Seven parcels of land in the Madison, Wisconsin,
area were purchased with the proceeds of the offering.
Parcel 5, which consists of 63 improved lots in the Village of Mount Horeb,
Wisconsin, has had 34 lot sales since 1995 for total gross sales proceeds of
$1,344,900. Twenty-nine remaining lots continue to be marketed for sale. On
October 1, 1997, Parcel 6, located in Windsor, Wisconsin, was sold for $566,597,
which amount is 191% of the original parcel capital.
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On March 19, 1998, parcels 3 and 7 were sold for a total of $2,150,000, of
which $1,900,000 was returned in cash to investors. To date, the entire amount
raised of $2,275,000 has been distributed to the limited partners.
As of June 30, 1998, the partnership's remaining assets consists of parcels
1, 2 and 4 and the 29 remaining lots in parcel 5.
Intervest Midwest Real Estate Corporation, of which Barry L. Lazarus
(President, Chief Executive Officer, Chief Operating Officer and an Affiliated
Director of the Company) is President, currently provides property zoning,
development and disposition services to this partnership. See "Management--
Directors and Executive Officers of the Company."
PRIVATE PLACEMENT MORTGAGE AND NOTE PROGRAMS
During 1992 and in 1993, IREIC or its Affiliates sponsored nine private
placement securities offerings, including seven mortgage and note programs,
which are described below.
TRIPLE SECURITY FUND, L.P., an Illinois limited partnership, was formed in
May 1992. The principal investment objectives of the partnership were to invest
in participations in third-party mortgage loans owned by an Affiliate of IREIC
and thereby return investors' capital within five years, and to provide a 10%
annual return on invested capital during the life of the partnership. The return
of capital and the 10% annual return were guaranteed by IREIC. The offering
period for interests in this privately offered partnership began in May 1992 and
ended in June 1992 with the maximum amount of $3,000,000 raised. All of the
offering proceeds were used to invest in participations in 14 wraparound
mortgage loans and first mortgage loans, secured by condominium, multi-family
residential and commercial properties located in the Chicago metropolitan area.
Limited partners received their first monthly cash distribution in July 1992.
Cash distributions to limited partners through September 30, 1996 totaled
$4,294,216, including $1,226,419 from operations, subsidy income of $67,797 from
IREIC, pursuant to the guarantee for that program, and $3,000,000 was a return
of capital resulting from a payoff by the Affiliate. This partnership was
liquidated in 1996.
10% INCOME FUND, L.P., an Illinois limited partnership offering investments
in promissory notes, was formed in May 1992. The offering period for the
purchase of notes began in May 1992 and ended in June 1992 with the maximum
amount of $2,000,000 raised. Notes with a term of five years and providing a 10%
annual return for the first four years and 10.5% in the fifth year were issued
by the partnership. The return of capital to noteholders and the specified
annual returns were guaranteed by IREIC. 10% Income Fund, L.P. invested in loans
made to an Affiliate of IREIC, which were secured by collateral assignments of
third-party mortgage loans owned by the Affiliate. Noteholders received their
first monthly interest distribution in July 1992. Cash distributions to
noteholders through November 30, 1996 totaled $2,878,335, of which $861,051 was
interest earnings, $17,284 was from working capital reserves, and $2,000,000 was
a return of capital resulting from a payoff by the Affiliate. This partnership
was liquidated in 1996.
9% INCOME JUNIOR MORTGAGE FUND, L.P., an Illinois limited partnership, was
formed in July 1992. The principal investment objectives of the partnership were
to invest in third-party junior mortgage loans owned by an Affiliate of Inland
and thereby return investors' capital within six years, and to provide a 9%
annual return on invested capital during the life of the partnership. The return
of capital and the 9% annual return were guaranteed by IREIC. The offering
period for interests in this privately offered partnership began in July 1992
and ended in September 1992 with the maximum amount of $1,000,000 raised. All of
the offering proceeds were used to invest in third-party junior mortgage loans
owned by the Affiliate, secured by condominium, multi-family residential and
commercial properties located in the Chicago metropolitan area. Limited partners
received their first monthly cash distribution in September 1992. Cash
distributions through June 30, 1998 totaled $598,078, of which $473,203 was
interest earnings, $111,981 was a return of capital resulting from the
amortization of mortgage loans and $12,894 was a loan from IREIC, pursuant to
the distribution guarantee for that program.
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INLAND EMPLOYEE APPRECIATION FUND, L.P., an Illinois limited partnership
offering investments in promissory notes, was formed in December 1992. The
offering period for the purchase of Notes began in December 1992 and ended in
February 1993 with the maximum amount of $400,000 raised. Notes were offered
only to Illinois residents who were employees of IREIC and its Affiliates. Notes
with a term of four years and providing 10% annual interest were issued by the
partnership. The return of capital to noteholders and the specified annual
return was guaranteed by IREIC. Inland Employee Appreciation Fund, L.P. invested
in a loan made to an Affiliate of IREIC, which was secured by collateral
assignments of third-party investor loans owned by the Affiliate. Noteholders
received their first monthly interest distribution in March 1993. Cash
distributions through May 31, 1996 totaled $502,198, of which $99,769 was
interest earnings and $2,429 was subsidy income from IREIC, pursuant to the
guarantee for that program. The balance of $400,000 was a return of capital.
This partnership was liquidated in 1996.
9% MONTHLY CASH FUND, L.P., an Illinois limited partnership offering
investments in promissory notes to accredited investors, was sponsored by IREIC
in February 1993. The offering period for this program began February 1, 1993
and ended on May 17, 1993, when the maximum amount of $4,000,000 was raised.
Notes maturing August 1, 1999 and providing a 9% annual return were issued by
the partnership. 9% Monthly Cash Fund, L.P. invested in loans made to an
Affiliate of IREIC secured by collateral assignments of third party mortgage
loans owned by the Affiliate. The return of capital to noteholders and the 9%
annual return are guaranteed by IREIC. Cash distributions through June 30, 1998
totaled $1,798,654, of which $1,794,344 was interest earnings and $4,310 was
from working capital reserves.
9% MONTHLY CASH FUND II, L.P., an Illinois limited partnership offering
investments in promissory notes to accredited investors, with investment
objectives identical to those of 9% Monthly Cash Fund, L.P., was sponsored by
IREIC in April 1993. The offering period for this program began April 5, 1993
and ended July 23, 1993, with the maximum amount of $4,000,000 raised. Notes
maturing February 1, 2000 and providing a 9% annual return were issued by the
partnership. 9% Monthly Cash Fund II, L.P. has invested in a loan made to an
Affiliate of IREIC, secured by collateral assignments of third-party mortgage
loans owned by the Affiliate. The return of capital to noteholders and the 9%
annual return are guaranteed by IREIC. Cash distributions through June 30, 1998
totaled $1,736,876, of which $1,733,683 was interest earnings and $3,193 was
from working capital reserves.
IMC NOTE ISSUE #2 1993, offering investments in promissory notes was
sponsored by Inland Mortgage Corporation, an Illinois corporation and an
Affiliate of IREIC ("IMC"), in July 1993. The offering period for this program
began August 25, 1993 and closed on June 13, 1994 after raising $6,800,000.
Notes maturing December 31, 2003, providing for interest at the rate of 8% per
annum and 100% return of principal guaranteed by IREIC, were issued by IMC.
Proceeds of the offering have been used to invest in a mortgage loan secured by
an apartment property in Manchester, New Hampshire, owned by an Affiliate of
IREIC. Investors may also receive additional interest, dependent on the future
sale of the property. An initial distribution to investors of escrow interest,
totaling $13,685, was made in November 1993. Cash distributions through June 30,
1998 totaled $2,414,239, of which $2,394,783 was interest earnings and $19,456
was subsidy income from IREIC pursuant to the guarantee for that program.
INLAND CONDOMINIUM FINANCING FUND, L.P., an Illinois limited partnership
offering investment in promissory notes, was sponsored by IREIC in December
1993. The offering period for this program began December 15, 1993 and closed on
June 30, 1994. This partnership offered notes in the principal amount of
$1,031,000 maturing July 1, 2001, with interest at the rate of 10% per annum and
100% return of principal guaranteed by IREIC. The proceeds of the offering were
used to make unsecured loans to limited partnerships which are Affiliates of
IREIC, for the purposes of paying expenses relating to the conversion of
apartment properties owned by those partnerships to condominiums, and conducting
condominium unit sales and other partnership expenses. Cash distributions began
in March 1994. Distributions through June 30, 1998 totaled $1,411,617, of which
$380,617 was interest earnings and $1,031,000 was a return of capital. This
partnership was liquidated in 1997.
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INLAND JUNIOR MORTGAGE FUND, L.P., an Illinois limited partnership offering
private placement securities, was sponsored by an Affiliate of IREIC in August
1988. The offering period for this program ended in May 1989 with $410,000
raised. All of the proceeds available for investment were used to purchase 82
second mortgages owned by Inland Mortgage Investment Corporation ("IMIC"), one
of the TIGI Affiliated Companies, which were secured predominantly by
condominium units located in the Chicago metropolitan area. In February 1996, 20
limited partners exercised their put option and IMIC bought their interests.
Cash distributions through January 28, 1997 totaled $541,156, including $131,156
from interest earnings and $410,000 was a return of capital. All capital has
been returned and the partnership was liquidated in 1997.
LOAN MODIFICATIONS AND WORK-OUTS
Between 1990 and December 31, 1997, 40 Inland-sponsored partnerships owning
27 properties ceased making debt service payments to unaffiliated lenders which
held the underlying financing on the properties. These actions were taken with
the objective of reducing or restructuring the debt to levels commensurate with
the levels of performance of the operating properties. In the case of six of
these partnerships, namely 14 W. Elm Limited Partnership, 1445 North State
Parkway Limited Partnership, 5600 Sheridan Limited Partnership, 5630 Sheridan
Limited Partnership, 6030 Sheridan Limited Partnership and Oak Brook Commons
Limited Partnership, the original asset of each of these partnerships was
transferred to a new partnership which was 100% owned by the old partnership.
IREIC believed that the new partnerships were better positioned to accomplish a
work-out with the lender. In connection with the transfers of three of these
properties to the new partnerships discussed above, the lender holding the first
mortgages on these properties filed a separate proceeding against the general
partner and its Affiliates, claiming contractual interference and other
allegations. This complaint was withdrawn as part of a final settlement reached
with the lender in February 1993.
Each of these new partnerships filed for financial reorganization in federal
court. In addition, 1036 N. Dearborn Limited Partnership also filed for
financial reorganization in federal court. All of these filings for
reorganization were an extension of negotiations with the lenders, with the
objective of reducing or restructuring the debt on the properties owned by the
partnerships. In the case of the filing for reorganization by each of the new
partnerships owned by 1445 North State Parkway Limited Partnership, 5600
Sheridan Limited Partnership and 5630 Sheridan Limited Partnership, the
reorganization proceedings were dismissed after each lender approved a
tax-deferred exchange transaction between the new partnership and an
unaffiliated third party. The general partner of the 1036 North Dearborn Limited
Partnership was able to purchase the debt encumbering that property at a
discount from the lender and the filing for reorganization of that partnership
was dismissed. The 1036 North Dearborn property was subsequently refinanced with
a third-party lender and then sold to a third party.
The new partnerships owned by the 14 W. Elm, 6030 Sheridan and Oak Brook
Commons Limited Partnerships participated with the general partner and its
affiliates and with 16 other affiliated limited partnerships, all of whose
properties were subject to first-mortgage loans from the same third-party
lender, in a settlement agreement with that lender. Under the terms of the
settlement agreement, the 16 other affiliated limited partnerships (none of
which were in default on their mortgage loans) provided additional security to
the lender with respect to each of their loans by transferring administration of
property tax escrow accounts to the lender. The transfer of the escrow accounts
had no financial impact on the 16 partnerships. Five of the 16 other
partnerships also obtained favorable loan modifications from the lender.
In the case of the new partnership owned by the 14 W. Elm Limited
Partnership, the lender cooperated in a tax-deferred exchange of the
partnership's real estate asset. That partnership assigned its interest in its
property, subject to the existing indebtedness, to an unaffiliated third party
in exchange for an assignment of the unaffiliated third party's interest in
another property, subject to indebtedness in a principal amount similar to that
on the 14 W. Elm property. This transaction was accomplished with the objective
of avoiding the creation of any current income tax liability to the partnership
or its limited partners. As a result of this tax-deferred exchange, the 14 W.
Elm Limited Partnership owns a net-lease
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commercial property secured by a long-term lease with a creditworthy tenant. The
debt service on the indebtedness used to acquire the exchange property is in the
form of fully amortizing payments over the term of the store lease, with the
net-lease payments received from the tenant equal to the required debt service
payments. The possibility of cash flow distributions to the limited partners is,
therefore, precluded. However, the expectation exists for equity accumulation
through the amortization of the loan and, therefore, a distribution to the
limited partners upon the disposition of the exchange property. IREIC believes
that the limited partners of the 14 W. Elm Limited Partnership are in a better
position to realize a return of their capital investment through the ultimate
disposition of the exchange property.
In the case of the new partnership owned by the Oak Brook Commons Limited
Partnership, the lender acquired the property through foreclosure and the
general partner has supplied the Oak Brook Commons Limited Partnership with a
new property, an ownership interest in a retail store in Marshall, Minnesota,
leased on a Triple-Net Lease Basis by Wal-Mart Stores, Inc.
In the case of the new partnership owned by the 6030 Sheridan Limited
Partnership, the lender agreed to permit a tax-deferred exchange of the
partnership's property, similar to that completed by the 14 W. Elm Limited
Partnership and subsequently the lender sold its mortgage to an unaffiliated
party who then acquired the property. The new partnership acquired a replacement
property similar to that acquired by the 14 W. Elm Limited Partnership, which
property was then conveyed to the 6030 Sheridan Limited Partnership.
Of the original partnerships discussed above, Mr. Daniel L. Goodwin, a
Director and Chairman and President of Inland, and a Director of IREIC, served
as individual general partner of all but the Oak Brook Commons Limited
Partnership, in which Mr. G. Joseph Cosenza, a Director and a Vice Chairman of
Inland, served as individual general partner. Prior to the filing for
reorganization, and as part of the strategy thereof, Mr. Cosenza relinquished
his position as individual general partner of the Oak Brook Commons Limited
Partnership and Mr. Goodwin did the same for all except the 1036 N. Dearborn
Limited Partnership, for which he continues to serve as individual general
partner. These actions were taken upon the advice of counsel to reduce the
chances of delay in the reorganization efforts. The corporate general partner of
each partnership has elected to continue the business of each of the
partnerships in which the individual general partner relinquished his position.
Four of the 40 Inland-sponsored partnerships described in the first
paragraph of this section owned four adjacent office buildings in Park Ridge,
Illinois. These four operating partnerships were, in turn, owned by 21 other
Inland-sponsored partnerships which had sold their original real estate assets
and reinvested a portion of the proceeds from those sales in ownership units in
the four operating partnerships. During 1991, the lenders which held the first
mortgages encumbering the four office buildings acquired the deeds to the
properties in lieu of foreclosure. The four operating partnerships were
subsequently liquidated. The general partner of the 21 partnerships which had
owned the four operating partnerships arranged for the transfer to each of the
21 partnerships of certain ownership interests in five net-lease commercial
properties having long-term leases with Creditworthy Tenants. The debt service
on the indebtedness used to acquire the commercial properties consists of
principal and interest payments which fully amortize the indebtedness over the
term of the store leases, with the net-lease payments received from the tenants
equal to the required debt service payments. The possibility of cash flow
distributions to the limited partners in the 21 partnerships is, therefore,
precluded. However, the expectation exists for equity accumulation through the
amortization of the loan and, therefore, a future distribution to the limited
partners upon the disposition of the commercial properties. The 21 partnerships
experienced minimal adverse tax consequences from the liquidation of the four
operating partnerships and their receipt of the ownership interests in the
commercial properties. IREIC believes that the limited partners of the 21
partnerships are now positioned to realize a return of their capital investment
through the ultimate disposition of the commercial properties.
In the case of the 900 DeWitt and the Hoffman Ridge Limited Partnerships,
two of the 40 limited partnerships mentioned in the first paragraph of this
section, tax-deferred exchanges of the partnerships'
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properties were accomplished, in the same manner as described above. The
partnerships acquired net-lease commercial properties. Subsequent to the
exchanges, the 900 DeWitt and Hoffman Ridge properties were acquired by the
first-mortgage lenders whose loans were secured by those properties.
In the case of the Park Colony Limited Partnership, one of the 40 limited
partnerships mentioned in the first paragraph of this section, the partnership
defaulted on a loan secured by a second mortgage against the Park Colony
property. The lender which owned the second-mortgage loan purchased the position
of the lender which had funded the first mortgage loan secured by the property.
The lender then sold the debt, at a substantial discount, to an Affiliate of the
general partner of Park Colony Limited Partnership, and all legal actions
associated with the loan default were dismissed. The partnership then refinanced
the debt at the lower principal amount, retiring the debt owned by the
Affiliate. IREIC believes that this debt reduction is of significant benefit to
the partnership, which is now better positioned to realize its investment
objectives.
In 1990, the Inland New England Limited Partnership, acting as nominee for
14 Florida limited partnerships which own the Sunset Ridge Apartments in
Manchester, New Hampshire, ceased making payments on the bond financing for that
property, which bonds were issued by the New Hampshire Housing Finance
Authority. In August 1993, an Affiliate of the general partner for those
partnerships purchased the bonds and the interests of two savings and loan
associations which had acted as bond credit-enhancers, at a substantial
discount. The partnerships which own the property obtained refinancing funds to
pay off the bonds and the amounts due to the Affiliate under the
credit-enhancement instruments for approximately the discounted price paid by
the Affiliate.
In April 1993, the West Haven Limited Partnership ceased making payments on
the first mortgage loan for that partnership's property. The general partner
attempted to negotiate with the lender to modify the terms of the loan to a
level commensurate with the operating performance of the West Haven property,
but no agreement was reached. A tax-deferred exchange was accomplished and the
partnership acquired an interest in a net-lease commercial property. The West
Haven property was subsequently acquired by the lender whose loan was secured by
a first mortgage against the property.
In the case of the other partnerships referred to in the first paragraph of
this section, subsequent to the acquisition of net-leased commercial properties
via tax-deferred exchanges, the Townsgate, Riverdale, Northwoods and Bridgeview
properties were acquired by the first-mortgage lenders whose loans were secured
by the properties. The Covington Associates and Westbrooke Limited Partnerships'
tax-deferred exchange property, Townsgate II, was acquired by the first mortgage
lender and the two partnerships acquired net-lease commercial properties via
second tax-deferred exchanges. In the case of the Bensenville Industrial Limited
Partnership, subsequent to the acquisition of a replacement net-lease commercial
property, the Bensenville property was acquired by the first-mortgage lender
whose loan was secured by the property.
In addition to the above-described developments, the corporate general
partner of the Walton Place Limited Partnership and the Barrington Lakes Limited
Partnership settled litigation with the lenders for the properties which
resulted in the transfer of the properties and an agreement to make cash
settlements by the partnerships to the lenders. In each case, the litigation
resulted after the partnership ceased making debt service payments in an effort
to bring about a renegotiation of the terms of the financing. The lenders agreed
to permit a tax-deferred exchange of the partnerships' respective properties.
In January 1995, the Timberlake Limited Partnership ceased making payments
on the first mortgage loan for that partnership's property. IREIC attempted to
negotiate with the lender to modify the terms of the loan to a level
commensurate with the operating performance of the Timberlake property, but no
agreement was reached. During August 1996, IREIC initiated a tax-deferred
exchange whereby the partnership acquired an interest in a net-lease commercial
property prior to the Timberlake property being acquired by the lender whose
loan is secured by a first mortgage against the property.
In October 1996, two limited partnerships owning contiguous apartment
buildings in south suburban Chicago ceased making payments on their respective
HUD-insured first mortgage loans. The Chateaux
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Versailles and Marseilles Limited Partnerships, through their general partner,
are attempting to negotiate with HUD, as mortgagee, to modify the terms of the
loans to levels commensurate with the operating performance of the properties.
To date, no agreement has been reached.
EFFECTS OF PROPERTY EXCHANGES ON INVESTORS
The Inland Organization has used a strategy of tax-deferred property
exchanges to mitigate the adverse effects of 1986 tax law changes and the
weakening of apartment markets in the late 1980s on Inland's tax-shelter private
partnerships and investors in those partnerships. The loss of deficit-producing
properties to foreclosure would otherwise have resulted in the loss of
investors' capital, as well as substantial income tax liability for those
investors. Through the exchange program, deficit-producing apartment properties
have been disposed of, net-leased retail properties have been acquired, and most
tax liability continues to be deferred. Gradually, through the amortization of
debt secured by the new, net-leased properties owned by these partnerships, the
partnerships and their investors are rebuilding equity which may be realized
upon the future sale or refinancing of these properties. One of the primary
investment objectives of these tax-shelter partnerships, the deferral of tax
liability, continues to be met to a significant degree. However, no cash flow is
being received by the investors in these partnerships. In addition, the
tax-deferred exchanges have extended the expected term of these tax-shelter
partnerships. If and when the net-leased properties are sold or refinanced,
there is no assurance that investors will realize any profit or a complete
return of capital. Because the duration of these partnerships has been extended,
when the net-leased properties are sold or refinanced, the annual rate of
appreciation realized by investors, if any, will be less than if the tax law had
not been changed and apartment markets had not declined in the late 1980s.
ADDITIONAL INFORMATION
Through June 30, 1998 seven private partnerships sponsored by Affiliates of
Inland have agreed to modifications of the original terms of the installment
receivables. The impact of these modifications on the installment receivables
includes reductions in net interest income during the first year or two
following a modification (and corresponding decreases in distributions to
limited partners during that period) and increases in interest income thereafter
(and corresponding increases in distributions), as well as the deferral of some
interest until maturity and, in the case of two partnerships, the extension of a
maturity date. The decreases in distributions to limited partners range from 25%
to 50% of the originally scheduled distributions for the initial one or two-year
period of the modifications followed by similar increases over the originally
scheduled distributions for the year or two following the modifications. Any
interest deferred until maturity would result in a
lower-than-originally-scheduled distribution until the maturity date, when such
deferred amounts would be received from the borrowers. The distribution to
investors of the principal proceeds due upon maturity would also be received at
a later date, I.E., one to two years later, due to a negotiated extension of the
original maturity date.
During 1988, one private partnership sponsored by an Affiliate of IREIC
transferred its property to the municipality in which it was located pursuant to
an involuntary conversion proceeding. On March 1, 1989, the proceeds of the
conversion were reinvested in a new property, a transaction intended to qualify
as tax-deferred under the Code.
Except for re-acquisitions of previously owned properties upon default by
the purchaser, the transfer of a defaulted loan, the tax-deferred property
exchanges and the disputes with lenders described herein, there have been no
further major adverse business developments or conditions experienced by these
prior partnerships which would be material to investors in the Company.
Upon written request to the Company, any potential investor may obtain,
without charge, the most recent Annual Report on Form 10-K filed with the
Commission by any public program sponsored by any of the Inland Affiliated
Companies which has reported to the Commission within the last 24 months. Copies
of any exhibits to such Annual Reports shall be provided, upon request, for a
reasonable fee.
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MANAGEMENT
INLAND AFFILIATED COMPANIES
The Inland Organization is a fully-integrated real estate and financial
organization, providing property management, leasing, marketing, acquisition,
disposition, development, redevelopment, syndication, renovation, construction,
finance and other related services. The first of the Inland Affiliated Companies
was started by a group of Chicago school teachers in 1967, and incorporated the
following year. The founders of Inland all remain actively involved in
overseeing these companies. The businesses of these Inland Affiliated Companies
are still centered in the Chicago metropolitan area. Over the past 30 years, the
Inland Affiliated Companies have experienced significant growth. The Inland
Affiliated Companies, in the aggregate, in April 1998 were ranked by CRAIN'S
CHICAGO BUSINESS as the 39th largest privately held business group headquartered
in the Chicago area. Among the Inland Affiliated Companies is the largest
property management firm in Illinois and one of the largest commercial real
estate and mortgage banking firms in the Midwest.
The Inland Affiliated Companies have approximately 700 employees. The senior
management of the Company includes executives of the Inland Affiliated
Companies. The Company's management personnel have substantial experience in a
full range of real estate services. The top seven senior executives of the
Company have an average of 25 years experience in the real estate industry.
The Advisor and the Dealer Manager are Inland Affiliated Companies. The
relevant skills and experience of each of the Inland Affiliated Companies,
developed over the course of 30 years in business, primarily in the Chicago
metropolitan area, is available to the Company in the conduct of its business.
As of June 30, 1998, limited partnerships for which Inland Real Estate
Investment Corporation ("IREIC"), one of the Inland Affiliated Companies, is the
general partner own in excess of 9,400 acres of pre-development land in the
Chicago area, as well as 9,550,000 square feet of commercial property in Chicago
and nationwide.
The Inland Affiliated Companies developed expertise in real estate financing
as it bought and sold properties over the years. In 1977, Inland Mortgage
Corporation, an Illinois corporation ("IMC"), was incorporated. IMC, during its
history, has originated more than $1 billion in financing, including loans to
third parties and affiliated entities.
Further delineation of functions and duties associated with financing
occurred in 1990, with the separate incorporation of Inland Mortgage Investment
Corporation ("IMIC") and Inland Mortgage Servicing Corporation ("IMSC"). IMIC,
as of June 30, 1998, owned a $83,766,000 loan portfolio, and IMSC serviced a
loan portfolio of 455 loans exceeding approximately $620,222,000.
As of June 30, 1998, Inland Property Management Group, Inc. ("IPMGI"), one
of the Inland Affiliated Companies, and its Affiliates manage approximately
13,400 multi-family units, principally located in the Chicago metropolitan area,
which IPMGI believes is more than any other firm in that market. The Management
Agent was incorporated in 1998 to segregate responsibility for management of the
Company's Properties from IPMGI's growing management portfolio of commercial
properties. The Management Agent will be responsible for collecting rent,
leasing and maintaining the commercial properties which it manages, which are
intended to primarily be the Company's Properties in the Company's Primary
Geographical Area of Investment. The Management Agent is owned primarily by
individuals who are Affiliates of Inland.
In August 1988, IPMGI and its Affiliates owned or managed 1.3 million square
feet of retail property. That figure has grown to over 15 million square feet by
June 30, 1998, of which 4.9 million square feet is represented by properties
owned by IREC.
IPMGI and its Affiliates are responsible for collecting rent and leasing and
maintaining the commercial properties which they manage. As of June 30, 1998, a
substantial portion of the portfolio of IPMGI
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and its Affiliates, approximately 8.8 million square feet, consists of
properties leased on a Triple-Net Lease Basis to Creditworthy Tenants, which
means the tenant operates and maintains the property and pays rent which is net
of property taxes, insurance and operating expenses.
Inland Real Estate Acquisitions, Inc. ("IREA"), one of the Inland Affiliated
Companies, has extensive experience in acquiring real estate for investment.
Over the years, IREA and its Affiliates have acquired approximately 755
properties.
See also "Prior Performance of the Company's Affiliates" and Appendix
A--"Prior Performance Tables" for information concerning over $593,000,000
raised from 31,510 investors in connection with one other REIT, six public real
estate equity programs, one private real estate equity program and nine private
placement mortgage and note programs sponsored by Inland Affiliated Companies
during the 10-year period ending June 30, 1998, and the prior performance of
those programs
The following sets forth certain information with respect to the directors
and principal executive officers of Inland:
<TABLE>
<CAPTION>
NAME AGE* POSITION AND OFFICE WITH INLAND
- ---------------------------------------- ----- ---------------------------------------------
<S> <C> <C>
Daniel L. Goodwin....................... 54 Chairman, President and Director
Robert H. Baum.......................... 54 Vice Chairman, Executive Vice
President-General Counsel and Director
G. Joseph Cosenza....................... 54 Vice Chairman and Director
Robert D. Parks......................... 54 Director
Norbert J. Treonis...................... 47 Director
</TABLE>
- ------------------------
* As of January 1, 1998
Messrs. Goodwin, Baum, Cosenza and Parks were the founders of Inland.
DANIEL L. GOODWIN is a Director, Chairman of the Board of Directors and
President of Inland. He has been with The Inland Group, Inc. and its Affiliates
since 1968 and is one of the four original principals.
Mr. Goodwin has served as Director of the Avenue Bank of Oak Park, as
Director of the Continental Bank of Oakbrook Terrace, and as Chairman of the
bank holding company of American National Bank of DuPage. Currently he is the
Chairman of the Board of Inland Mortgage Investment Corporation, one of the
Inland Affiliated Companies.
HOUSING. Mr. Goodwin has been in the housing industry for more than 28
years, and has demonstrated a lifelong interest in housing-related issues. He is
a licensed real estate broker and a member of the National Association of
Realtors. Mr. Goodwin has developed thousands of housing units in the Midwest,
New England, Florida, and the Southwest. He is also the author of a nationally
recognized real estate reference book for the management of residential
properties.
Mr. Goodwin has served on the Board of the Illinois State Affordable Housing
Trust Fund for the past six years. He is an advisor for the Office of Housing
Coordination Services of the State of Illinois, and a member of the Seniors
Housing Committee of the National Multi-Housing Council. Recently, Illinois
Governor Jim Edgar appointed Mr. Goodwin as Chairman of the Housing Production
Committee for the Illinois State Affordable Housing Conference. He also served
as a member of the Cook County Commissioner's Economic Housing Development
Committee, and he was the Chairman of the DuPage County Affordable Housing Task
Force. The 1992 Catholic Charities Award was presented to Mr. Goodwin for his
work in addressing affordable housing needs. The City of Hope designated him as
the Man of the Year in 1980 for the Illinois construction industry. In 1989, the
Chicago Metropolitan Coalition on Aging
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presented Mr. Goodwin with an award in recognition of his efforts in making
housing more affordable to Chicago's Senior Citizens. In 1995, PADS, Inc.
(Public Action to Deliver Shelter) presented Mr. Goodwin with an award,
recognizing Inland as the leading corporate provider of transitional housing for
the homeless people of DuPage County. Mr. Goodwin also serves as Chairman of New
Directions Housing Corporation, a leading provider of affordable housing in
northern Illinois.
EDUCATION. Mr. Goodwin is a product of Chicago-area schools, and obtained
his Bachelor's and Master's Degrees from Illinois Universities. Following
graduation, he taught for five years in the Chicago Public Schools. His
commitment to education has continued through his work with the BBF Family
Services' Pilot Elementary School in Chicago, and the development of the Inland
Vocational Training Center for the Handicapped located at Little City in
Palatine, Illinois. He personally established an endowment which funds a
perpetual scholarship program for inner-city disadvantaged youth. In 1990 he
received the Northeastern Illinois University President's Meritorious Service
Award. Mr. Goodwin holds a Master's Degree in Education from Northern Illinois
University, and in 1986, he was awarded an Honorary Doctorate from Northeastern
Illinois University College of Education. More than 12 years ago, under Mr.
Goodwin's direction, Inland instituted a program to educate disabled students
about the workplace. Most of those original students are still employed at
Inland today, and Inland continues as one of the largest employers of the
disabled in DuPage County. Mr. Goodwin has served as a member of the Board of
Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Benedictine University. He was elected Chairman of the Northeastern
Illinois University Board of Trustees in January 1996.
ACKNOWLEDGMENTS. Mr. Goodwin served as a member of Illinois Governor Jim
Edgar's Transition Team. In 1988 he received the Outstanding Business Leader
Award from the Oak Brook Jaycees and has been the General Chairman of the
National Football League Players Association Mackey Awards for the benefit of
inner-city youth. He served as the recent Chairman of the Speakers Club of the
Illinois House of Representatives. In March 1994 he won the Excellence in
Business Award from the DuPage Area Association of Business and Industry.
Additionally, he was honored by Little Friends in 1995 for rescuing their
Parent-Handicapped Infant Program when they lost their lease. He was the
recipient of the 1995 March of Dimes Life Achievement Award and was recognized
as the 1997 Corporate Leader of the Year by the Oak Brook Area Association of
Commerce and Industry.
ROBERT H. BAUM has been with The Inland Group, Inc. and its Affiliates since
1968 and is one of the four original principals. Mr. Baum is a Director, Vice
Chairman and Executive Vice President-General Counsel of The Inland Group, Inc.
In his capacity as General Counsel, Mr. Baum is responsible for the supervision
of the legal activities of the Inland Affiliated Companies. This responsibility
includes the supervision of The Inland Group, Inc. Law Department and serving as
liaison with outside counsel. Mr. Baum has served as a member of the North
American Securities Administrators Association Real Estate Advisory Committee
and as a member of the Securities Advisory Committee to the Secretary of State
of Illinois. He is a member of the American Corporation Counsel Association and
has also been a guest lecturer for the Illinois State Bar Association. Mr. Baum
has been admitted to practice before the Supreme Court of the United States, as
well as the bars of several federal courts of appeals and federal district
courts and the State of Illinois. He has served as a director of American
National Bank of DuPage and currently serves as a director of Westbank. Mr. Baum
also is a member of the Governing Council of Wellness House, a charitable
organization that provides emotional support for cancer patients and their
families.
G. JOSEPH COSENZA has been with The Inland Group, Inc. and its Affiliates
since 1968 and is one of the four original principals. Mr. Cosenza is a Director
and Vice Chairman of The Inland Group, Inc. and oversees, coordinates and
directs the Inland Organization's many enterprises. In addition, Mr. Cosenza
immediately supervises a staff of nine persons who engage in property
acquisitions. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods.
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Mr. Cosenza received his B.A. Degree from Northeastern Illinois University
and his M.S. Degree from Northern Illinois University. From 1967 to 1968, he
taught in the La Grange Illinois School District and, from 1968 to 1972, he
served as Assistant Principal and taught in the Wheeling, Illinois School
District. Mr. Cosenza has been a licensed real estate broker since 1968 and an
active member of various national and local real estate associations, including
the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been Chairman of the Board of American National Bank of
DuPage, and has served on the Board of Directors of Continental Bank of Oakbrook
Terrace. He is presently a director of Westbank in Westchester and Hillside,
Illinois.
ROBERT D. PARKS has been with The Inland Group, Inc. and its Affiliates
since 1968 and is one of the four original principals. He is a Director of The
Inland Group, Inc.; as well as Chairman of Inland Real Estate Investment
Corporation ("IREIC"); and President, Chief Executive Officer, Chief Operating
Officer and an Affiliated Director of Inland Real Estate Corporation, a REIT
sponsored by IREIC.
Mr. Parks is responsible for the ongoing administration of existing
investment programs, corporate budgeting and administration for IREIC. He
oversees and coordinates the marketing of all investments and investor
relations.
Prior to joining Inland, Mr. Parks was a school teacher in Chicago's public
schools. He received his B.A. Degree from Northeastern Illinois University and
his M.A. Degree from the University of Chicago. He is a registered Direct
Participation Program Limited Principal with the National Association of
Securities Dealers, Inc. He is also a member of the Real Estate Investment
Association, as well as a member of the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT").
Mr. Parks has been Chairman and an Affiliated Director of the Company since
its formation.
NORBERT J. TREONIS joined The Inland Group, Inc. and its Affiliates in 1975
and he is currently a Director of The Inland Group, Inc., as well as Chairman
and Chief Executive Officer of Inland Property Management Group, Inc. and
Chairman of the Board of Directors of Inland Commercial Property Management,
Inc. He serves on the Board of Directors of all Inland subsidiaries involved in
property management, acquisitions and maintenance of real estate, including in
addition to those mentioned in the preceding sentence, Mid-America Management
Corp., Metropolitan Construction Services, Inc. and American Building Services,
Inc. Mr. Treonis is charged with the responsibility of the overall management
and leasing of all apartment units, retail, industrial and commercial properties
nationwide for the Inland Affiliated Companies.
Mr. Treonis is a licensed real estate broker. He is a past member of the
Board of Directors of American National Bank of DuPage, the Apartment Building
Owners and Managers Association of Illinois, the National Apartment Association
and the Chicagoland Apartment Association.
GENERAL MANAGEMENT OF THE COMPANY
The Company operates under the direction of the Board that is responsible
for the overall management and control of the Company's affairs. However, the
Board has retained the Advisor to manage the Company's day-to-day affairs,
subject to the Board's supervision.
Investment policies of the Company, as well as fees and expenses of the
Company, have been established by the Board and are reviewed and approved by the
Directors (including a majority of the Independent Directors) with sufficient
frequency (but not less than annually) to ensure that the policies being
followed are in the best interest of the Stockholders. All Directors are
responsible, as a result of their fiduciary duties, for determining the
reasonableness of the Company's total fees and expenses in light of the
Company's investment experience and the fees and expenses of companies
performing comparable
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services. Each determination, along with the supporting rationale, is set forth
in the minutes of the meetings of the Board.
The Independent Directors are required to determine, from time to time, but
not less than annually, that the compensation paid by the Company to the Advisor
is reasonable in relation to the nature and quality of the services performed
and within the limits prescribed by applicable state regulatory authorities. The
Independent Directors are also required to supervise the Advisor's performance
and the compensation paid to it by the Company to determine that the provisions
of the Advisory Agreement are being carried out. Each such determination must be
based on at least the factors set forth below and other factors that the
Independent Directors may deem relevant. The findings of the Independent
Directors on each such factor must be recorded in the minutes of the meetings of
the Board. These factors include: (i) the size of the fee paid to the Advisor in
relation to the size, composition and profitability of the portfolio of the
Company; (ii) the success of the Advisor in generating opportunities that meet
the investment objectives of the Company; (iii) the rates charged to other REITs
and to investors other than REITs by advisors performing similar services; (iv)
additional revenues realized by the Advisor and any Affiliate through their
relationship with the Company, including loan administration, underwriting or
brokerage commissions, servicing, engineering, inspection and other fees,
whether paid by the Company or by others with whom the Company does business;
(v) the quality and extent of service and advice furnished by the Advisor; (vi)
the performance of the investment portfolio of the Company, including income,
conservation or appreciation of capital, frequency of problem investments and
competence in dealing with distress situations; and (vii) the quality of the
portfolio of the Company in relationship to the investments generated by the
Advisor for its own account. See "Certain Responsibilities of Directors and the
Advisor; Indemnification" and "--The Advisory Agreement" in this Section.
The Board will be comprised of from three to eleven individuals, a majority
of whom are deemed to be independent of the Company (the "Independent
Directors"). See "Glossary" for a more expansive definition of "Independent
Directors." Election of Board members is conducted on an annual basis. Each
individual elected to the Board serves a one-year term or until his or her
successor is elected. See "Summary of the Organizational Documents."
The Company does not have any policy limiting any of its officers,
directors, Stockholders or Affiliates from engaging for their own account in
business activities of the types to be conducted by the Company. However, the
Company does have policies relating to when the Company may enter into a
transaction with such Persons. See "Summary of Organizational
Documents--Transactions with Affiliates."
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
Company's Directors and executive officers. The biography of Mr. Parks, who has
been Chairman and an Affiliated Director of the Company since its formation, is
set forth above under "--Inland Affiliated Companies" in this Section:
<TABLE>
<CAPTION>
NAME AGE* POSITION AND OFFICE WITH THE COMPANY
- ---------------------------------------- ----- ---------------------------------------------
<S> <C> <C>
Robert D. Parks......................... 54 Chairman and Affiliated Director
Barry L. Lazarus........................ 51 President, Chief Executive Officer, Chief
Operating Officer and Affiliated Director
Roberta S. Matlin....................... 53 Vice President--Administration
Steven D. Sanders....................... 49 Vice President--Acquisitions
Samuel A. Orticelli..................... 44 Secretary
Kelly Tucek............................. 35 Treasurer and Chief Financial Officer
Daniel K. Deighan....................... 57 Independent Director
**...................................... Independent Director
**...................................... Independent Director
</TABLE>
- ------------------------
* As of January 1, 1998
** Two additional Independent Directors will be named prior to the commencement
of the Offering.
BARRY L. LAZARUS has been President, Chief Executive Officer, Chief
Operating Officer and an Affiliated Director of the Company since its formation.
After a brief career in public accounting, Mr. Lazarus joined Inland in 1973 as
its original controller and was later promoted to Treasurer. From 1973 to 1979
he supervised all corporate and partnership accounting and tax matters, and
managed corporate financial affairs. In 1979 Mr. Lazarus relocated to Phoenix,
Arizona and formed The Butterfield Company, a development and contracting firm,
while also serving as a consultant to investors in several commercial ventures.
Between 1979 and 1987 the Butterfield Company successfully completed several
projects in conjunction with national real estate firms, including Inland. From
1988 until October 1990 Mr. Lazarus was Vice President of Finance for UDC Homes,
Inc., then a New York Stock Exchange Company and the largest home builder in the
state of Arizona. His duties included obtaining financing for numerous
development and construction projects in the Southeastern and Southwestern
United States, as well as maintaining investor relations.
Mr. Lazarus rejoined Inland in October 1990 and became President of
Intervest Midwest Real Estate Corporation ("Intervest"), then one of the Inland
Affiliated Companies. Intervest, which has its principal office in Atlanta,
Georgia, has been active in land acquisition, development, financing and
disposition of real estate assets in the Midwest and Southeast, for its own
account and for others. Mr. Lazarus solely owns Wisconsin and Southern Land
Company, Inc., of which he has been President and Director since December 1993.
Wisconsin and Southern Land Company, Inc., which has its office in Atlanta,
Georgia, is a holding company that acquired Intervest from the Inland
Organization in 1994. Intervest, pursuant to a service agreement, currently
provides property zoning, development and disposition services to Wisconsin
Capital Land Fund, L.P. ("Wisconsin Capital"), a private placement real estate
equity program sponsored by IREIC. Intervest earned approximately $80,000 of
deferred compensation for 1997, and anticipates earning approximately $165,000
in 1998, for its services rendered and to be rendered to Wisconsin Capital. See
"Prior Performance of the Company's Affiliates--Private Placement Real Estate
Equity Program." Mr. Lazarus continues to serve as President of Intervest.
From September 1994 until recently, Mr. Lazarus was President of Inland
Shelter Group, LLC, Atlanta, Georgia, which was engaged in the development of
apartment buildings in the state of Georgia. He received his B.B.A. Degree from
the University of Wisconsin, is a certified public accountant and holds real
estate broker licenses in the states of Wisconsin and Georgia.
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ROBERTA S. MATLIN has been Vice President--Administration of the Company
since its formation in 1998. Ms. Matlin joined Inland in 1984 as Director of
Investor Administration and currently serves as Senior Vice
President--Investments of IREIC, directing IREIC's day-to-day internal
operations. She is a Director of IREIC, Inland Securities Corporation and Inland
Real Estate Advisory Services, Inc. Prior to joining Inland, Ms. Matlin spent 11
years with the Chicago Region of the Social Security Administration of the
United States Department of Health and Human Services. She received her B.A.
Degree from the University of Illinois. Ms. Matlin is registered with the NASD
as a general securities principal and investment advisor.
STEVEN D. SANDERS has been involved in the real estate industry,
continuously, since 1970. His real estate career began with Carlsberg Financial
Corporation, in Los Angeles, California, a sponsor of national real estate
limited partnerships that acquired office, industrial, multi-family,
manufactured home parks and retail properties throughout the United States. As
Regional Director of Acquisitions, Mr. Sanders' responsibilities included
identification, analysis, negotiations and closings of properties in the eastern
United States, on behalf of Carlsberg Financial Corporation sponsored
partnerships.
In 1979 and 1980, Mr. Sanders worked for R&B Development, Los Angeles,
California, as Director of Acquisitions for multi-family properties acquired for
ultimate conversions to condominiums. In 1981, he formed Irvine Properties, Inc.
which offered real estate consultation, brokerage and management services to
local and national investors. In 1984, Mr. Sanders joined Univest Real Estate
Corporation, Tampa, Florida, an Affiliate of Inland, and spearheaded the
acquisition of multi-family properties throughout the state of Florida.
In 1988, he formed Florida Country Clubs, Inc., which acquired and operated
three golf and country clubs located in Orlando, Florida. In 1991, Mr. Sanders
acquired interests in additional golf and country clubs on the east and west
coasts of Florida. In 1993 he rejoined Inland at its Oak Brook, Illinois
headquarters with the primary responsibility of acquiring shopping centers for
IREC. Through the first quarter of 1998, Mr. Sanders was directly responsible
for acquiring 46 shopping centers at an aggregate purchase price in excess of
$276,000,000.
He has been Vice President--Acquisitions of the Company since its formation.
SAMUEL A. ORTICELLI has been Secretary of the Company since its formation.
Mr. Orticelli joined the Inland Affiliated Companies in 1984. He is a Vice
President of Inland, Senior Counsel with The Inland Group, Inc. Law Department
and serves as legal counsel for IREIC, with responsibilities relating to
securities law and real estate transactions. Mr. Orticelli received his B.S.
Degree in accounting from Marquette University and his law degree from DePaul
University. Prior to joining Inland, Mr. Orticelli worked for the Chicago law
firm of Katz, Randall & Weinberg, specializing in real estate transactions. He
is a member of the Illinois State Bar Association and served on the Corporate
Law Departments Section Council (1995-1998) and the Real Estate Law Section
Council (1989-1994). He is a past president of the Justinian Society of Lawyers
(DuPage Chapter).
KELLY TUCEK has been Treasurer and Chief Financial Officer of the Company
since its formation. Ms. Tucek joined Inland in 1989 and is an Assistant Vice
President of IREIC. Ms. Tucek is responsible for the Investment Accounting
Department of IREIC, which includes the accounting for the Company and all IREIC
public limited partnership accounting functions, along with quarterly and annual
SEC filings. Prior to joining Inland, Ms. Tucek was on the audit staff of
Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and
Computer Science from North Central College.
DANIEL K. DEIGHAN is an appraiser, who holds the MAI designation from the
American Institute of Real Estate Appraisers (the predecessor to the Appraisal
Institute), and has 27 years of appraisal experience. He has testified as an
expert witness in numerous counties throughout Florida, and in some courts in
New York in eminent domain and other appraisal matters. Mr. Deighan is President
of Florida Property Consultants Group, which has its office in Port St. Lucie,
Florida. That firm is successor to Deighan Appraisal Associates, Inc., which Mr.
Deighan formed in 1971. Its business is the providing of expert appraisal,
consulting and eminent domain services throughout Florida.
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<PAGE>
Deighan Appraisal Associates, Inc. was honored as the "Business of the Year"
in 1990 by the Port St. Lucie Chamber of Commerce. Mr. Deighan is Vice Chairman
of the Martin County Industrial Development Agency and a past President of the
Tri-County Tec Foundation and the Economic Council of Martin County, Florida. He
received his B.A. Degree from Sienna College, Albany, New York.
[**Bios of two other Independent Directors will be inserted here.]
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Board will establish an Audit Committee consisting of
two Independent Directors. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews the plans and results
of the audit engagement with the independent public accountants, approves
professional services provided by, and the independence of, the independent
public accountants, considers the range of audit and non-audit fees and consults
with the independent public accountants regarding the adequacy of the Company's
internal accounting controls.
EXECUTIVE COMMITTEE. The Board may establish an Executive Committee
consisting of three Directors, including two Independent Directors. The
Executive Committee would likely exercise all powers of the Directors except for
those which require actions by all of the Directors or the Independent Directors
under the Articles or Bylaws or under applicable law.
EXECUTIVE COMPENSATION COMMITTEE. The Board may establish an Executive
Compensation Committee consisting of three Directors, including two Independent
Directors, to establish compensation policies and programs for the Company's
executive officers. The Executive Compensation Committee will exercise all
powers of the Board in connection with establishing and implementing
compensation matters, including incentive compensation and benefit plans.
COMPENSATION OF DIRECTORS AND OFFICERS
The Company pays its Independent Directors an annual fee of $1,000. In
addition, Independent Directors receive $250 for attending (in person or by
telephone) each meeting of the Board or a committee thereof, and reimbursement
for their out-of-pocket expenses incurred. The Affiliated Directors (Messrs.
Parks and Lazarus) do not receive Director fees.
Upon becoming an Independent Director, each Independent Director will be
granted an option to purchase 3,000 Shares at a price of $9.05 per Share under
the Company's Independent Director Stock Option Plan. In addition, each year on
the date of the annual meeting of the Company's Stockholders, each Independent
Director then in office will receive an additional grant of an option to
purchase 500 Shares at an exercise price equal to the then fair market value per
Share, as determined in accordance with the Independent Director Stock Option
Plan. See "--Independent Director Stock Option Plan" in this Section.
With the exception of Barry L. Lazarus, the officers of the Company will not
receive any compensation from the Company for their services as such officers,
but instead will receive compensation from Inland, IREIC or one of their
Affiliates. Mr. Lazarus will receive an annual salary of $35,000 from the
Company, and reimbursement for his out-of-pocket expenses incurred on behalf of
the Company. His "at will" employment is based on an oral agreement. Mr. Lazarus
will devote most of his time to the Company's business; however, he will
continue to devote some time to Intervest Midwest Real Estate Corporation, of
which he is President.
THE ADVISOR
The Advisor, an Illinois corporation, is a wholly owned subsidiary of IREIC.
The following table sets forth information regarding the executive officers and
directors of the Advisor, all of whom have held their positions and offices with
the Advisor since its formation in 1998. The biographies of Messrs. Parks,
Cosenza and Treonis are set forth above under "--Inland Affiliated Companies,"
and the biography of Mr. Orticelli is set forth under "--Directors and Executive
Officers of the Company," in this Section.
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<PAGE>
<TABLE>
<CAPTION>
NAME AGE* POSITION AND OFFICE WITH THE ADVISOR
- ------------------------------------------- ----- ------------------------------------------
<S> <C> <C>
Robert D. Parks............................ 54 Chairman of the Board and President
G. Joseph Cosenza.......................... 54 Director
Norbert J. Treonis......................... 47 Director
Patricia A. Challenger..................... 45 Vice President--Asset Management
Catherine L. Lynch......................... 39 Treasurer
Samuel A. Orticelli........................ 44 Secretary
</TABLE>
- ------------------------
* As of January 1, 1998
PATRICIA A. CHALLENGER joined Inland in 1985. She is currently a Senior Vice
President of IREIC in charge of the Asset Management Department where she is
responsible for developing operating and disposition strategies for properties
owned by IREIC related entities. Ms. Challenger received her B.S. Degree from
George Washington University and her Master's Degree from Virginia Tech
University. She was selected and served from 1980 to 1984 as a Presidential
Management Intern, where she was part of a special government-wide task force to
eliminate waste, fraud and abuse in government contracting, and also served as
Senior Contract Specialist responsible for capital improvements in 109
governmental properties. Ms. Challenger is a licensed real estate broker, NASD
registered securities sales representative and is a member of the Urban Land
Institute.
CATHERINE L. LYNCH joined the Inland Organization in 1989 and is the
Treasurer of Inland Real Estate Investment Corporation ("IREIC") and Inland
Securities Corporation. Ms. Lynch is responsible for managing the Corporate
Accounting Department of IREIC. Prior to joining the Inland Organization, Ms.
Lynch worked in the field of public accounting for KPMG Peat Marwick LLP since
1980. She received her B.S. Degree in Accounting from Illinois State University.
Ms. Lynch is a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society. She is
registered with the NASD as a Financial Operations Principal.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor generally has
responsibility for the day-to-day operations of the Company, administers the
Company's bookkeeping and accounting functions, serves as the Company's
consultant in connection with policy decisions to be made by the Board, manages
or causes to be managed by another party, the Company's Properties and renders
other services as the Board deems appropriate. The Advisor is subject to the
supervision of the Board and has only such functions as are delegated to it by
the Board.
The Advisor bears the expenses it incurs in connection with performing its
duties under the Advisory Agreement, including employee expenses; certain travel
and other expenses of its directors, officers and employees; rent; telephone;
and equipment expenses to the extent such expenses relate to the office
maintained by both the Company and the Advisor and miscellaneous administrative
expenses incurred in supervising, monitoring and inspecting real property or
other investments of the Company or relating to its performance under the
Advisory Agreement. The Advisor is reimbursed for the cost to the Advisor and
its Affiliates of goods and services used for and by the Company and obtained
from unaffiliated parties and administrative services related thereto. The
Company bears its own expenses for functions not required to be performed by the
Advisor under the Advisory Agreement, which generally include capital raising
and financing activities, corporate governance matters and other activities not
directly related to the Company's Properties.
The Advisory Agreement, which was entered into by the Company with the
approval of a majority of the Directors (including a majority of the Independent
Directors), has an initial term of one year and is renewable for successive
one-year terms upon the mutual consent of the parties. The Advisory Agreement
may be terminated by either party, or by mutual consent of the parties or by a
majority of the Independent
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Directors or the Advisor, as the case may be, upon 60 days' written notice
without cause or penalty. If the Advisory Agreement is terminated, the Advisor
is required to cooperate with the Company and to take all reasonable steps
requested by the Board to assist it in making an orderly transition of the
advisory function.
The Advisory Agreement provides for the Advisor to be paid an (i) Advisor
Asset Management Fee, (ii) a Property Disposition Fee, and (iii) after the
Stockholders have first received an 7% Cumulative Return and a return of their
Invested Capital, an Incentive Advisory Fee from the net proceeds of a sale of a
Property. All of such fees are described under "Compensation Table."
If the Advisor or its Affiliates perform services that are outside of the
scope of the Advisory Agreement, the Company will compensate the Advisor or the
Affiliate at such rates and in such amounts as agreed upon by the Advisor and
the Independent Directors. See "Compensation Table."
For any year in which the Company qualifies as a REIT, the Advisor must
reimburse the Company for the amounts, if any: (i) by which the Advisor Asset
Management Fee plus Other Operating Expenses paid during the previous calendar
year exceed the greater of (a) 2% of the Company's Average Invested Assets for
that calendar year or (b) 25% of the Company's Net Income for that calendar
year; PLUS (ii) an amount equal to any deficit between the total amount of
Distributions to Stockholders for such year and the Current Return. The Advisor
is also obligated to pay Organization and Offering Expenses in excess of
specified levels. See "Compensation Table." Provided however, only so much of
the excess specified in clause (i) above will be required to be reimbursed as
the Board (including a majority of the Independent Directors) shall determine
should justifiably be reimbursed in light of such unanticipated, unusual or non-
recurring factors as may have occurred within 60 days after the end of the
quarter for which the excess occurred. In such event, the Stockholders will be
sent a written disclosure of such fact and an explanation of the factors the
Independent Directors considered in arriving at the conclusion that the higher
Total Operating Expenses were justified.
The "Property Acquisition Service Agreement" among the Company, the Advisor,
IREC, IREAS (the advisor to IREC), and Inland Real Estate Acquisitions, Inc.
("IREA"), subject to the exception described below, grants the Company the first
opportunity to purchase a prospective Property in the Company's Primary
Geographical Area of Investment placed under contract by IREA, the Advisor or
its Affiliates, provided the Company is able to close the purchase of the
Property within 60 days. Similarly, IREC is granted the first opportunity to
purchase a prospective Property in its primary geographic area of investment (a
400 mile radius of TIGI's headquarters in Oak Brook, Illinois), provided it is
able to close the purchase of the Property within 60 days. However, if the
prospective Property is located in both the Company's and IREC's primary
geographic area of investment, and both the Company and IREC have funds
available to make the purchase, the prospective Property will first be offered
to IREC. If IREC does not purchase the prospective Property, it will then be
offered to the Company.
If (i) the prospective Property is outside the primary geographic area of
investment of both the Company and IREC, (ii) both the Company, IREC and any
other real estate investment program sponsored by IREIC have funds available to
make the purchase, and (iii) the prospective Property meets each of their
respective acquisition criteria, then the prospective Property will (x) first be
offered to IREC, (y) if IREC does not purchase the prospective Property, it will
then be offered to the Company, and (z) if the Company does not purchase the
prospective Property, it will then be offered to such other real estate
investment program.
Other factors which may be considered in connection with evaluating the
suitability of the prospective Property for investment by a particular entity
include: (i) the effect of the acquisition on the diversification of each
entity's portfolio; (ii) the amount of funds available for investment; (iii)
cash flow; and (iv) the estimated income tax effects of the purchase and
subsequent disposition.
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The Company has been informed that IREC expects to have all of its
anticipated funds available for investment from its current offering of
securities fully invested by September 1999. Accordingly, material conflicting
investment opportunities between IREC and the Company are not currently expected
after that date. However, if such conflicts do arise, they will be resolved as
provided in the Property Acquisition Service Agreement.
Many REITs which are listed on a national stock exchange or included for
quotation on a national market system are considered "self-administered," since
the employees of such a REIT perform all significant management functions. In
contrast, REITs that are not self-administered, like the Company, typically
engage a third-party, such as an advisor (like the Advisor), to perform
management functions on its behalf. If for any reason the Independent Directors
determine that the Company should become self-administered, the Advisory
Agreement permits the business conducted by the Advisor (including all of its
assets) to be acquired by or consolidated into the Company. A similar provision
is included in the Management Agreement permitting acquisition of the business
conducted by the Management Agent (including all of its assets). See paragraph
11 under "Conflicts of Interest."
If the businesses conducted by the Advisor and/or the Management Agent are
acquired by or consolidated into the Company, the Advisor and/or the Management
Agent and/or their respective stockholders will receive in connection with such
an acquisition and in exchange for terminating the Advisory Agreement and/or the
Management Agreement and the release and waiver of all fees payable under the
provisions of the Advisory Agreement and/or the Management Agreement until their
stated termination, but not paid, a determinable number of Shares. The Company
will be obligated to pay any fees accrued under such contractual arrangements
for services rendered through the closing of such acquisitions.
The number of Shares to be issued by the Company to the Advisor and/or the
Management Agent, as the case may be, shall be determined as follows. The
Company shall first send notice (the "Election Notice") to the Advisor and/or
the Management Agent, as the case may be, of its election to proceed with such a
transaction. Next, the net income of the Advisor and/or the Management Agent, as
the case may be, for the six month period immediately preceding the month in
which the Election Notice is delivered, as determined by an independent audit
conducted in accordance with generally accepted auditing standards, shall be
annualized. (The Advisor or the Management Agent, as the case may be, shall bear
the cost of any such audit.) Such amount shall then be multiplied by 90% and
then divided by the "Funds from Operations per Weighted Average Share" of the
Company. "Funds from Operations per Weighted Average Share" shall be equal to
the annualized Funds from Operations (I.E., four times the Funds from Operations
for the quarter immediately preceding the delivery of the Election Notice) per
weighted average Share for the Company for such quarter, all based upon the
quarterly report of the Company delivered to Stockholders for such quarter. The
resulting quotient shall constitute the number of Shares to be issued by the
Company to the Advisor or the Management Agent, or their respective
shareholders, as the case may be, with delivery thereof and the closing of the
transaction to occur within 90 days of delivery of the Election Notice. See the
"Glossary" for the definition of "Funds from Operations."
Under certain circumstances, such a transaction can be entered into and
consummated without seeking specific Stockholder approval. See paragraph 11
under "Conflicts of Interest." Any such transaction will occur, if at all, only
if the Board obtains a fairness opinion from a recognized financial advisor or
institution providing valuation services to the effect that the consideration to
be paid therefor is fair, from a financial point of view, to the Stockholders.
In the event the Advisory Agreement is terminated for any reason other than the
Company's acquisition of the business conducted by the Advisor, all obligations
of the Advisor and its Affiliates to offer Properties to the Company for
purchase will also terminate.
Under the Advisory Agreement, the Company is required to indemnify the
Advisor and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding with respect to acts or omissions of the Advisor,
provided that: (i) the Advisor determined, in good faith, that the course of
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<PAGE>
conduct which caused a loss or liability was in the best interest of the
Company; (ii) the Advisor was acting on behalf of or performing services for the
Company; (iii) such liability or loss was not the result of misconduct on the
part of the Advisor; and (iv) such indemnification or agreement to hold harmless
is recoverable only out of the Company's net assets and not from the assets of
the Stockholders.
The Company will advance amounts to persons entitled to indemnification for
legal and other expenses only if: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
indemnified party; (ii) the legal action is initiated by a third party and a
court of competent jurisdiction specifically approves such advancement; and
(iii) the indemnified party receiving such advances undertakes to repay the
advanced funds to the Company, together with the applicable legal rate of
interest thereon, in the event such party is found not to be entitled to
indemnification.
THE MANAGEMENT AGENT
The Management Agent is a Delaware corporation, which is owned principally
by individuals who are Affiliates of Inland, some of whom are affiliated with
IPMGI. See "--Inland Affiliated Companies" above in this Section.
The Management Agent provides property management services to the Company
pursuant to the terms of the Management Agreement. Without limiting the
generality of the following description, the Management Agent has agreed to
provide services in connection with the rental, leasing, operation and
management of the Properties. In consideration of such services, the Company has
agreed to pay the Management Agent a monthly management fee in an amount no
greater than 90% of the fee which would be payable to an unrelated party
providing such services, which fee shall initially be 4.5% of Gross Income (as
defined in the Management Agreement) from the Properties managed for the month
for which the payment is made. In addition, the Company has agreed to compensate
the Management Agent in the event the latter provides the Company with services
other than those specified in the Management Agreement. There will be a separate
Management Agreement for each Property for an initial term ending as of December
31 in the year in which the Property is acquired, and each Management Agreement
will be subject to three successive three-year renewals, unless either party
notifies the other in writing of its intent to terminate the Management
Agreement 30 days prior to the expiration of the initial or renewal term. The
Company's right to terminate will be limited so that the Management Agreement
will be terminable by the Company only in the event of gross negligence or
malfeasance on the part of the Management Agent. The Management Agent may in
certain instances subcontract the required property management services for less
than the management fee provided in the Management Agreement. See "Compensation
Table--Nonsubordinated Payments--Operational Stage."
See "--The Advisory Agreement" above in this Section and paragraph 11 under
"Conflicts of Interest" for a discussion of the Company's option to cause the
business conducted by the Management Agent to be acquired by or consolidated
into the Company.
The following sets forth certain information with respect to the executive
officers and directors of the Management Agent. The biography of Mr. Sanders is
set forth above under "--Directors and Executive Officers of the Company" in
this Section.
<TABLE>
<CAPTION>
POSITION AND OFFICE
NAME AGE* WITH THE MANAGEMENT AGENT
- ------------------------------------------------------------ ----- -------------------------
<S> <C> <C>
Stephen D. Sanders.......................................... 49 President
Robert M. Barg.............................................. 44 Secretary/Treasurer
D. Scott Carr............................................... 32 Director
Alan F. Kremin.............................................. 52 Director
Thomas P. McGuinness........................................ 42 Director
</TABLE>
- ------------------------
* As of January 1, 1998
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ROBERT M. BARG has been the Secretary and Treasurer of the Management Agent
since its formation in 1998. Mr. Barg joined the Inland Organization in January
1986 and is currently Vice President and Controller of IPMGI. Prior to joining
the Inland Organization, Mr. Barg was an Accounting Manager for the Charles H.
Shaw Co. He received his B.S. Degree in Business Administration from the
University of Illinois at Chicago and a Master's Degree from Western Illinois
University. Mr. Barg is a Certified Public Accountant and is a member of the
Illinois CPA Society. He holds a real estate sales license and is registered
with the NASD as a securities sales representative.
D. SCOTT CARR has been a director of the Management Agent since its
formation in 1998. Mr. Carr joined the Inland Organization in 1987. He was Vice
President and Secretary of IPMGI from July 1994 until July 1995 when he was
appointed President of IPMGI. Mr. Carr has responsibility for the portfolio of
commercial properties managed by IPMGI and its subsidiaries, including
management and leasing. He is a licensed real estate broker. Mr. Carr is a
Certified Shopping Center Manager, Certified Property Manager candidate with the
Institute of Real Estate Management, and a member of the International Council
of Shopping Centers.
ALAN F. KREMIN joined the Inland Organization in 1982. Mr. Kremin was
promoted to Treasurer of Inland, IPMGI and various other Inland subsidiaries in
March 1991. In his current capacity as the Chief Financial Officer of Inland, a
position he has held since 1991, his responsibilities include preparation of
consolidated federal and state corporate tax returns, cash budgeting for the
consolidated group and serving as a Director for various Inland subsidiaries,
which he also serves as Treasurer. Prior to his current position, Mr. Kremin was
Treasurer of IREIC from 1986 to 1990. In that capacity, he supervised the daily
operations of IREIC's accounting department which encompasses corporate
accounting for the general partner of the IREIC-sponsored limited partnership
investment programs. Prior to joining Inland, Mr. Kremin served for one year as
a Controller of CMC Realty and three years as Assistant Controller of JMB Realty
Corporation. Prior to his real estate experience, Mr. Kremin worked eight years
in the field of public accounting, including four years at Arthur Young &
Company. He received his B.S. Degree in accounting from Loyola University. Mr.
Kremin is a Certified Public Accountant, holds securities and insurance licenses
and is a licensed real estate broker.
THOMAS P. MCGUINNESS joined the Inland Organization in 1982 and became
President of Mid-America Management Corp., one of the Inland Affiliated
Companies, in July 1990 and is also President of Inland Property Management,
Inc. Mr. McGuinness is a licensed real estate broker. He is past President of
the Chicagoland Apartment Association, and past Regional Vice President of the
National Apartment Association. Mr. McGuinness is currently on the Board of
Directors of Apartment Building Owners and Managers Association, and is a
Trustee of the Service Employees' Local No. 1 Health and Welfare Fund, as well
as its Pension Fund.
INLAND SECURITIES CORPORATION
Inland Securities Corporation ("ISC"), the Dealer Manager, is one of the
Inland Affiliated Companies. It was formed in 1984, is registered under the
applicable federal and state securities laws, and is qualified to do business as
a securities broker-dealer throughout the United States. Since its formation,
ISC has provided the marketing function for distribution of the investment
products sponsored by IREIC. It does not render such services to anyone other
than the Inland Affiliated Companies, and it does not focus its efforts on the
retail sale side of the securities business. ISC is a member firm of the NASD.
The following sets forth information regarding the officers, directors and
principal employees of ISC involved in national sales and marketing activities.
The biography of Ms. Matlin is set forth above under "--Directors and Officers
of the Company," the biography of Ms. Lynch is set forth above under "--The
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Advisor," and the biography of Mr. Parks is set forth above under "--Inland
Affiliated Companies," in this Section.
<TABLE>
<CAPTION>
NAME AGE* POSITION AND OFFICE WITH THE DEALER MANAGER
- ----------------------------------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Brenda G. Gujral............................... 55 President, Chief Operating Officer and Director
Roberta S. Matlin.............................. 53 Vice President and Director
Mark Zalatoris................................. 40 Vice President, Secretary and Director
Catherine L. Lynch............................. 39 Treasurer
Robert D. Parks................................ 54 Director
Martel Day..................................... 48 Senior Vice President-National Sales and Marketing
Glenn Agnew.................................... 54 Senior Vice President
Gregory R. Hill................................ 46 Senior Vice President
Fred C. Fisher................................. 54 Senior Vice President
John Cunningham................................ 39 Regional Representative for the Western Region
Ralph Rudolph.................................. 35 Regional Representative for the Midwest Region
</TABLE>
- ------------------------
* As of January 1, 1998
BRENDA G. GUJRAL is President and Chief Operating Officer and a Director of
Inland Real Estate Investment Corporation ("IREIC"), the parent company of the
Advisor. She is also President and Chief Operating Officer and a Director of
ISC.
Mrs. Gujral has overall responsibility for the operations of IREIC,
including the distribution of checks to over 50,000 investors, the review of
periodic communications to those investors, the filing of quarterly and annual
reports for IREIC-sponsored publicly registered investment programs with the
SEC, compliance with other SEC and NASD securities regulations both for IREIC
and ISC, review of asset management activities, and marketing and communications
with the independent broker-dealer firms selling current and prior
IREIC-sponsored investment programs. She works with internal and outside legal
counsel in structuring IREIC's investment programs, and in connection with the
preparation of the offering documents therefor and registering the related
securities with the SEC and state securities commissions.
Mrs. Gujral has been with the Inland Organization for 18 years, becoming an
officer in 1982. Prior to joining the Inland Organization, she worked for the
Land Use Planning Commission establishing an office in Portland, Oregon, to
implement land use legislation for that state.
She is a graduate of California State University. She holds Series 7, 22, 39
and 63 licenses from the NASD and is a member of NAREIT.
MARK ZALATORIS joined the Inland Organization in 1985 and currently serves
at Vice President of Inland Real Estate Investment Corporation, the parent
company of the Advisor. He is also a Director, Vice President and Secretary of
ISC. His responsibilities include the coordination of due diligence activities
by selling broker-dealers and limited partnership asset management, with special
emphasis on the mortgage funds. Mr. Zalatoris is a graduate of the University of
Illinois where he received a Bachelor's Degree in Finance and a Master's Degree
in Accounting and Taxation. He is a Certified Public Accountant and holds a
General Securities License with ISC. Mr. Zalatoris is a member of NAREIT.
MARTEL DAY is Senior Vice President--National Sales and Marketing for Inland
Securities Corporation. He joined ISC in 1984 as a Regional Representative in
the southeast. Since then, he has served as Regional Vice President, Senior Vice
President, and as National Marketing Director. Mr. Day is currently responsible
for expanding ISC's selling group and working closely with broker-dealers in the
selling group to maximize sales.
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Mr. Day has developed and presented numerous motivational and sales training
workshops over the past 20 years. He graduated with an engineering degree from
the Georgia Institute of Technology. Mr. Day holds General Securities and
Registered Investment Advisor licenses from the NASD, and is an associate member
of NAREIT. He is a Director of Inland Investment Advisors, Inc., one of the
Inland Affiliated Companies.
GLENN AGNEW is Senior Vice President of ISC. Mr. Agnew joined ISC in 1988
and is responsible for raising capital in the western part of the United States.
He has 10 years previous experience in wholesale support, including oil and gas
drilling, income, land, health care facility and real estate syndication. Mr.
Agnew received his Bachelor's Degree from East Central State University in Ada,
Oklahoma. He holds Series 7, 22, 63 and 65 licenses with the NASD.
GREGORY R. HILL is Senior Vice President of ISC. Mr. Hill joined ISC in 1986
and is responsible for the eastern region of the United States. He received his
Bachelor's Degree from Brown University. Mr. Hill has been actively involved in
the securities business since 1978, specializing in real estate exclusively
since 1981. Prior to his affiliation with ISC, he worked for a New York Stock
Exchange member company. Mr. Hill holds General Securities and Registered
Investment Advisor licenses with NASD.
FRED C. FISHER, Senior Vice President of ISC, joined ISC in 1984. Mr. Fisher
began his career with ISC as Regional Vice President for the Midwest region. In
1994, he was promoted to Senior Vice President. Mr. Fisher received his
Bachelor's Degree from John Carroll University. Before joining ISC, he spent
nine years as a regional sales manager for the S.S. Pierce Company. Mr. Fisher
holds Series 7, 22 and 63 licenses with the NASD.
JOHN CUNNINGHAM joined the Inland Affiliated Companies in January 1995 as a
commercial real estate broker. In March 1997, Mr. Cunningham was hired by ISC as
a Regional Representative for the Western Region. He graduated from Governors
State University with a B.S. Degree in Business Administration, concentrating in
marketing. Before joining the Inland Affiliated Companies, Mr. Cunningham owned
and operated his own business and developed real estate. He holds Series 7 and
Series 63 licenses with the NASD.
RALPH RUDOLPH joined IREIC in June 1995 as a marketing coordinator. In
December 1996, he was promoted to Regional Representative of ISC for the Midwest
region. Mr. Rudolph attended Illinois State University where he majored in
marketing. Before joining Inland, he worked as a securities broker for a
regional broker-dealer. Mr. Rudolph holds Series 7 and Series 63 licenses with
the NASD.
OTHER SERVICES
In addition to the services described above, Affiliates of the Advisor may
provide other property-level services to the Company and may receive
compensation for such services, including sales brokerage, construction
management, loan origination and servicing, property tax reduction and risk
management services. However, under no circumstances will such compensation
exceed 90% of that which would be paid to third parties providing such services
and all such compensation must have the prior approval of a majority of the
Board, including a majority of the Independent Directors. See "Compensation
Table."
INDEPENDENT DIRECTOR STOCK OPTION PLAN
The Company has an Independent Director Stock Option Plan (the "Independent
Director Stock Option Plan") under which "Non-Employee Directors," as defined
under Rule 16b-3 of the Exchange Act, are eligible to participate.
A total of 75,000 Shares have been authorized and reserved for issuance
under the Independent Director Stock Option Plan. If the number of outstanding
Shares is increased, decreased or changed into, or exchanged for, a different
number or kind of shares or securities of the Company through a reorganization
or merger in which the Company is the surviving entity, or through a
combination, recapitalization,
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reclassification, stock split, stock dividend, stock consolidation or otherwise,
an appropriate adjustment will be made in the number and kind of shares that may
be issued pursuant to options. A corresponding adjustment to the exercise price
of the options granted prior to any change will also be made. Any such
adjustment, however, will be made without change in the total payment, if any,
applicable to the portion of the options not exercised but with a corresponding
adjustment in the exercise price for each Share.
The Independent Director Stock Option Plan provides for the grant of
non-qualified stock options to purchase 3,000 Shares to each Independent
Director as of the date such individuals become Directors (the "Initial
Options"), and for subsequent grants of options to purchase 500 Shares on the
date of each annual Stockholder's meeting to each Independent Director then in
office (the "Subsequent Options," collectively with the Initial Options referred
to herein as an "Option" or the "Options"). As of the effective date of this
Prospectus, Options to purchase an aggregate of 9,000 Shares at $9.05 per Share
(the "Option Price") have been granted (3,000 Shares as to each of the three
Independent Directors), all of which Options have vested in the current
Independent Directors. The Option Price for subsequent Options will be equal to
the fair market value of a Share on the last business day preceding the annual
meeting of Stockholders, and shall be $9.05 per Share until the earlier of (i)
the termination of this Offering or (ii) two years after the commencement of
this Offering.
One-third of the Initial Options are exercisable beginning on the date of
their grant, one-third of the Initial Options will first become exercisable on
the first anniversary of the date of their grant, and the remaining one-third of
the Initial Options will first become exercisable on the second anniversary of
the date of their grant. The Subsequent Options granted under the Independent
Director Stock Option Plan will become fully exercisable on the second
anniversary of the date of their grant. To date, Options to purchase 3,000
Shares (their Initial Options) have vested in each of Messrs. Daniel K. Deighan,
and , who are the Independent Directors of the Company. [The
names of the other two Independent Directors will be inserted in the blanks.]
Options granted under the Independent Director Stock Option Plan are
exercisable until the first to occur of (i) the tenth anniversary of the date of
grant, (ii) the removal for cause of the Independent Director as an Independent
Director, or (iii) three months following the date the Independent Director
ceases to be an Independent Director for any other reason except death or
disability, and may be exercised by payment of cash or through the delivery of
Shares. Options granted under the Independent Director Stock Option Plan are
generally exercisable in the case of death or disability for a period of one
year after death or the disabling event, provided that the death or disabling
event occurs while the person is an Independent Director and prior to his or her
removal for cause, resignation or ceasing to be an Independent Director for any
other reason; provided however, if the Option is exercised within the first six
months after it becomes exercisable, any Shares issued pursuant to such exercise
may not be sold until the six month anniversary of the date of the grant of the
Option. Notwithstanding any other provisions of the Independent Director Stock
Option Plan to the contrary, no option issued pursuant thereto may be exercised
if such exercise would jeopardize the Company's status as a REIT under the Code.
No option may be sold, pledged, assigned or transferred by an Independent
Director in any manner otherwise than by will or by the laws of descent or
distribution.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon sale of all or substantially all of the Company's property, the
Independent Director Stock Option Plan will terminate, and any outstanding
unexercised options will terminate and be forfeited. However, holders of options
may exercise any options that are otherwise exercisable immediately prior to the
dissolution, liquidation, consolidation or merger. Notwithstanding the
foregoing, the Board may provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of the Options theretofore granted or the substitution by
such corporation for such Options of options
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covering the stock of the successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
exercise prices; (ii) for the continuance of the Independent Director Stock
Option Plan by such successor corporation in which event the Independent
Director Stock Option Plan and the Options will continue in the manner and under
the terms so provided; or (iii) for the payment in cash or Shares in lieu of and
in complete satisfaction of such Options.
PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, no Director or executive officer of the
Company beneficially owns any Shares, and there is no Stockholder of the Company
who beneficially owns any Shares, other than the Advisor which purchased 20,000
Shares for $10 per Share, for an aggregate purchase price of $200,000, in
connection with the organization of the Company. There are 200 Shares reserved
for issuance to the Advisor upon the exercise of its right to exchange its 200
LP Common Units of the Operating Partnership therefor. The Advisor received its
200 LP Common Units for a cash contribution of $2,000 to the Operating
Partnership.
See "Management--Independent Director Stock Option Plan" for information
regarding outstanding Options to purchase an aggregate of 9,000 Shares issued to
the Independent Directors.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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CERTAIN RESPONSIBILITIES OF DIRECTORS AND
THE ADVISOR; INDEMNIFICATION
GENERAL
Consistent with the duties and obligations of, and limitations on, the
Directors as set forth in the Articles and under the laws of the State of
Maryland, the Directors are required to perform their duties in good faith and
in a manner each Director reasonably believes to be in the best interest of the
Company and its Stockholders, with such care as an ordinarily prudent person in
a like position would use under similar circumstances. The Maryland General
Corporation Law ("MGCL") and the Articles provide that a person who performs his
or her duties in accordance with such standards has no liability by reason of
being or having been a Director. In addition, the Independent Directors must
review at least annually the relationship of the Company with the Advisor and
the Advisor's performance of its duties under the Advisory Agreement, and must
determine that the compensation paid to the Advisor is reasonable in relation to
the nature and quality of the services performed. The Advisor also has a
fiduciary duty to the Company and the Stockholders.
The Articles provide that the Advisor and the Directors of the Company are
deemed to be in a fiduciary relationship to the Company and the Stockholders and
that the Directors have a fiduciary duty to the Stockholders to supervise the
relationship of the Company with the Advisor.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The liability of the Directors, officers, employees, and agents of the
Company and the Advisor and its Affiliates is limited to the fullest extent
permitted by the MGCL. Accordingly, under the Articles the Directors, officers,
employees and agents of the Company and the Advisor and its Affiliates may not
be held liable to the Company or its Stockholders for monetary damages unless:
(a) it is proven that the person actually received an improper benefit or profit
in money, property or services; and (b) to the extent that a judgment or other
final adjudication adverse to the person is entered in a proceeding based on a
finding in the proceeding that the person's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
The Company's Articles authorize and direct the Company, to the fullest
extent permitted by Maryland statutory or decisional law, as amended or
interpreted and, without limiting the generality of the foregoing, in accordance
with Section 2-418 of the MGCL, to indemnify and pay or reimburse reasonable
expenses to: (a) any Director, officer, employee or agent of the Company, and
(b) the Advisor and its Affiliates (each individually an "Indemnified Party"),
PROVIDED, THAT, as long as the Company qualifies as a REIT: (i) the Indemnified
Party has determined, in good faith, that the course of conduct which caused the
loss or liability was in the best interest of the Company; (ii) the Indemnified
Party was acting on behalf of or performing services on the part of the Company;
(iii) such liability or loss was not the result of negligence or misconduct on
the part of the Indemnified Party, except that in the event the Indemnified
Party is or was an Independent Director, such liability or loss shall not have
been the result of gross negligence or willful misconduct; and (iv) such
indemnification or agreement to be held harmless is recoverable only out of the
assets of the Company and not from the assets of the Stockholders.
As long as the Company qualifies as a REIT, the Company may not indemnify an
Indemnified Party for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee; (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee; or (iii) a court of competent jurisdiction approves a
settlement of the claims and finds that indemnification of the settlement and
related costs should be made and the court considering the request has been
advised of the position of the Commission and the published
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position of any state securities regulatory authority in which securities of the
Company were offered and sold as to indemnification for securities law
violations.
The Company shall advance amounts to an Indemnified Party for legal and
other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
MGCL and, as long as the Company qualifies as a REIT, only if all of the
following conditions are satisfied: (i) the legal action relates to acts or
omissions with respect to the performance of duties or services by the
Indemnified Party for or on behalf of the Company; (ii) the legal action is
initiated by a third party who is not a Stockholder or the legal action is
initiated by a Stockholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves advancement; and (iii) the
Indemnified Party receiving these advances undertakes in writing to repay the
advanced funds to the Company, together with interest at the applicable legal
rate thereon, if the Indemnified Party is found not to be entitled to
indemnification.
The Company may purchase and maintain insurance or provide similar
protection on behalf of an Indemnified Party against any liability asserted
which was incurred in any such capacity with the Company or arising out of such
status; PROVIDED, HOWEVER, that the Company may not incur the costs of any
liability insurance which insures any person against liability for which he, she
or it could not be indemnified under the Articles. The Company may enter into
any contract for indemnity and advancement of expenses with any officer,
employee or agent who is not a Director to such further extent consistent with
law as may be determined by the Board. As of the date of this Prospectus, the
Company has not purchased any insurance on behalf of, nor entered into any
contract of indemnity with, an Indemnified Party.
The Company intends to enter into separate indemnification agreements with
each of the Company's Directors and certain of its executive officers. The
indemnification agreements will require, among other things, that the Company
indemnify its Directors and officers to the fullest extent permitted by law, and
advance to the Directors and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred by
Directors and officers seeking to enforce their rights under the indemnification
agreements and cover Directors and officers under the Company's Directors' and
officers' liability insurance, if any. Although the form of indemnification
agreement offers substantially the same scope of coverage afforded by provisions
in the Articles and the Bylaws, it provides greater assurance to Directors and
officers that indemnification will be available, because as a contract, it
cannot be unilaterally modified by the Board or by the Stockholders to eliminate
the rights it provides.
The Bylaws provide that neither the amendment, nor the repeal, nor the
adoption of any other provision of the Articles or the Bylaws will apply to or
affect, in any respect, the Indemnitee's right to indemnification for actions or
failures to act which occurred prior to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy and, therefore,
unenforceable.
STRUCTURE AND FORMATION OF THE COMPANY
The Company was formed in September 1998 as a Maryland corporation. The
Operating Partnership was formed in September 1998 as an Illinois limited
partnership.
STRUCTURE OF THE COMPANY
The Company is the General Partner of the Operating Partnership. The Company
will contribute the $200,000 of proceeds from the Advisor's Company Contribution
and the proceeds of the Offering to the Operating Partnership and will be the
only holder of GP Common Units in the Operating Partnership. Initially, the only
other partner in the Operating Partnership will be the Advisor, as a Limited
Partner, who
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will hold 200 LP Common Units valued at $2,000 for its $2,000 capital
contribution. The Company currently intends to conduct substantially all of its
business, and currently intends to hold most of its interests in the Properties
through the Operating Partnership or in separate entities (the "Property
Partnerships") that will be controlled, directly or indirectly, by the Operating
Partnership. A REIT may conduct some of its business and hold some of its
interests in Properties in Qualified REIT Subsidiaries (each a "QRS"), which
must be owned 100% by the REIT. Although the Company does not intend to
initially have any QRSs, it may in the future decide to conduct some business or
hold some of its interests in Properties in QRSs. As the General Partner of the
Operating Partnership, the Company will have the exclusive power to manage and
conduct the business of the Operating Partnership, subject to certain exceptions
set forth in the Operating Partnership Agreement. See "Operating Partnership
Agreement."
See "Prospectus Summary--Organizational Chart" for a diagram depicting the
services to be rendered by the TIGI Affiliated Companies to the Company, as well
as the proposed organization structure of the Company and the Operating
Partnership. The following diagram depicts only the ownership structure of the
Company and the Operating Partnership upon completion of the Offering and the
Formation Transactions. Because the Company does not intend to initially have
any QRSs, none are shown on the following Ownership Chart.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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[OWNERSHIP CHART]
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FORMATION TRANSACTIONS
Except as indicated, prior to or concurrently with the effectiveness of the
Registration Statement, the Company, Affiliates of the Company, the Operating
Partnership and certain third parties will engage in the Formation Transactions
designed to enable the Company to acquire and manage its Properties, consolidate
the ownership interests in the Initial Properties, facilitate the Offering and
enable the Company to qualify as a REIT for federal income tax purposes
commencing with its taxable year ending December 31, 1998.
The Company, Affiliates of the Company and the Operating Partnership will
engage in the following series of transactions (collectively, the "Formation
Transactions"):
- The Company was formed as a corporation in Maryland. The Operating
Partnership was formed as a limited partnership in Illinois. The Company
is the General Partner of the Operating Partnership.
- Inland Retail Real Estate Advisory Services, Inc. (the "Advisor"), an
Affiliate of TIGI, purchased 20,000 Shares in connection with the
organization of the Company for $10 per Share, an aggregate purchase price
of $200,000 (the "Advisor's Company Contribution"). The Advisor has also
contributed $2,000 to the Operating Partnership for 200 LP Common Units of
the Operating Partnership valued at $2,000 (the "Advisor's Partnership
Contribution"). The Advisor will be the initial Stockholder of the Company
and the initial Limited Partner of the Operating Partnership.
- The Company will commence an offering on a "best efforts" basis to the
public of 50,000,000 Shares at $10 per Share (except for sales at $9.05
per Share to employees and associates of the Company and its Affiliates,
the Advisor, Affiliates of the Advisor, the Dealer Manager or the
Soliciting Dealers). In addition, 4,000,000 Shares will be offered by the
Company at $9.50 per Share to Stockholders who elect to participate in the
Company's DRP, and up to 1,250,000 Soliciting Dealer Warrants will be
issued, allowing the holders thereof, upon exercise of those Warrants
during the Exercise Period, to purchase up to 1,250,000 Shares for not
less than $12 per Share.
- The Company will contribute the $200,000 of proceeds from the Advisor's
Company Contribution and the proceeds of the sale of the 55,250,000 Shares
offered pursuant to this Prospectus, as and when received, to the
Operating Partnership.
- The Company will acquire 20,000 GP Common Units of the Operating
Partnership in exchange for the $200,000 of proceeds from the Advisor's
Company Contribution and one additional GP Common Unit of the Operating
Partnership in exchange for the proceeds of each of the 55,250,000 Shares
sold pursuant to the Offering. The Company will own all of the GP Common
Units of the Operating Partnership.
- The Operating Partnership will acquire all of the Initial Properties,
provided that the Net Proceeds of the Offering are sufficient to make such
acquisitions. The Operating Partnership's aggregate purchase price for the
Initial Properties will be approximately $42.7 million. The Initial
Properties will be acquired from the Initial Property Sellers (who are
Affiliates of TIGI). The purchase prices for the Initial Properties were
in each case negotiated in arm's-length transactions by IREA, an Affiliate
of TIGI, with third parties (who owned those Properties) based on a
multiple of the net operating income of each of the Initial Properties and
appraisals of such Properties. The Company will be paying such Affiliates'
acquisition costs of the Initial Properties. See "Estimated Use of
Proceeds of Offering" and "Real Property Investments."
- When the Initial Properties are acquired by the Company, they will be
subject to existing mortgage debt of approximately $31.2 million (the
"Initial Mortgage Debt"). In addition, the Initial Property Sellers
borrowed approximately $11.1 million from an Affiliate of TIGI in
connection with their acquisition of the Initial Properties (the
"Affiliates' Acquisition Debt"). Initially, the Company will use a portion
of the Net Proceeds of the Offering to (i) retire in full the Affiliates'
Acquisition Debt, (ii) reduce the Initial Mortgage Debt by $300,000 with
respect to the first of the Initial Properties to
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be acquired, (iii) pay Acquisition Expenses and establish working capital
reserves relating to the acquisition of the Initial Properties, and (iv)
to pay approximately $14 million to IREIC, an Affiliate of TIGI, which was
advanced by IREIC in connection with the organization of the Company and
for the expenses of the Offering. To the extent that there are additional
Net Proceeds of the Offering available after establishing working capital
reserves, such proceeds will be used to acquire additional Properties or
to further reduce the Initial Mortgage Debt on the Initial Properties. See
"Estimated Use of Proceeds of Offering."
As a result of the foregoing transactions, among other things: (i) the
Company will own all the GP Common Units in the Operating Partnership, (ii) the
Advisor will own 200 LP Common Units in the Operating Partnership, (iii) the
Company will be the General Partner of the Operating Partnership and, as General
Partner, will retain management control over the Operating Partnership, (iv) the
Advisor will be a Limited Partner in the Operating Partnership and, initially,
the only Limited Partner, and (v) the Company, through the Operating
Partnership, will acquire and own the Initial Properties.
BENEFITS OF THE UPREIT STRUCTURE
The benefits of the Company's REIT status and UPREIT structure include the
following:
- ACCESS TO CAPITAL. The Company's structure will, in the Company's
judgment, provide it with access to capital for refinancing and growth.
Sources of capital include the Shares sold in the Offering and possible
future issuances of debt or equity through public offerings or private
placements. The anticipated financial strength of the Company should
enable it to obtain financing at advantageous rates and on acceptable
terms.
- GROWTH OF THE COMPANY. The Company's structure will allow Stockholders
through their ownership of Shares, the Limited Partners through their
ownership of LP Common Units, and the holders of Interests, an opportunity
to participate in the growth of the real estate market through an ongoing
business enterprise. In addition to the portfolio of Initial Properties,
the Company gives Stockholders an interest in all future investments in
additional Properties.
- TAX DEFERRAL. The Operating Partnership structure will provide future
Limited Partners who transfer their Properties to the Company the
opportunity to defer the tax consequences that would arise from a sale of
their Properties and other assets to the Company or to a third party.
- LIQUIDITY. The Company's structure will allow Stockholders, the Limited
Partners who own LP Common Units, and holders of Interests the opportunity
to liquidate their capital investment through the disposition of their
Shares or the exchange of their LP Common Units or Interests for Shares.
However, there is currently no market for the Shares and there is no
assurance that a trading market will develop for the Shares. See
"Distribution Reinvestment and Share Repurchase Programs--Share Repurchase
Program" for an explanation of the Company's Share Repurchase Program
which provides limited liquidity for Stockholders. The Limited Partners
have certain conversion and redemption rights. See "Operating Partnership
Agreement--Limited Partner Conversion Rights" and "--Limited Partner
Redemption Rights."
COMPARISON OF SHARES AND COMMON UNITS
Conducting the Company's operations through the Operating Partnership allows
the Limited Partners (other than the Advisor) to defer certain tax consequences
by contributing their interests in Properties to the Operating Partnership or
Property Partnerships and also offers favorable methods of accessing capital
markets and acquiring additional Properties. Initially, Common Units in the
Operating Partnership will be held by the Limited Partners (the LP Common Units)
and the Company (the GP Common Units). Each Common Unit was designed to result
in a distribution per Common Unit equal to the Distribution per
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Share (assuming the Company distributes to its Stockholders all amounts it
receives as distributions from the Operating Partnership).
There are, however, certain differences between the ownership of Shares and
LP Common Units, including:
- VOTING RIGHTS. Holders of Shares will elect the Board of the Company,
which, as the General Partner of the Operating Partnership, controls the
business of the Operating Partnership. Holders of LP Common Units may not
elect Directors of the Company. Holders of Shares also vote on
extraordinary transactions involving the Company, such as Business
Combinations, whereas holders of LP Common Units do not have voting rights
with respect to such transactions, unless the Business Combination was
approved by Stockholders with less than the requisite percentage had
holders of LP Common Units voted together with the Stockholders on the
transaction. See "Operating Partnership Agreement--Extraordinary
Transactions."
- TRANSFERABILITY. Subject to the restrictions on transferability and
ownership to comply with the Ownership Limit, the Shares sold in the
Offering will be freely transferable under the Act by holders who are not
Affiliates of the Company. The LP Common Units and the Shares for which
they are exchangeable are subject to transfer restrictions under
applicable securities laws and under the Operating Partnership Agreement,
including the required consent of the General Partner to the admission of
any new Limited Partner. See "Shares Eligible for Future Sale--
Registration Rights" for a description of the registration rights which
will be granted to future holders of LP Common Units.
- DISTRIBUTIONS. Because the relative tax bases of the contributions by the
public investors and the Limited Partners are expected to be different, it
is possible that the amount of distributions to the public investors that
would be treated as a return of capital will be greater or lesser than the
amount of distributions to the Limited Partners that would be treated as a
return of capital. See "Federal Income Tax Considerations."
ADVANTAGES AND DISADVANTAGES OF THE FORMATION TRANSACTIONS TO UNAFFILIATED
STOCKHOLDERS
The potential advantages of the Formation Transactions to unaffiliated
Stockholders of the Company include their ability to participate, through
ownership in the Company, in the cash flow of the Initial Properties and all
future Property acquisitions and developments by the Company. The potential
disadvantages of such transactions to unaffiliated Stockholders of the Company
may be several, including the impact of Shares available for future sale, and
the lack of arm's-length negotiations to determine the terms of the transfers of
certain of the Properties to the Company and the Operating Partnership. See
"Risk Factors" and "Conflicts of Interest."
BENEFITS OF THE FORMATION TRANSACTIONS AND THE OFFERING TO TIGI AND ITS
AFFILIATES
TIGI and certain of its Affiliates will receive certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:
- Assuming that each LP Common Unit held by the Advisor has a value equal to
the initial offering price of a Share and all of the 200 LP Common Units
issued in the Formation Transactions to the Advisor are exchanged for
Shares, the Advisor would eventually receive 200 Shares for its $2,000
cash contribution to the Operating Partnership, in addition to the 20,000
Shares it purchased from the Company for $200,000. The Advisor initially
will be the Limited Partner of the Operating Partnership.
- IREA or its Affiliates (which are TIGI Affiliated Companies) will no
longer be liable as a general partner of the partnerships that own the
Initial Properties. In addition, Affiliates of the Advisor will
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be paid for their approximately $11.1 million advancement represented by
the Affiliates' Acquisition Debt.
- The Company will pay on behalf of IREIC, or reimburse IREIC for,
approximately $14 million of expenses incurred by or on behalf of the
Company in connection with the organization of the Company and for the
Offering.
- Robert D. Parks, an Affiliate of TIGI, and Barry L. Lazarus, who was
formerly an Affiliate of TIGI, will each be nominated and elected an
Affiliated Director of the Company.
- The Advisor and the Management Agent will enter into the Advisory
Agreement and the Management Agreement, respectively, with the Company,
pursuant to which they will receive substantial fees from the Company for
their respective advisory and property management services. The Company
will have the option to cause the business conducted by the Advisor and
the Management Agent to be acquired by or consolidated into the Company
for Shares. See paragraph 11 under "Conflicts of Interest" and
"Management--The Advisory Agreement" for an explanation of the details of
such an acquisition, including how the number of Shares to be received by
the Advisor and the Management Agent and/or their respective shareholders
will be determined.
- The Dealer Manager, one of the TIGI Affiliated Companies, will receive
cash selling commissions, a Marketing Contribution, a Due Diligence
Expense Allowance, and Soliciting Dealer Warrants, which it may retain or
reallow to certain Soliciting Dealers.
For further information on the compensation payable to the Advisor, the
Management Agent and the Dealer Manager, and on other compensation to be paid to
other Affiliates, see "Compensation Table."
SELECTED FINANCIAL DATA
As of the date of this Prospectus, the Company has not yet had any
operations. Therefore, it has not had any income, cash flow, funds from
operations, or funds available for distribution, nor has it declared any
Distributions or issued any Shares to public investors. The Company has sold
20,000 Shares to the Advisor for an aggregate purchase price of $200,000, and
the Advisor has also made a capital contribution of $2,000 to the Operating
Partnership. See "Management's Discussion and Analysis of the Financial
Condition of the Company," and the financial statements of the Company and
related notes thereto included in Appendix F to this Prospectus.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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ESTIMATED USE OF PROCEEDS OF OFFERING
The amounts set forth in the table below represent the Company's current
estimates concerning the use of the Gross Offering Proceeds (as defined below).
All proceeds of the Offering will be held in trust by the Company for the
benefit of the Stockholders, to be used only for the purposes set forth below
and will not be commingled with the accounts of the Advisor and its Affiliates.
As of the date of this Prospectus, the Company has rights to acquire four
Initial Properties, all of which are Retail Centers (three Neighborhood Centers
and one Community Center) and had approximately $200,000 (from the Advisor's
Company Contribution) available for additional investments or other purposes.
The Company estimates that, after establishing working capital reserves and
providing for Acquisition Expenses, 87.07% of Gross Offering Proceeds will be
used to acquire Properties (including approximately $11.4 million to acquire the
Initial Properties, to retire in full the Affiliates' Acquisition Debt, and to
reduce the Initial Mortgage Debt by $300,000 on the first of the Initial
Properties to be acquired) if the Maximum Offering (as defined below) is sold.
If the Maximum Offering is sold, the Company estimates that, of all the selling
commissions, Marketing Contribution and Due Diligence Expense Allowance and
Organization and Offering Expenses, 8.56% of the Gross Offering Proceeds will be
utilized to pay selling commissions and due diligence expenses to unaffiliated
third parties and 2.87% of the Gross Offering Proceeds will be paid to the
Advisor and its Affiliates to pay for all the Organization and Offering Expenses
and a portion of the Marketing Contribution and Due Diligence Expense Allowance.
MAXIMUM OFFERING
(INCLUDING SHARES SOLD UNDER THE
DISTRIBUTION REINVESTMENT PROGRAM)(1)
<TABLE>
<CAPTION>
AMOUNT PERCENT
-------------- ---------
<S> <C> <C>
Gross Offering Proceeds(1):............................................................. $ 538,000,000 100.00%
-------------- ---------
Less Expenses:
Selling Commissions(2)................................................................ 35,000,000 6.51%
Marketing Contribution and Due Diligence Expense Allowance(2)......................... 12,500,000 2.32%
Organization and Offering Expenses(3)................................................. 14,000,000 2.60%
-------------- ---------
Total Public Offering Expenses...................................................... 61,500,000 11.43%
-------------- ---------
Gross Amount Available for Investment................................................... 476,500,000 88.57%
-------------- ---------
Less: Acquisition Expenses(4)(5).................................................... 2,690,000 0.50%
Less: Working Capital Reserve(6).................................................... 5,380,000 1.00%
-------------- ---------
Net Cash Portion of Gross Offering Proceeds Available for the Purchase of Properties.... $ 468,430,000 87.07%
-------------- ---------
-------------- ---------
</TABLE>
(1) The amounts shown in this table represent the Company's current
estimates of the uses of the Gross Offering Proceeds if the Maximum Offering
(50,000,000 Shares on a "best efforts" basis at $10.00 per Share and 4,000,000
Shares pursuant to the DRP at $9.50 per share) is sold and there are no Special
Sales (as assumed in this table) and, accordingly, may not accurately reflect
the actual receipt or application of such proceeds. The proceeds from the
issuance of up to 1,250,000 Soliciting Dealer Warrants ($.0008 per Soliciting
Dealer Warrant or up to $1,000) and from the exercise of those Soliciting Dealer
Warrants (at $12 per Soliciting Dealer Warrant or up to $15,000,000) are not
included in the amount shown for Gross Offering Proceeds.
(2) Except for Special Sales, the Company will pay the Dealer Manager cash
selling commissions of 7% of the Gross Offering Proceeds or $35,000,000 assuming
all 50,000,000 Shares offered on the "best efforts" basis are sold and there are
no Special Sales and, under certain circumstances, one Soliciting Dealer Warrant
for every 40 of those Shares sold, all or part of which compensation may, at the
discretion of the Dealer Manager, be retained or reallowed to Soliciting
Dealers; provided that the Company will not
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issue more than 1,250,000 Soliciting Dealer Warrants. Except for Special Sales,
the Dealer Manager will also receive the Marketing Contribution of 2% of the
Gross Offering Proceeds and a Due Diligence Expense Allowance of up to 0.5% of
the Gross Offering Proceeds (or an aggregate Marketing Contribution and Due
Diligence Expense Allowance of up to $12,500,000 if there are no Special Sales)
from the 50,000,000 Shares offered on the "best efforts" basis, some portion of
which may, at the discretion of the Dealer Manager, be reallowed to Soliciting
Dealers. This category of expense includes all amounts attributable to marketing
and BONA FIDE due diligence expenses. Certain volume discounts, payable in
Shares, may be given on single or certain combined orders of 20,000 Shares or
more. The Company will not pay any (or reduced) selling commissions and no
Marketing Contribution or Due Diligence Expense Allowance on certain Special
Sales. A maximum of 4,000,000 Shares available for issuance under the DRP may be
sold at a reduced price of $9.50 per Share due to decreased costs associated
with these issuances (an aggregate of $38,000,000 of gross proceeds will be
raised if all those Shares are sold). See "Conflicts of Interest," "Management's
Discussion and Analysis of the Financial Condition of the Company," "Plan of
Distribution" and "Distribution Reinvestment and Share Repurchase
Programs--Distribution Reinvestment Program."
(3) Reflects the Advisor's best estimates of legal, accounting, printing and
other Offering expenses, including amounts to reimburse the Advisor for
marketing, salaries and direct expenses of its employees while directly engaged
in registering and marketing the Shares and other marketing and organization
expenses. The Advisor has guaranteed payment of all public offering expenses
(excluding selling commissions and the Marketing Contribution and Due Diligence
Expense Allowance and assuming that all 1,250,000 of the Soliciting Dealer
Warrants are issued and exercised) in excess of 5.5% of the Gross Offering
Proceeds or all Organization and Offering Expenses (including such selling
expenses) which together exceed 15% of the Gross Offering Proceeds. This
guaranty is without recourse to or reimbursement by the Company.
(4) The Advisor will be reimbursed for actual out-of-pocket Acquisition
Expenses in an amount estimated to be equal to 0.5% of the Gross Offering
Proceeds plus the gross proceeds received from the issuance and exercise of the
Soliciting Dealer Warrants (which amount would be $2,690,000, assuming the
Maximum Offering is sold, including Shares sold under the DRP; or $2,765,005, if
the Maximum Offering is sold and all 1,250,000 of the Soliciting Dealer Warrants
are issued and exercised). The additional $75,005 of reimbursable Acquisition
Expenses which would be paid as a result of the issuance and exercise of all of
the Soliciting Dealer Warrants is not included in the amount shown for
Acquisition Expenses. To the extent that the purchase of any Properties includes
acquisition financing, the reimbursement of Acquisition Expenses (including the
0.5% limitation) will be made on the basis of the entire purchase price
(including acquisition financing relating thereto), not merely the Gross
Offering Proceeds employed in the acquisitions. Acquisition Expenses include but
are not limited to the costs and expenses incurred by the Advisor in selecting,
evaluating, acquiring and investing in the Company's proposed Properties,
whether or not acquired, including, but not limited to: surveys, appraisals,
title insurance and escrow fees, non-refundable option payments, legal and
accounting fees and expenses, computer use related expenses, architectural and
engineering reports, environmental and asbestos audits, travel and communication
expenses and personnel and miscellaneous expenses related to the selection and
acquisition of Properties. The Acquisition Expense for any particular Property
will not exceed 6% of the purchase price of any single Property.
(5) The Advisor will not receive a fee for the acquisition of Properties.
However, the seller of a Property may pay a real estate brokerage commission to
a third party in connection with the Company's purchase of a Property. Since a
seller may fix the selling price of a Property at an amount sufficient to cover
the cost of a real estate commission, the Company, as purchaser, may indirectly
pay such amount in the purchase price, which amount may be considered an
acquisition fee. The Advisor will endeavor, whenever possible, to purchase
Properties directly from sellers, without the involvement of a real estate
broker. When a Property has been listed by a seller with a real estate broker,
the Advisor will endeavor, whenever possible, to be allocated a portion of the
real estate brokerage commission paid by the seller. All
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real estate brokerage commissions so allocated to the Advisor will then be
remitted in their entirety to the Company by the Advisor.
(6) The Company will allocate 1% of the Gross Offering Proceeds to its
working capital reserve.
INVESTMENT OBJECTIVES AND POLICIES
1. GENERAL. The Company's investment objectives are to: (i) make regular
Distributions to the Stockholders, which may be in amounts which may exceed the
Company's taxable income due to the non-cash nature of depreciation expense and,
to such extent, will constitute a tax-deferred return of capital, but in no
event less than 95% of the Company's taxable income; (ii) provide a hedge
against inflation by entering into leases which contain clauses for scheduled
rent escalations or participation in the growth of tenant sales, permitting the
Company to increase Distributions and realize capital appreciation; and (iii)
preserve Stockholders' capital. Leases representing approximately 44% of the
total GLA of the Initial Properties provide for scheduled rent escalations.
2. DISTRIBUTIONS. Federal income tax law requires that a REIT distribute
annually at least 95% of its REIT Taxable Income. See "Federal Income Tax
Considerations--Taxation of the Company--Annual Distribution Requirements."
Under certain circumstances, the Company may be required to make Distributions
in excess of cash available for Distribution in order to meet such Distribution
requirements. See "Risk Factors--Tax Risks--Risks Regarding REIT Qualification
and Consequences of the Failure to so Qualify--Risk of Failing to Qualify as a
REIT under the Code" and "--Adverse Effects of REIT Minimum Distribution
Requirements." For a discussion of the tax treatment of Distributions to holders
of Shares, see "Federal Income Tax Considerations--Taxation of Stockholders."
The Company intends to pay regular monthly Distributions to its
Stockholders. However, the Company reserves the right to pay Distributions on a
quarterly basis out of Cash Flow, in an amount determined by the Board. The
Properties to be owned by the Company are expected to generate sufficient Cash
Flow to cover operating expenses of the Company plus pay a monthly Distribution.
Distributions will be at the discretion of the Board. The Company's ability to
pay Distributions and the size of these Distributions will depend upon a variety
of factors. There can be no assurance that Distributions will be made or that
any particular level of Distributions established in the future, if any, will be
maintained by the Company.
To the extent possible, the Company seeks to avoid the fluctuations in
Distributions which might result if Distributions were based on actual cash
received during the Distribution period. To avoid fluctuation, the Company may
use Cash Flow received during prior periods, or Cash Flow received subsequent to
the Distribution period and prior to the payment date for such Distribution, in
order to pay annualized Distributions consistent with the Distribution level
established from time to time by the Board. The Company's ability to maintain
this policy is dependent upon the Company's Cash Flow and the applicable REIT
Requirements. There can be no assurance that there will be Cash Flow available
to pay Distributions, or that Distribution amounts will not fluctuate. Monthly
Distributions will be calculated with daily record and Distribution declaration
dates. However, the Board could, at any time, elect to pay Distributions
quarterly, to reduce administrative costs. As a matter of policy, the Company,
subject to applicable REIT Requirements, seeks to reinvest proceeds from the
sale, financing, refinancing or other disposition of its Properties through the
purchase of additional Properties. See "--Sale or Disposition of Properties" in
this Section. See "Federal Income Tax Considerations--Taxation of Stockholders"
for a discussion of the federal income tax consequences of the receipt of
Distributions.
The Company believes that the foundation for growth in Cash Flow in future
years will be from a number of sources, including contractual rent escalations
in existing leases, the quality and strategic location of the Initial
Properties, the acquisition of additional Properties, the strengthening of the
economy in the Company's Primary Geographical Area of Investment, the
development of new Retail Centers when
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market conditions warrant such new development and the knowledge and experience
of its senior management team.
3. TYPES OF INVESTMENTS. The Company was formed to acquire and manage a
diversified portfolio of real estate primarily improved for use as retail
establishments, principally multi-tenant Shopping Centers, or improved with
other commercial facilities which provide goods or services. Such real estate
will be located mainly in the states east of the Mississippi River in the United
States. See "Real Property Investments--General."
Most of these Properties will be subject to "net" leases. "Net" leases
typically require tenants to pay a share, either pro rata or fixed, of all or a
majority of the operating expenses, including real estate taxes, special
assessments, utilities, insurance, common area maintenance and building repairs
related to the Property, as well as base rent payments.
The Company may also acquire, among other Properties, single-user retail
properties located anywhere throughout the United States if they are leased on a
Triple-Net Lease Basis by Creditworthy Tenants (as defined below in this
paragraph). Such leases are long-term (typically 15 to 25 years, but generally
not less than 10 years) and require the lessee to pay a base minimum annual rent
with periodic increases. A "Creditworthy Tenant" is defined as a tenant with a
minimum net worth of $10 million or ten times one year's rental payments
required under the terms of the lease or, alternatively, a tenant for whom
payments under the lease are guaranteed by an affiliate of such tenant having a
minimum net worth of $10 million. The Company may enter into sale and leaseback
transactions, pursuant to which the Company will purchase a Property and lease
the Property to the seller thereof. The Company believes that it can draw upon
the extensive experience of its executives and employees to create a strategic
advantage in competing for future development and acquisition opportunities.
The Company intends to acquire Properties free and clear of permanent
mortgage indebtedness by paying the entire purchase price in cash or for Shares,
LP Units, Interests or a combination thereof. The Company may incur indebtedness
to acquire Properties where the Board determines that incurring such
indebtedness is in the Company's best interest. In addition, from time to time,
the Company intends to acquire certain Properties on an all-cash basis (or for
Shares, LP Units, Interests, or a combination thereof) and later incur mortgage
indebtedness secured by selected or all such Properties if favorable financing
terms are available. The proceeds from such loans will be used to acquire
additional Properties. See "Borrowing" in paragraph 7 of this Section for a
further explanation of borrowing intentions and limitations.
In some cases, the Company may commit to purchase Properties subject to
completion of construction in accordance with terms and conditions specified by
the Company. In such cases, the Company will be obligated to purchase the
Property at the completion of construction, provided the construction conforms
to definitive plans, specifications and costs approved by the Company and
embodied in the construction contract, as well as, in most instances,
satisfaction that agreed upon percentages of the Property are leased. The
Company will receive a certificate of an architect, engineer or other
appropriate party, stating that the Property complies with all plans and
specifications. The Company is permitted to construct or develop Properties, and
to render certain services in connection with such development or construction,
subject to the Company's compliance with the REIT Requirements. Construction and
development activities will expose the Company to certain risks such as cost
overruns, carrying costs of projects under construction and development,
availability and costs of materials and labor, weather conditions, and
government regulation.
Before purchasing a Property, IREA examines and evaluates the potential
value of the site, the financial condition and business history of the Property,
the demographics of the area in which the Property is located or to be located,
the proposed purchase price, geographic and market diversification and potential
sales. In evaluating a Property for acquisition, IREA requires the seller to
provide a current Phase I environmental report and, if necessary, a Phase II
environmental report. In a sale-leaseback
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situation, since the seller of the Property generally is assuming the operating
risk, the price paid for the Property by the Company may be greater than if it
was not leased back to the seller. All acquisitions from Affiliates must be
approved by a majority of the Directors, including a majority of the Independent
Directors.
The Advisor and its Affiliates may purchase Properties in their own name,
assume loans in connection therewith and temporarily hold title thereto for the
purpose of facilitating acquisition or financing by the Company, the completion
of construction of the Property or any other purpose related to the business of
the Company.
4. ACQUISITION STANDARDS. Through its experience gained through the
acquisition of approximately 755 properties by TIGI Affiliated Companies, the
Advisor believes IREA and its Affiliates have the ability to identify quality
Properties capable of meeting the Company's investment objectives. In evaluating
potential acquisitions, the Company considers a number of factors, including a
Property's: (i) geographic location and type; (ii) construction quality and
condition; (iii) current and projected cash flow; (iv) potential for capital
appreciation; (v) rent roll, including the potential for rent increases; (vi)
potential for economic growth in the tax and regulatory environment of the
community in which the Property is located; (vii) potential for expanding the
physical layout of the Property and/or the number of sites; (viii) occupancy and
demand by tenants for Properties of a similar type in the same geographic
vicinity; (ix) prospects for liquidity through sale, financing or refinancing of
the Property; (x) competition from existing properties and the potential for the
construction of new properties in the area; and (xi) treatment under applicable
federal, state and local tax and other laws and regulations.
The Company's Primary Geographical Area of Investment or target acquisition
area is the states east of the Mississippi River in the United States. That
target area for acquisitions contains a wide range of real estate markets. In
general, the Company will seek to acquire Properties in markets with growing or
stable, well-diversified local economies. By acquiring a geographically
diversified portfolio of Properties, the Company will seek to mitigate the
adverse effects which could result from an economic downturn in any single
regional market.
5. DESCRIPTION OF LEASES. When spaces become vacant or existing leases
expire, the Company anticipates entering into "net" leases which require lessees
to pay a share, either pro rata or fixed, of all or a majority of the operating
expenses, including real estate taxes, special assessments, insurance,
utilities, common area maintenance and building repairs related to the
Properties, as well as base rent payments. The Company intends to include
provisions which increase the amount of base rent payable at certain points
during the lease term and/or provide for the payment of additional rent
calculated as a percentage of a tenant's gross sales above predetermined
thresholds in most of its leases. The leases with most Anchor Tenants generally
have initial terms of 10 to 25 years, with one or more renewal options available
to the lessee. By contrast, smaller tenant leases typically have three- to
five-year terms.
Leases entered into on a Triple Net Lease Basis generally have a term of 15
to 25 years (typically not less than 10 years). In addition, the Creditworthy
Tenant of a lease on a Triple Net Lease Basis is responsible for the base rent
in addition to the costs and expenses in connection with and related to property
taxes, insurance, repairs and maintenance applicable to the leased space.
Each "net" lease tenant is required to pay its share of the cost of the
liability insurance covering the Property in which it is a tenant. The
third-party liability coverage insures, among others, the Company, Advisor and
the Management Agent. Typically, each tenant is required to obtain, at its own
expense, property insurance naming the Company as the insured party for fire and
other casualty losses in an amount equal to the full value of its premises and
the contents thereof. All such insurance must be approved by the Management
Agent. In general, the "net" lease may be assigned or subleased with the
Company's prior written consent, but the original tenant must remain liable
under the lease unless the assignee meets certain income and net worth tests.
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In connection with sale and leaseback transactions, the tenant, which is a
Creditworthy Tenant, is responsible for paying a predetermined minimum annual
rent generally based upon the Company's cost of purchasing the land and
building. In addition to the base rent, such tenants are generally responsible
for the costs and expenses in connection with and related to property taxes,
insurance, repairs and maintenance applicable to the leased space.
6. PROPERTY ACQUISITION. The Company, through the Operating Partnership,
anticipates acquiring fee interests in Properties, although other methods of
acquiring a Property may be utilized if it is deemed to be advantageous to the
Company. For example, the Company, through the Operating Partnership, may
acquire Properties through a joint venture or the acquisition of substantially
all of the interests of an entity which in turn owns the real property. The
Company may also use separate Property Partnerships or limited liability
companies to acquire a Property. Such Property Partnerships or limited liability
companies will be formed solely for the purpose of acquiring a Property or
Properties. See "--Joint Ventures" in this Section and "Federal Income Tax
Considerations--Taxation of the Company--Ownership of a Partnership Interest"
and "--Ownership of a Qualified REIT Subsidiary."
The Company has rights to acquire four Retail Centers (the "Initial
Properties"), all of which are intended to be acquired from Affiliates. The
prices to be paid for each of these Initial Properties were not the subject of
arm's-length negotiations. Under the Articles, the Company is prohibited from
purchasing a Property from an Affiliate unless a majority of the Directors
(including a majority of the Independent Directors) not interested in the
transaction approve the purchase as fair and reasonable to the Company and at a
price to the Company no greater than the cost of the asset to such Affiliate.
However, the price to the Company may be greater than such cost if a substantial
justification for the excess exists and such excess is reasonable. In no event
may the cost of the asset to the Company exceed its appraised value at the time
of the acquisition of the Property by the Company. A majority of the Directors
(including a majority of the then Independent Directors) approved the purchases
of the Initial Properties as being fair and reasonable to the Company, which
Initial Properties will be purchased at a price to the Company equal to the
Affiliate's acquisition cost thereof. There can be no assurance, however, that
the prices paid to the Affiliates for the Initial Properties or for future
acquisitions of Properties from Affiliates, if any, did not or would not exceed
that which would be paid by an unaffiliated buyer. See "Real Property
Investments."
If remodeling is required prior to the purchase of a Property, the Company
will pay a negotiated maximum amount either upon completion or in installments
commencing prior to completion. The price will be based on the estimated cost of
remodeling. In such instances, the Company will also have the right to review
the tenant's books during and following completion of the remodeling to verify
actual costs. In the event of substantial disparity between estimated and actual
costs, an adjustment in the purchase price may be negotiated. If remodeling is
required after the purchase of a Property, an Affiliate of the Advisor may serve
as construction manager for a fee no greater than 90% of the fee a third party
would charge for such services.
7. BORROWING. The Company intends to acquire Properties free and clear of
permanent mortgage indebtedness by paying the entire purchase price of each
Property in cash or for Shares, LP Units, Interests, or a combination of the
foregoing. However, if it is determined to be in the best interest of the
Company, the Company will, in certain instances, incur indebtedness to acquire
Properties. With respect to Properties purchased on an all-cash basis (or for
Shares, LP Units, Interests, or a combination thereof), the Company may later
incur mortgage indebtedness by obtaining loans secured by selected Properties,
if favorable financing terms are available. The proceeds from such loans would
be used to acquire additional Properties. The Company may also incur
indebtedness to finance improvements to its Properties. The Company anticipates
that, in general, aggregate borrowings secured by all of the Company's
Properties will not exceed 55% of their combined fair market value, and the
aggregate amount of borrowing in relation to the Company's Net Assets shall, in
the absence of a satisfactory showing that a higher level of borrowing is
appropriate, not exceed 300% of Net Assets. Any excess in borrowing over such
300% of Net Assets level shall be (i) approved by a majority of the Independent
Directors, (ii) disclosed to Stockholders in the
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Company's next quarterly report to Stockholders, along with justification for
such excess, and (iii) subject to approval of the Stockholders.
If the Company does incur indebtedness secured by its Properties, it intends
to do so only on a non-recourse basis, which means that a lender's rights on
default will generally be limited to foreclosing on the Property which secured
the obligation. The Company will not borrow funds from a program sponsored by
the Advisor or its Affiliates which makes or invests in mortgage loans. The
Company also seeks to obtain level payment financing, meaning that the amount of
debt service payable would be substantially the same each year, although some
mortgages might provide for a so-called "balloon" payment or provide for
variable interest rates. There are no prescribed limits on the number or amount
of mortgages which may be placed on any one Property. Any mortgages secured by a
Property will comply with the restrictions set forth by the Commissioner of
Corporations of the State of California.
See "Summary of the Organizational Documents--Restrictions on Borrowing."
8. SALE OR DISPOSITION OF PROPERTIES. The Board will determine whether a
particular Property should be sold or otherwise disposed of after considering
the relevant factors, including performance or projected performance of the
Property and market conditions, with a view toward achieving the principal
investment objectives of the Company.
In general, the Company intends to hold its Properties prior to sale, for a
minimum of four years. See "Federal Income Tax Considerations--Taxation of the
Company--Prohibited Transactions." Furthermore, the Company generally intends to
reinvest proceeds from the sale, financing, refinancing or other disposition of
its Properties into additional Properties or use these proceeds to fund
maintenance or repair of existing Properties or to increase reserves for such
purposes. The objective of reinvesting the sale, financing and refinancing
proceeds in new Properties is to increase the real estate assets owned by the
Company, and the Company's Net Income, which the Board believes will enhance the
Company's chances of having the Company's Shares traded in a public trading
market. Notwithstanding this policy, the Board, in its discretion, may
distribute to Stockholders all or part of the proceeds from the sale, financing,
refinancing or other disposition of all or any of the Company's Properties. In
determining whether to distribute these proceeds to Stockholders, the Board will
consider, among other factors, the desirability of Properties available for
purchase, real estate market conditions, the likelihood of the listing of the
Company's Shares on a national stock exchange or including the Shares for
quotation on a national market system and compliance with the REIT Requirements.
Because the Company may reinvest the proceeds from the sale, financing or
refinancing of its Properties, the Company could hold Stockholders' capital
indefinitely. However, the affirmative vote of the Stockholders, controlling a
majority of the Shares, will force the Company to liquidate its assets and
dissolve. See "Summary of the Organizational Documents-- Dissolution or
Termination of the Company."
In selling a Property, the Company generally intends to seek to obtain an
all-cash sale price. However, a purchase money obligation secured by a mortgage
on the Property may be taken as partial payment, and there are no limitations or
restrictions on the Company taking such purchase money obligations. The terms of
payment to the Company will be affected by custom in the area in which the
Property being sold is located and the then prevailing economic conditions. To
the extent the Company receives notes and other property instead of cash from
sales, such proceeds (other than any interest payable thereon) will not be
available for Distributions until and to the extent the notes or other property
are actually paid, sold, refinanced or otherwise disposed of and, therefore, the
distribution of the proceeds of a sale to the Stockholders may be delayed until
such time. In such cases, the Company will receive payments (cash and other
property) in the year of sale in an amount less than the selling price and
subsequent payments will be spread over a number of years. See "Federal Income
Tax Considerations."
9. CHANGE IN INVESTMENT OBJECTIVES AND POLICIES. The Stockholders have no
voting rights with respect to implementing the investment objectives and
policies of the Company, all of which are the responsibility of the Board. The
Board may not, however, make any material changes in the Company's investment
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<PAGE>
objectives described in this Prospectus under the caption "Investment Objectives
and Policies" without amending the Articles, which requires the affirmative vote
of Stockholders holding a majority of the outstanding Shares.
10. CERTAIN INVESTMENT LIMITATIONS. The Company will not: (i) invest more
than 10% of its total assets in unimproved real property (and will only invest
in unimproved real property intended to be developed) or in mortgage loans on
unimproved real property; (ii) invest in commodities or commodity future
contracts; (iii) issue redeemable Shares; (iv) issue Shares on a deferred
payment basis or other similar arrangement; and (v) operate in such a manner as
to be classified as an "investment company" for purposes of the Investment
Company Act. See "Summary of the Organizational Documents--Restrictions on
Investments."
The Company does not engage in hedging or like activities and therefore does
not have any material exposure to risk due to financial instruments, derivative
financial instruments or derivative commodity instruments.
The Company has no plans to invest any proceeds from the Offering, or other
funds, in the securities of other issuers for the purpose of exercising control
over such other issuers.
11. APPRAISALS. All real property acquisitions made and to be made by the
Company have been or will be supported by an appraisal prepared by a competent,
independent appraiser who is a member-in-good standing of the Appraisal
Institute prior to the purchase of the Property. The purchase price of each
Property will not exceed its appraised value at the time of acquisition of the
Property by the Company. Appraisals are, however, estimates of value and should
not be relied on as measures of true worth or realizable value. The appraisal
will be maintained in the Company's records for at least five years, and copies
of each appraisal will be available for review by Stockholders upon their
request.
12. RETURN OF UNINVESTED PROCEEDS. Any of the proceeds of this Offering
allocable to investments in real property which have not been invested in real
property or committed for investment within the later of: (i) 24 months from the
original effective date of this Prospectus; or (ii) 12 months from the
termination of the Offering, will be returned by the Company to the
Stockholders. All funds received by the Company out of the escrow account will
be available for the general use of the Company from the time of receipt until
expiration of the period discussed above and may be used for, among other
purposes, (a) to fund expenses incurred to operate the Properties which have
been acquired, (b) to reimburse the Advisor for certain expenses of the Company,
to the extent allowable under the Advisory Agreement, (c) to pay the Advisor its
compensation under the Advisory Agreement, and (d) to pay the Management Agent
its Property Management Fee under the Management Agreement. Funds will not be
segregated or held separate from other funds of the Company pending investment,
and interest will be payable to the Stockholders if uninvested funds are
returned to them.
13. ADDITIONAL OFFERINGS AND EXCHANGE LISTING. The Company anticipates
that within five years from the date of this Prospectus, the Board will
determine (i) when, and if, to apply to have the Shares listed for trading on a
national stock exchange or included for quotation on a national market system,
provided that the Company meets the then applicable listing requirements; and/or
(ii) whether to commence subsequent offerings after completion of this Offering.
The Company believes that an exchange listing or inclusion of the Shares in a
national market system may allow the Company to increase its size, portfolio
diversity, Stockholder liquidity, access to capital and stability, and decrease
its operating costs through economies of scale. However, there is no assurance
that such listing or inclusion will ever occur. If listing of the Shares or
their inclusion in a national market system is not feasible within five years
from the date of this Prospectus, the Board may decide to: (i) sell the
Company's assets individually; (ii) list the Shares at a future date; or (iii)
liquidate the Company within 10 years of the date thereof.
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14. JOINT VENTURES. The Company is permitted to invest in joint venture
arrangements with other public real estate programs formed by the Advisor or any
of its Affiliates if a majority of Directors (including a majority of
Independent Directors) not otherwise interested in the transaction approve the
transaction as being fair and reasonable to the Company and the investment by
each such joint venture partner is substantially on the same terms and
conditions as those received by other joint venturers.
The Company is also permitted to invest in general partnerships or joint
venture arrangements with Affiliates as co-owners of a Property. The Company
will be able to increase its equity participation in such entity as additional
proceeds of the Offering are received by the Company with the result that the
Company will end up with up to a 100% equity ownership of the Property; provided
however, that the affiliated general or joint venture partner will not be
entitled to any profit or other benefit on such sale of its equity participation
to the Company.
Investors should consider the potential risk of the Company and its joint
venture partner being unable to agree on a matter material to the joint venture.
Furthermore, there can be no assurance that the Company will have sufficient
financial resources to exercise any right of first refusal.
In addition, the Company may enter into joint venture or partnership
arrangements with unaffiliated third parties. Therefore, the Company may enter
into acquisitions with sellers who are desirous of transactions in tax
advantaged structures such as arrangements typically referred to as "Down
REITs." See "Risk Factors--Investment Risks--Objectives of Joint Venture
Partners May Conflict with the Company's Objectives."
The Company is unable to estimate the proportion of its assets that may be
invested in joint venture interests.
15. CONSTRUCTION AND DEVELOPMENT ACTIVITIES. From time to time, the
Company may attempt to enhance certain investment opportunities by undertaking
construction and development activities and rendering services in connection
therewith. The Advisor has advised the Company that, in its view, the Company
may be able to reduce overall purchase costs if the Company were to undertake
construction and development rather than merely being limited to purchasing
Properties subject to completion of construction by a third party. Although the
construction and development activities would expose the Company to certain
risks such as cost overruns, carrying costs of projects under construction or
development, availability and costs of materials and labor, weather conditions
and government regulation, the Company nevertheless has concluded that its
investment prospects would be enhanced by permitting it to engage in
construction and development activities so long as such activities did not cause
the Company to lose its status as a REIT under the Code. To comply with the REIT
Requirements, and until the Service changes its pronouncements with regard
thereto, the Company intends to limit its construction and development
activities to the performance of oversight and review functions, including
reviewing the construction and tenant improvement design proposals, negotiating
and contracting for feasibility studies and supervising compliance with local,
state or federal laws and regulations. The Company will retain independent
contractors to perform the actual physical construction work on tenant
improvements, the installation of HVAC systems or the development of an entirely
new project.
16. OTHER POLICIES. In determining whether to purchase a particular
Property, the Company may first obtain an option to purchase the Property. The
amount paid for the option, if any, usually would be surrendered if the Property
was not purchased and normally would be credited against the purchase price if
the Property was purchased.
The Company does not intend to invest in any primarily (i) single family or
multi-family residential properties; (ii) industrial properties; (iii) hotels or
motels; (iv) leisure home sites; (v) farms; (vi) ranches; (vii) timberlands;
(viii) unimproved properties not intended to be developed; (ix) mining
properties; (x) office properties; or (xi) Super Regional Centers; provided
however, the Company may invest in an office property or a residential property
if it has a significant retail or commercial use component as its
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primary purpose. The aggregate purchase price of real property investments that
are not the Company's Primary Property Investments will not exceed 10% of the
aggregate purchase price of all of the Company's Primary Property Investments
anticipated to be acquired by the Company. Assuming the Maximum Offering is
sold, the Company does not intend to invest more than approximately 20% of the
anticipated proceeds in any one Property.
The Company holds all funds, pending investment in Properties, in assets
which will allow the Company to continue to qualify as a REIT. These investments
are highly liquid and provide for appropriate safety of principal and may
include, but are not limited to, investments such as GNMA bonds and real estate
mortgage investment conduits ("REMICs"). See "Federal Income Tax
Considerations--Taxation of the Company--REIT Qualification Tests."
The Company will not make distributions-in-kind, except for: (i)
distributions of readily marketable securities; (ii) distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of the Articles;
or (iii) distributions of in-kind property which meet all of the following
conditions: (a) the Directors advise each Stockholder of the risks associated
with direct ownership of the in-kind property; (b) the Directors offer each
Stockholder the election of receiving in-kind property distributions; and (c)
the Directors distribute in-kind property only to those Stockholders who accept
the Directors' offer.
Although the Company's Organizational Documents do not prohibit the
following, the Company has no current plans to (i) make loans, other than
through the possible purchase of any publicly distributed bonds or other debt
securities, to any other Persons; (ii) underwrite the securities of other
issuers; (iii) invest in real estate mortgages; (iv) invest any of its assets in
the securities of, or interests in, other Persons engaged in real estate
activities; or (v) invest the proceeds of the Offering, other than on a
temporary basis, in non-real estate related investments. It is possible that the
Company would change such current plans as to the activities described in
clauses (iii) and (iv) if the Board determines that it would be in the best
interests of the Stockholders to engage in any such transactions.
REAL PROPERTY INVESTMENTS
GENERAL
The Company intends to acquire and manage a diversified portfolio of real
estate primarily (i) improved for use as retail establishments, principally
multi-tenant shopping centers that are (a) leased primarily to one or more
retail tenants providing for the sale of convenience goods and personal services
for the day-to-day living needs of the immediate neighborhood, with gross
leaseable area ("GLA") ranging from 10,000 to 100,000 square feet (a
"Neighborhood Center"), or (b) leased primarily to retail tenants providing for
the sale of soft lines and hard lines, in addition to the convenience goods and
personal services provided by a Neighborhood Center, with GLA ranging from
100,000 to 300,000 or more square feet (a "Community Center"), but also
including single-user retail facilities; or (ii) improved with other commercial
facilities which provide goods or services (all of the foregoing, collectively
"Retail Centers" or individually a "Retail Center"). See the "Glossary" for more
expansive definitions of "Neighborhood Center," "Community Center," and "Retail
Center."
The Retail Centers will be located mainly in the states east of the
Mississippi River in the United States (the Company's "Primary Geographical Area
of Investment"). The Company may also acquire, among other real estate,
single-user commercial properties located anywhere throughout the United States
if they are leased on a basis pursuant to which a Creditworthy Tenant is
responsible for the base rent and all costs and expenses in connection with and
related to property taxes, insurance, repairs and maintenance applicable to the
leased space (a "Triple-Net Lease Basis"), including such Properties acquired in
sale and leaseback transactions ("Triple-Net Single-User Retail Properties
Outside the Primary Geographical Area of Investment"). The Retail Centers in the
Primary Geographical Area of Investment and the Triple-Net
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Single-User Retail Properties Outside the Primary Geographical Area of
Investment are collectively referred to as the "Company's Primary Property
Investments."
The Company does not intend to invest in any primarily (i) single-family or
multi-family residential properties; (ii) industrial properties; (iii) hotels or
motels; (iv) leisure home sites; (v) farms; (vi) ranches; (vii) timberlands;
(viii) unimproved properties not intended to be developed; (ix) mining
properties; (x) office properties; or (xi) Super Regional Centers; provided
however, the Company may invest in an office property or a residential property
if it has a significant retail or commercial use component as its primary
purpose. Subject to compliance with the REIT Requirements, the Company may
undertake certain construction and development activities and render services in
connection therewith. The aggregate purchase price of real property investments
that are not the Company's Primary Property Investments will not exceed 10% of
the aggregate purchase price of all of the Company's Primary Property
Investments anticipated to be acquired by the Company. Assuming the Maximum
Offering is sold, the Company does not intend to invest more than approximately
20% of the Net Proceeds of the Offering in any one Property.
Each real property and improvements thereon acquired, or considered or
proposed to be acquired, by the Company, directly or indirectly, as described
above in this "--General" section, is referred to as a "Property" and all of
such properties are collectively referred to as the "Properties."
See "Investment Objectives and Policies" generally pertaining to the types
of Properties that the Company intends to acquire and its policies relating to
the maintenance, operation and disposition thereof.
INSURANCE COVERAGE ON PROPERTIES
The Company intends to carry comprehensive general liability coverage and
umbrella liability coverage on all of its Properties with limits of liability
which the Company deems adequate to insure against liability claims and provide
for the costs of defense. Similarly, the Company intends to be insured against
the risk of direct physical damage in amounts the Company estimates to be
adequate to reimburse the Company on a replacement cost basis for costs incurred
to repair or rebuild each Property, including loss of rental income during the
reconstruction period. In addition, the Company intends to insure its Properties
against loss caused by earthquake and flood if deemed necessary and economically
justified. The form of Property Management Agreement for each Property
specifically provides for the Company to procure and carry public liability,
fire and extended coverage, burglary and theft, rental interruption, flood (if
appropriate) and boiler (if appropriate) insurance. The cost of such insurance
is passed through to tenants whenever possible.
INITIAL PROPERTIES
The Company has rights to acquire four Retail Centers (the "Initial
Properties"), of which three are Neighborhood Centers and one is a Community
Center. If sufficient funds are raised in the Offering, the Company, through the
Operating Partnership, will acquire the Initial Properties from Affiliates of
the Advisor. The Company intends to purchase the Initial Properties in the
following order: first, Countryside Shopping Center; second, Lake Olympia
Square; third, The Landings; and fourth, Lake Walden Square. The reduction of
$300,000 of the Initial Mortgage Debt will be made on the Initial Mortgage Debt
relating to the Countryside Shopping Center.
The Company believes that the Initial Properties are well-located, have
excellent roadway access, attract high-quality tenants, are well-maintained and
have been professionally managed.
The Initial Properties have a diverse and stable base of tenants and have
historically provided steadily increasing rents which the Company believes is
due to the quality of the Initial Properties, the existence of leases with
contractual rent escalations and the strength of the markets in which the
Initial Properties are located. As of July 31, 1998, approximately 64% of the
leases for the Initial Properties, in terms of
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Annualized Net Rent, had contractual rent increases, of which approximately 54%
of the Annualized Net Rent was attributable to leases with specified contractual
rent increases and approximately 10% of the Annualized Net Rent was attributable
to leases with contractual rent increases related to the CPI. Furthermore, as of
July 31, 1998, less than 49% of the Annualized Net Rent is derived from leases
scheduled to expire during the next five years. The three largest tenants in the
Initial Properties, in terms of Annualized Net Rent, are Winn Dixie, a
supermarket, K-Mart, a discount department store, and Kash N' Karry, a
supermarket. As of July 31, 1998, the 10 largest tenants (based upon Annualized
Net Rent) in the Initial Properties had leased their space (or other space in
the Initial Properties) for an average of 3.5 years, and accounted for 58% of
Annualized Net Rent.
As will be the Company's policy with regard to the acquisition of any
Property, the Company will have received an appraisal of the fair market value
of each Initial Property prior to acquiring it. Appraisals are, however,
estimates of value and should not be relied on as a measure of true worth or
realizable value. The terms of the leases for each of the Initial Properties
vary depending upon tenant size, but in many cases contain contractual
provisions which automatically increase the amount of base rent payable at
certain points during the term of the lease. These leases may also contain
provisions which provide for the payment of additional rent calculated as a
percentage of a tenant's gross sales above pre-determined thresholds.
Prior to the purchase of the Initial Properties, a majority of the
Directors, including a majority of the Independent Directors, will approve these
acquisitions as being fair and reasonable to the Company and at a purchase price
to the Company which does not exceed the appraised value of each Initial
Property at the time of the Company's acquisition thereof. Of the Initial
Properties, and assuming no other Properties were acquired by the Company, each
of the Initial Properties would account for more than 10% of the book value of
the Company's total assets or expected gross revenues for the Company's first
fiscal year to end December 31, 1998.
The following tables describe the Company's Initial Properties and tenants
at those Properties:
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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PROPERTY MIX
(AT JULY 31, 1998)
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL BASE
GROSS GLA OF ALL ANNUALIZED RENTAL REVENUE OF
LEASABLE AREA INITIAL BASE RENTAL ALL INITIAL
NUMBER (SQ. FT.) PROPERTIES REVENUE PROPERTIES
------------- ------------- ----------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Neighborhood Centers............... 3 253,498 49.83% $ 2,553,137 62.83%
Community Centers.................. 1 255,155 50.17% $ 1,507,497 37.17%
-
------------- ------ ------------ ------
4 508,653 100.00% $ 4,060,634 100.00%
-
-
------------- ------ ------------ ------
------------- ------ ------------ ------
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
GROSS TOTAL GLA 1998
PROPOSED DATE PURCHASE LEASABLE OF ALL PERCENT OF GLA ANNUALIZED
OF PRICE TO THE YEAR AREA (SQ. INITIAL LEASED AS OF BASE RENTAL
PROPERTY ACQUISITION(1) COMPANY(2) BUILT FT.) PROPERTIES 7/31/98 REVENUE(3)
- ------------------------------ ------------- ------------ --------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NEIGHBORHOOD CENTERS
Countryside Shopping Center
Naples, Florida............. 9/98 $ 8,567,584 1997 73,965 14.54% 97% $ 759,719
Lake Olympia Square
Ocoee, Florida.............. 9/98 9,723,516 1995 85,776 16.86% 98% 841,808
The Landings
Sarasota, Florida........... 9/98 9,870,025 1987 93,757 18.43% 93% 951,610
COMMUNITY CENTER
Lake Walden Square
Plant City, Florida......... 9/98 14,528,757 1992 93%
------------
256,155 50.17% 1,507,497
----------- ----------- -----------
$ 42,689,882 509,653 100.00% $ 4,060,634
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
<CAPTION>
NUMBER OF
TENANTS AS MAJOR
PROPERTY OF 7/31/98 TENANTS(4)
- ------------------------------ ---------- ------------------
<S> <C> <C>
NEIGHBORHOOD CENTERS
Countryside Shopping Center
Naples, Florida............. 6 Winn-Dixie
Promedco
Lake Olympia Square
Ocoee, Florida.............. 17 Winn-Dixie
Tutor Time
The Landings
Sarasota, Florida........... 31 JoAnn Fabrics
COMMUNITY CENTER
Lake Walden Square
Plant City, Florida......... 28
Kash N' Karry
K-Mart
Carmike Cinemas
</TABLE>
- ------------------------
(1) Assumes that sufficient proceeds from the Offering will be available by the
date shown, and if not, they will be acquired as soon thereafter as
practicable when sufficient proceeds from the Offering are available. The
Company intends to purchase the Initial Properties in the following order:
first, Countryside Shopping Center; second, Lake Olympia Square; third, The
Landings; and fourth, Lake Walden Square.
(2) The purchase price represents the acquisition cost of the Initial Properties
to the Initial Property Sellers prior to adjustment for prorations of
approximately $400,000. When the Initial Properties are acquired by the
Company, they will be subject to the Initial Mortgage Debt of approximately
$31.2 million. The Initial Mortgage Debt relating to the Countryside
Shopping Center will be immediately reduced by $300,000 from the Net
Proceeds of the Offering. There is Affiliates' Acquisition Debt of
approximately $11.1 million, which will be paid from the Net Proceeds of the
Offering at the time the Initial Properties are acquired. Accordingly,
approximately $11.4 million of the Net Proceeds of the Offering will be
utilized to acquire the Initial Properties and to reduce the Initial
Mortgage Debt. In addition, proceeds from the Offering will be used to pay
Acquisition Expenses and establish working capital reserves related to the
proceeds of the Offering to be used for, and related to, the acquisition of
the Initial Properties.
(3) Annualized Base Rental Revenue is the annualized contractual base rent as of
January 1, 1998 under existing leases.
(4) Major Tenants only include tenants leasing more than 10% of the gross
leasable area of the Property.
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<PAGE>
TENANTS
The following table sets forth, at July 31, 1998, information regarding
space leased at the Initial Properties, which, in each case, individually
account for more than 1% of the 1998 total Annualized Base Rental Revenues from
the Properties.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF AGGREGATE
TOTAL GLA OF ANNUALIZED ANNUALIZED
TOTAL NUMBER OF GLA (SQ. ALL INITIAL BASE RENTAL BASE RENTAL
LESSEE STORES FT.) PROPERTIES REVENUE(1) REVENUE
- -------------------------------------------------- --------------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Blockbuster....................................... 1 6,000 1.18% $ 102,000 2.51%
Froggers.......................................... 1 6,000 1.18% 113,250 2.79%
JoAnn Fabrics..................................... 1 20,411 4.01% 153,083 3.77%
Kelsey's Pizzaria................................. 1 3,326 0.65% 48,422 1.19%
K-Mart............................................ 1 91,266 17.94% 383,317 9.43%
Movie Gallery..................................... 1 5,000 0.98% 60,000 1.48%
Nuovo Salon....................................... 1 3,000 0.59% 48,180 1.19%
Promed Co......................................... 1 10,725 2.11% 182,325 4.49%
Spec's............................................ 1 6,000 1.18% 72,000 1.77%
Tutor Time Child Care Systems..................... 1 10,000 1.97% 120,000 2.95%
Winn-Dixie........................................ 2 95,261 18.73% 707,000 17.40%
Kash N' Karry..................................... 1 46,300 9.10% 312,525 7.69%
Carmike Cinemas................................... 1 25,899 5.09% 215,220 5.30%
--
--------- ----- ------------ -----
14 329,188 64.72% $ 2,517,322 61.95%
--
--
--------- ----- ------------ -----
--------- ----- ------------ -----
</TABLE>
- ------------------------
(1) Amounts shown reflect 1998 Annualized Base Rental Revenue. Annualized Base
Rental Revenue excludes: (a) percentage rents; (b) additional charges paid
for by tenants including common area maintenance, real estate taxes and
other expense requirements; and (c) future contractual rent escalations.
Annualized Base Rental Revenue is the monthly contractual base rent as of
January 1, 1998 under existing leases, multiplied by 12.
The acquisition cost of the Initial Properties to the Initial Property
Sellers was approximately $42.7 million (the "Affiliates' Acquisition Cost").
The Affiliates' Acquisition Cost includes the purchase prices paid, plus any
Acquisition Expenses (including expenses for such things as legal, accounting,
appraisal, survey, title, engineering reports and environmental audits; however,
see the Glossary for a more complete explanation of what are included as
Acquisition Expenses) and, plus any financing costs (including expenses such as
loan fees or points or any fee of a similar nature, however designated, but not
including interest on any loans) paid by the Initial Property Sellers to either
Affiliates of TIGI or to third parties. The Initial Properties were subject to
aggregate mortgage debt of approximately $31.2 million as of the closing of such
purchases (the "Initial Mortgage Debt").
In connection with their acquisition of the Initial Properties, the Initial
Property Sellers borrowed approximately $11.1 million from an Affiliate of TIGI
(the "Affiliates' Acquisition Debt") to pay the difference between the
Affiliates' Acquisition Cost and the Initial Mortgage Debt. As each of the
Initial Properties are acquired, the Company will retire in full the Affiliates'
Acquisition Debt relating to that Initial Property from the Net Proceeds of the
Offering.
The Company will not be paying for any expenses paid or incurred by the
Initial Property Sellers during the period of time the Initial Properties are
owned by the Initial Property Sellers for management and operation of the
Initial Properties or for servicing the related debt (E.G., interest payments on
loans) represented by the Initial Mortgage Debt and the Affiliates' Acquisition
Debt. Also, the Company will not be receiving any of the cash flow from the
Initial Properties, nor will the Company reimburse the Initial
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<PAGE>
Property Sellers for any negative cash flow of the Initial Properties, during
the period of time when the Initial Properties are owned by the Initial Property
Sellers.
Although the purchase prices of the Initial Properties to the Company
include the balances of the Initial Mortgage Debt, when the Company acquires the
Initial Properties from the Initial Property Sellers, the Company's actual cash
outlay for such acquisitions will be equal to approximately the amount of the
Affiliates' Acquisition Cost less the then principal balances of the Initial
Mortgage Debt which the Initial Properties will remain subject to after the
Company's acquisition of the Initial Properties plus $300,000 which will be used
to reduce the Initial Mortgage Debt relating to the Countryside Shopping Center.
That amount of cash outlay by the Company should be approximately the same as
the amount of the Affiliates' Acquisition Debt plus such $300,000.
TENANT LEASE EXPIRATIONS
The following table sets forth certain information regarding tenant lease
expirations for the next 10 years at the Initial Properties, assuming that no
renewal options are exercised.
<TABLE>
<CAPTION>
PERCENT OF
AVERAGE BASE TOTAL PERCENT OF
RENT PER PROPERTIES ANNUAL BASE
ANNUAL BASE SQUARE FOOT GLA RENT
NUMBER OF APPROX. GLA OF RENT OF UNDER REPRESENTED REPRESENTED
LEASES EXPIRING LEASES EXPIRING TOTAL ANNUAL EXPIRING BY EXPIRING BY EXPIRING
YEAR ENDING DECEMBER 31 EXPIRING (SQ. FT.) LEASES BASE RENT(1) LEASES LEASES LEASES
------------- ---------- --------------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998........................ 7 14,377 $ 153,172 $4,063,301 $ 10.65 2.83% 3.77%
1999........................ 8 15,878 192,080 3,940,534 12.10 3.12% 4.87%
2000........................ 13 21,025 243,808 3,787,346 11.60 4.13% 6.44%
2001........................ 13 29,058 394,770 3,610,773 13.59 5.71% 10.93%
2002........................ 19 80,548 846,740 3,254,663 10.51 15.84% 26.02%
2003........................ 7 16,778 178,878 2,427,392 10.66 3.30% 7.37%
2004........................ 2 5,200 75,300 2,255,347 14.48 1.02% 3.34%
2005........................ 2 3,100 45,508 2,188,762 14.68 0.61% 2.08%
2006........................ 3 10,586 136,819 2,145,591 12.92 2.08% 6.38%
2007........................ 3 46,624 562,668 2,008,720 12.07 9.17% 28.01%
</TABLE>
- ------------------------
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates. Annualized Base Rental Revenue is the monthly contractual base
rent as of January 1, 1998 under existing leases, multiplied by 12.
ADDITIONAL INFORMATION REGARDING THE INITIAL PROPERTIES
COUNTRYSIDE SHOPPING CENTER, NAPLES, FLORIDA
The Company has identified and intends to acquire the entire fee simple
interest in a Neighborhood Center located at the southwest intersection of Radio
Road and Santa Barbara Blvd. in Naples, Florida known as "Countryside Shopping
Center" from Inland Southeast Countryside, L.P., an Affiliate of the Advisor.
The Affiliate of the Advisor purchased Countryside Shopping Center on March
31, 1998, to be held until sufficient funds were raised by the Company to
acquire the Property. The following table describes the formulation of the
purchase price to be paid by the Company:
107
<PAGE>
<TABLE>
<S> <C>
Purchase price paid by Affiliate................................... $8,400,000
Acquisition costs paid to Third Parties............................ 62,024
Financing costs paid to Affiliate.................................. 51,568
Financing costs paid to Third Parties.............................. 53,992
---------
Total Purchase Price............................................... $8,567,584
---------
---------
</TABLE>
Countryside Shopping Center was built in 1997, its operations commenced in
April 1997, and consists of two one-story buildings, a single-user, 10,725
square foot facility and a multi-user, 63,240 square foot facility, aggregating
73,965 leasable square feet. As of July 31, 1998, Countryside Shopping Center
was 97% leased (100% leased if the master lease, which lasts for one year, is
considered). In evaluating Countryside Shopping Center as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, occupancy and the fact that
overall rental rates at the Property are comparable to market rates. The Company
believes that the Property is located within a vibrant economic area. The
Company did not consider any other factors materially relevant to the decision
to acquire the Property.
The Company does not anticipate making any significant repairs and
improvements to Countryside Shopping Center over the next few years. A
substantial portion of any monies spent on repairs and improvements would be
paid by the tenants, pursuant to the terms of the existing leases.
The table below sets forth certain information for the last five calendar
years with respect to the occupancy rate at Countryside Shopping Center
expressed as a percentage of total gross leasable area and the average effective
annual base rent per square foot:
<TABLE>
<CAPTION>
OCCUPANCY RATE AS
OF EFFECTIVE
DECEMBER 31, ANNUAL RENTAL
OF EACH YEAR PER SQUARE FOOT
YEAR ENDING DECEMBER 31, (%) ($)
------------- ----------------- -----------------
<S> <C> <C>
1997...................................... 95.1 4.89
1996...................................... * *
1995...................................... * *
1994...................................... * *
1993...................................... * *
</TABLE>
- ------------------------
* Countryside Shopping Center was constructed in 1997
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
108
<PAGE>
Two tenants lease more than 10% of the total gross leasable area of the
Property: Winn-Dixie, a supermarket, and Promedco, a medical service provider.
The leases for those two tenants require the payment of base annual rent,
payable monthly as follows:
<TABLE>
<CAPTION>
BASE RENT PER
APPROX. GLA % OF TOTAL SQUARE FOOT PER LEASE TERM
LEASED GLA OF THE ANNUM ----------------------
LESSEE (SQ. FT.) PROPERTY ($) BEGINNING TO
- ----------------------------------------- ----------- ------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Winn-Dixie Options(1).................... 51,261 69.30 8.00 Currently 4/30/17
8.00 5/1/17 4/30/42
Promedco................................. 10,725 14.50 17.00 Currently 7/31/99
18.00 8/1/99 7/31/02
19.00 8/1/02 7/31/04
20.00 8/1/04 7/31/07
Option 1(2).............................. 20.50 to 22.50(2) 8/1/07 7/31/12
Option 2(3).............................. 23.00 to 25.00(3) 8/1/12 7/31/17
</TABLE>
- ------------------------
(1) There are five successive five-year renewal options at the same base rent
per square foot per annum.
(2) The base rent per square foot for the first year of this five-year renewal
option term is $20.50 and increases by $0.50 per square foot in each
subsequent year of this option term.
(3) The base rent per square foot for the first year of this five-year renewal
option term is $23.00 and increases by $0.50 per square foot in each
subsequent year of this option term.
For federal income tax purposes, the Company's depreciable basis in
Countryside Shopping Center will be approximately $7,424,000. Depreciation
expense, for tax purposes, will be computed using the straight-line method.
Buildings and improvements are depreciated based upon estimated useful lives of
40 and 15 years, respectively. Real estate taxes for the tax year ended 1997
(the most recent tax year for which information is generally available) were
$18,107, which amount was based upon the improvements being completed for only a
portion of that year.
On July 31, 1998, a total of 71,565 square feet was leased to six tenants at
Countryside Shopping Center. The following tables set forth certain information
with respect to the amount of and expiration of the leases at this Neighborhood
Center:
<TABLE>
<CAPTION>
APPROX. GLA CURRENT ANNUAL RENT PER
LEASED (SQ. RENEWAL RENT(1) SQUARE FOOT
LESSEE FT.) LEASE ENDS OPTIONS ($) ($)
- ----------------------------------------------- ----------- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Winn-Dixie..................................... 51,261 4/17 5/5 yr. 410,000 8.00
Blockbuster Video.............................. 6,000 4/02 3/5 yr. 102,000 17.00
Mama Panetti's................................. 1,200 12/02 1/5 yr. 21,600 18.00
Mailboxes, Etc................................. 1,200 8/02 1/5 yr. 22,248 18.54
Dry Cleaners................................... 1,179 7/02 1/5 yr. 21,600 18.32
Promedco....................................... 10,725 7/07 2/5 yr. 182,325 17.00
Vacant......................................... 2,400
</TABLE>
- ------------------------
(1) Each tenant also pays its proportionate share of real estate taxes,
insurance and common area maintenance costs. In addition, Winn-Dixie pays,
as additional rent, a percentage of gross sales in excess of a prescribed
amount.
109
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
ANNUAL BASE AVERAGE BASE TOTAL BUILDING ANNUAL BASE
RENT OF RENT PER SQUARE GLA REPRESENTED RENT
NUMBER OF APPROX. GLA OF EXPIRING TOTAL ANNUAL FOOT UNDER BY EXPIRING REPRESENTED BY
YEAR ENDING LEASES EXPIRING LEASES LEASES BASE RENT(1) EXPIRING LEASES LEASES EXPIRING LEASES
DECEMBER 31, EXPIRING (SQ. FT.) ($) ($) ($) (%) (%)
- --------------- ---------- --------------- ------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998........... -- -- -- 759,719 -- -- --
1999........... -- -- -- 766,150 -- -- --
2000........... -- -- -- 774,427 -- -- --
2001........... -- -- -- 776,508 -- -- --
2002........... 4 9,579 174,933 782,452 18.26 12.95 22.36
2003........... -- -- -- 613,775 -- -- --
2004........... -- -- -- 618,244 -- -- --
2005........... -- -- -- 624,500 -- -- --
2006........... -- -- -- 624,500 -- -- --
2007........... 1 10,725 214,500 624,500 20.00 14.50 34.35
</TABLE>
- ------------------------
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates, at the time of releasing.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the Appraisal Institute which reported a fair
market value for the Countryside Shopping Center, as of September 17, 1998, of
$8,600,000. Appraisals are estimates of value and should not be relied on as a
measure of true worth or realizable value.
LAKE OLYMPIA SQUARE, OCOEE, FLORIDA
The Company has identified and intends to acquire the entire fee simple
interest in a Neighborhood Center located at the southwest intersection of
Silver Star Road and Clarke Road in Ocoee, Florida known as "Lake Olympia
Square" from Inland Southeast Lake Olympia, L.P., an Affiliate of the Advisor.
Ocoee is located three miles west of the Orlando, Florida city limits.
The Affiliate of the Advisor purchased Lake Olympia Square on June 24, 1998,
to be held until sufficient funds were raised by the Company to acquire the
Property. The following table describes the formulation of the purchase price to
be paid by the Company:
<TABLE>
<S> <C>
Purchase price paid by Affiliate............................. $9,599,145
Acquisition costs paid to Third Parties...................... 43,548
Financing costs paid to Affiliate............................ 53,594
Financing costs paid to Third Parties........................ 27,229
---------
Total Purchase Price......................................... $9,723,516
---------
---------
</TABLE>
Lake Olympia Square was built in 1995 and consists of a one-story
multi-tenant retail facility aggregating 85,776 leasable square feet and an
outparcel adjacent to the shopping center. As of July 31, 1998, Lake Olympia
Square was 98% leased (100% leased if the master lease, which lasts for one
year, is considered). In evaluating Lake Olympia Square as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, occupancy and the fact that
overall rental rates at the shopping center are comparable to market rates. The
Company believes that the shopping center is located within a vibrant economic
area. The Company did not consider any other factors materially relevant to the
decision to acquire the Property.
The Company does not anticipate making any significant repairs and
improvements to Lake Olympia Square over the next few years. A substantial
portion of any monies spent on repairs and improvements would be paid by the
tenants, pursuant to the terms of the existing leases.
110
<PAGE>
The table below sets forth certain information for the last five calendar
years with respect to the occupancy rate at Lake Olympia Square expressed as a
percentage of total gross leasable area and the average effective annual base
rent per square foot:
<TABLE>
<CAPTION>
OCCUPANCY RATE AS
OF EFFECTIVE
DECEMBER 31, ANNUAL RENTAL
OF EACH YEAR PER SQUARE FOOT
YEAR ENDING DECEMBER 31, (%) ($)
------------- ----------------- -----------------
<S> <C> <C>
1997...................................... 98.7 11.03
1996...................................... 84.2 4.86
1995...................................... 62.3 1.85
1994...................................... * *
1993...................................... * *
</TABLE>
- ------------------------
* Lake Olympia Square was not built until 1995.
Two tenants lease more than 10% of the total gross leasable area of the
Property: Winn-Dixie, a supermarket, and Tutor Time, a childcare facility. The
leases require the payment of base annual rent, payable monthly as follows:
<TABLE>
<CAPTION>
BASE RENT PER
APPROX. GLA % OF TOTAL SQUARE FOOT PER LEASE TERM
LEASED GLA OF THE ANNUM ----------------------
LESSEE (SQ. FT.) PROPERTY ($) BEGINNING TO
- ----------------------------------------- ----------- ------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Winn-Dixie............................... 44,000 49.01 6.75 Currently 6/30/15
Options(1)............................... 6.75 7/1/15 6/30/40
Tutor Time............................... 10,000 11.14 12.00 Currently 1/31/07
Options(2)............................... 12.00+ 2/1/07 1/31/17
</TABLE>
- ------------------------
(1) There are five successive five-year renewal options at the same base rent
per square foot per annum.
(2) There are two successive five-year renewal options with base rent per square
foot per annum increases according to increases in the CPI.
For federal income tax purposes, the Company's depreciable basis in Lake
Olympia Square will be approximately $7,814,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 and 15
years, respectively. Real estate taxes for the tax year ended 1997 (the most
recent tax year for which information is generally available) were $76,569.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
111
<PAGE>
On July 31, 1998, a total of 83,676 square feet was leased to 17 tenants at
Lake Olympia Square. The following tables set forth certain information with
respect to the amount of and expiration of the leases at this Neighborhood
Center:
<TABLE>
<CAPTION>
APPROX. GLA CURRENT ANNUAL RENT PER
LEASED (SQ. RENEWAL RENT(1) SQUARE FOOT
LESSEE FT.) LEASE ENDS OPTIONS ($) ($)
- ----------------------------------------------- ----------- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Winn-Dixie..................................... 44,000 6/15 5/5 yr. 297,000 6.75
Beneficial Finance............................. 1,600 12/05 1/5 yr. 22,400 14.00
Froggers Restaurant............................ 6,000 10/06 2/5 yr. 113,250 18.88
Movie Gallery.................................. 5,000 8/01 2/3 yr. 60,000 12.00
Kelsey's Pizzaria.............................. 3,326 11/06 2/5 yr. 48,422 14.56
Countrywide Home Loans......................... 2,290 10/01 2/3 yr. 28,000 12.23
Lake Olympia Dental............................ 1,800 8/00 1/5 yr. 33,174 18.43
First Choice Restaurant........................ 1,500 9/05 2/5 yr. 23,108 15.41
Sylvan Learning Center......................... 1,260 10/06 1/5 yr. 19,404 15.40
Mailboxes, Etc................................. 1,200 9/00 1/5 yr. 17,254 14.38
Harrison Chiropractic.......................... 1,200 1/02 3/5 yr. 18,000 15.00
First Class Cleaners........................... 900 9/00 2/5 yr. 13,626 15.14
Hair Cuttery................................... 900 9/01 1/5 yr. 13,650 15.17
Tan Bodies & Nails............................. 900 9/00 1/5 yr. 12,940 14.38
Orlando Sentinel............................... 900 11/99 1/5 yr. 13,919 15.47
Allstate Insurance............................. 900 7/00 2/3 yr. 9,027 10.03
Tutor Time..................................... 10,000 1/07 2/5 yr. 120,000 12.00
Vacant......................................... 2,100
</TABLE>
- ------------------------
(1) Each tenant also pays its proportionate share of real estate taxes,
insurance and common area maintenance costs. In addition, Winn-Dixie pays,
as additional rent, a percentage of gross sales in excess of a prescribed
amount.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
ANNUAL BASE AVERAGE BASE TOTAL BUILDING ANNUAL BASE
RENT OF RENT PER SQUARE GLA REPRESENTED RENT
NUMBER OF APPROX. GLA OF EXPIRING TOTAL ANNUAL FOOT UNDER BY EXPIRING REPRESENTED BY
YEAR ENDING LEASES EXPIRING LEASES LEASES BASE RENT(1) EXPIRING LEASES LEASES EXPIRING LEASES
DECEMBER 31, EXPIRING (SQ. FT.) ($) ($) ($) (%) (%)
- --------------- ---------- --------------- ------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998........... -- -- -- 841,808 -- -- --
1999........... 1 900 13,919 785,100 15.47 1.05 1.77
2000........... 5 5,700 92,687 761,424 16.26 6.65 12.17
2001........... 3 8,190 106,250 713,157 12.97 9.55 14.90
2002........... 1 1,200 19,200 609,093 16.00 1.40 3.15
2003........... -- -- -- 592,167 -- -- --
2004........... -- -- -- 594,531 -- -- --
2005........... 2 3,100 45,508 596,990 14.68 3.61 7.62
2006........... 3 10,586 136,819 553,819 12.92 12.34 24.70
2007........... 1 10,000 120,000 417,000 12.00 11.66 28.78
</TABLE>
- ------------------------
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates, at the time of releasing.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the Appraisal Institute which reported a fair
market value for the Lake Olympia Square property, as of May 1, 1998, of
$10,000,000. Appraisals are estimates of value and should not be relied on as a
measure of true worth or realizable value.
112
<PAGE>
LAKE WALDEN SQUARE, PLANT CITY, FLORIDA
The Company has identified and intends to acquire the entire fee simple
interest in a Community Center located at the northwest intersection of
Alexander Road and SR 39 in Plant City, Florida known as "Lake Walden Square"
from Inland Southeast Lake Walden, L.P., an Affiliate of the Advisor. Plant City
is located 15 miles east of the Tampa, Florida city limits.
The Affiliate of the Advisor purchased Lake Walden Square on May 6, 1998, to
be held until sufficient funds were raised by the Company to acquire the
Property. The following table describes the formulation of the purchase price to
be paid by the Company:
<TABLE>
<S> <C>
Purchase price paid by Affiliate............................... $14,388,000
Acquisition costs paid to Affiliate............................ 23,242
Acquisition costs paid to Third Parties........................ 12,992
Financing costs paid to Affiliate.............................. 68,760
Financing costs paid to Third Parties.......................... 35,763
----------
Total Purchase Price........................................... $14,528,757
----------
----------
</TABLE>
Lake Walden Square was built in 1992 and consists of two one-story
multi-tenant retail facilities aggregating 256,155 leasable square feet and five
outparcels adjacent to the shopping center. As of July 31, 1998, Lake Walden
Square was 93% leased (100% leased if the master lease, which lasts for one
year, is considered). In evaluating Lake Walden Square as a potential
acquisition, the Company considered a variety of factors including location,
demographics, tenant mix, price per square foot, occupancy and the fact that
overall rental rates at the shopping center are comparable to market rates. The
Company believes that the shopping center is located within a vibrant economic
area. The Company did not consider any other factors materially relevant to the
decision to acquire the Property.
The Company does not anticipate making any significant repairs and
improvements to Lake Walden Square over the next few years. A substantial
portion of any monies spent on repairs and improvements would be paid by the
tenants, pursuant to the terms of the existing leases.
The table below sets forth certain information for the last five calendar
years with respect to the occupancy rate at Lake Walden Square expressed as a
percentage of total gross leasable area and the average effective annual base
rent per square foot:
<TABLE>
<CAPTION>
OCCUPANCY RATE
AS OF EFFECTIVE
DECEMBER 31, ANNUAL RENTAL
OF EACH YEAR PER SQUARE FOOT
YEAR ENDING DECEMBER 31, (%) ($)
------------- ----------------- -----------------
<S> <C> <C>
1997.............................. 84.5 5.89
1996.............................. 84.0 6.48
1995.............................. 87.0 6.56
1994.............................. 90.0 6.68
1993.............................. 80.0 5.76
</TABLE>
113
<PAGE>
Three tenants lease more than 10% of the total gross leasable area of the
Property: Kash N' Karry, a supermarket, K-Mart, a discount department store, and
Carmike Cinemas, a movie theatre. The leases require the payment of base annual
rent, payable monthly as follows:
<TABLE>
<CAPTION>
BASE RENT
% OF TOTAL PER SQUARE
APPROX. GLA OF FOOT PER LEASE TERM
GLA LEASED THE ANNUM ----------------------
LESSEE (SQ. FT.) PROPERTY ($) BEGINNING TO
- -------------------------------- ----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Kash N' Karry................... 46,300 18.15 6.75 Currently 3/31/12
Options(1).................... 6.75 4/1/12 3/31/42
K-Mart.......................... 91,266 35.77 4.20 Currently 3/31/17
Options(2).................... 4.20 4/1/17 5/31/67
Carmike Cinemas................. 25,899 10.15 8.31 Currently 3/31/07
Option 1...................... 9.31 4/1/07 3/31/12
Option 2...................... 9.81 4/1/12 3/31/17
Option 3...................... 10.31 4/1/17 3/31/22
</TABLE>
- ------------------------
(1) There are six successive five-year renewal options at the same base rent per
square foot per annum.
(2) There are ten successive five-year renewal options at the same base rent per
square foot per annum.
For federal income tax purposes, the Company's depreciable basis in Lake
Walden Square will be approximately $10,954,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 and 15
years, respectively. Real estate taxes for the tax year ended 1997 (the most
recent tax year for which information is generally available) were $169,230.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
114
<PAGE>
On July 31, 1998, a total of 236,605 square feet was leased to 28 tenants at
Lake Walden Square. The following tables set forth certain information with
respect to the amount of and expiration of the leases at this Community Center:
<TABLE>
<CAPTION>
APPROX. CURRENT RENT PER
GLA LEASED ANNUAL RENT(1) SQUARE FOOT
LESSEE (SQ. FT.) LEASE ENDS RENEWAL OPTIONS ($) ($)
- ---------------------------------------- ----------- ----------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Kash N' Karry........................... 46,300 3/12 6/5 yr. 312,525 6.75
K-Mart.................................. 91,266 3/17 10/5 yr. 383,317 4.20
Carmike Cinemas......................... 25,899 3/07 3/5 yr. 215,220 8.31
Family Medical Center................... 4,000 1/99 2/5 yr. 34,880 8.72
Bookland................................ 4,050 9/00 -- 25,000 6.17
Amscot Insurance........................ 1,400 6/01 1/5 yr. 13,300 9.50
Best Brands Plus........................ 3,084 6/01 -- 32,074 10.40
Mailboxes, Etc.......................... 1,120 7/02 1/5 yr. 15,680 14.00
Crescent Jewelers....................... 1,300 8/01 1/5 yr. 13,650 10.50
Queen Nails............................. 1,300 12/99 -- 13,520 10.40
Sally Beauty Supply..................... 1,600 2/03 -- 16,800 10.50
GTE Phone Mart.......................... 2,400 12/00 1/3 yr. 24,000 10.00
Simply Fashions......................... 2,800 5/00 -- 24,059 8.59
The Associates.......................... 1,600 7/03 1/5 yr. 14,400 9.00
Fantastic Sams.......................... 1,200 2/00 1/5 yr. 14,832 12.36
Aamco Transmissions..................... 4,800 7/02 2/5 yr. 33,600 7.00
Domino's Pizza.......................... 1,295 3/02 2/5 yr. 10,360 8.00
Spec's Music and Movies................. 6,000 2/02 1/5 yr. 72,000 12.00
Baskin Robbins.......................... 1,244 9/98 1/5 yr. 14,928 12.00
Dr. Longabach........................... 1,600 9/00 1/3 yr. 13,333 8.33
Hao-Hao Chinese Restaurant.............. 3,120 6/01 -- 40,560 13.00
U.S. Army............................... 1,600 7/98 3/1 yr. 12,000 7.50
Sam's Mens Shop......................... 2,950 8/98 -- 21,240 7.20
Tampa Tribune........................... 6,277 2/02 2/3 yr. 31,385 5.00
Cici's Pizza............................ 3,600 7/08 1/5 yr. 39,294 10.91
Dollar Tree............................. 6,800 6/03 2/5 yr. 38,091 5.60
Home Choice............................. 4,000 7/03 1/5 yr. 32,000 8.00
Barry Cuda's............................ 5,000 12/03 1/5 yr. 40,000 8.00
Vacant.................................. 18,550
</TABLE>
- ------------------------
(1) Each tenant, with the exception of Bookland and Simply Fashions, also pays
its proportionate share of real estate taxes, insurance and common area
maintenance costs. In addition, Kash N' Karry, K-Mart, Crescent Jewelers,
Sally Beauty Supply and Simply Fashions pay, as additional rent, a
percentage of gross sales in excess of prescribed amounts.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
115
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BASE PERCENT OF
RENT PER PERCENT OF ANNUAL BASE
ANNUAL BASE SQUARE FOOT TOTAL PROPERTY RENT
APPROX. GLA RENT OF UNDER REPRESENTED REPRESENTED
NUMBER OF OF EXPIRING EXPIRING TOTAL ANNUAL EXPIRING BY EXPIRING BY EXPIRING
YEAR ENDING LEASES LEASES LEASES BASE RENT (1) LEASES LEASES LEASES
DECEMBER 31, EXPIRING (SQ. FT.) ($) ($) ($) (%) (%)
- -------------- --------------- ------------- ------------ ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998.......... 3 5,794 48,168 1,510,164 8.31 2.27 3.19
1999.......... 2 5,300 48,936 1,521,612 9.23 2.08 3.22
2000.......... 5 12,050 107,592 1,492,188 8.93 4.72 7.21
2001.......... 4 8,904 111,612 1,393,644 12.54 3.49 8.01
2002.......... 6 26,287 218,196 1,306,008 8.30 10.30 16.71
2003.......... 4 12,770 129,300 1,096,572 10.13 5.00 11.79
2004.......... -- -- -- 967,272 -- -- --
2005.......... -- -- -- 967,272 -- -- --
2006.......... -- -- -- 967,272 -- -- --
2007.......... 1 25,899 228,168 967,220 8.81 10.15 23.59
</TABLE>
- ------------------------
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates, at the time of releasing.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the Appraisal Institute which reported a fair
market value for the Lake Walden Square property, as of January 15, 1998, of
$14,923,000. Appraisals are estimates of value and should not be relied on as a
measure of true worth or realizable value.
THE LANDINGS, SARASOTA, FLORIDA
The Company has identified and intends to acquire the entire fee simple
interest in a Neighborhood Center located at the northwest intersection of U.S.
41 and Landings Blvd. in Sarasota, Florida known as "The Landings" from Inland
Southern Acquisitions, Inc., an Affiliate of the Advisor.
The Affiliate of the Advisor purchased The Landings on December 30, 1997 to
be held until sufficient funds were raised by the Company to acquire the
Property. The following table describes the formulation of the purchase price to
be paid by the Company:
<TABLE>
<S> <C>
Purchase price paid by Affiliate................................ $9,700,000
Acquisition costs paid to Affiliate............................. 5,175
Acquisition costs paid to Third Parties......................... 61,135
Financing costs paid to Affiliate............................... 56,725
Financing costs paid to Third Parties........................... 46,990
---------
Total Purchase Price............................................ $9,870,025
---------
---------
</TABLE>
The Landings was built in 1987 and is a one-story multi-tenant retail
facility aggregating 93,757 leasable square feet. As of July 31, 1998, The
Landings was 93% leased. In evaluating The Landings as a potential acquisition,
the Company considered a variety of factors including location, demographics,
tenant mix, price per square foot, occupancy and the fact that overall rental
rates at the shopping center are comparable to market rates. The Company
believes that the shopping center is located within a vibrant economic area. The
Company did not consider any other factors materially relevant to the decision
to acquire the Property.
The Company does not anticipate making any significant repairs and
improvements to The Landings over the next few years. A substantial portion of
any monies spent on repairs and improvements would be paid by the tenants,
pursuant to the terms of the existing leases.
116
<PAGE>
The table below sets forth certain information with respect to the occupancy
rate at The Landings expressed as a percentage of total gross leasable area and
the average effective annual base rent per square foot:
<TABLE>
<CAPTION>
OCCUPANCY RATE
AS OF EFFECTIVE
DECEMBER 31, ANNUAL RENTAL
OF EACH YEAR PER SQUARE FOOT
YEAR ENDING DECEMBER 31, (%) ($)
------------- ----------------- -----------------
<S> <C> <C>
1997.............................. 89 8.73
1996.............................. 80 8.41
1995.............................. 95 9.20
1994.............................. 92 8.68
1993.............................. 88 8.67
</TABLE>
One tenant leases more than 10% of the total gross leasable area of the
Property: JoAnn Fabrics, a sewing and fabric store. The lease for that tenant
requires the payment of base annual rent, payable monthly as follows:
<TABLE>
<CAPTION>
BASE RENT
% OF TOTAL PER SQUARE
APPROX. GLA OF FOOT PER LEASE TERM
GLA LEASED THE ANNUM ----------------------
LESSEE (SQ. FT.) PROPERTY ($) BEGINNING TO
- ---------------------------------------------------- ----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
JoAnn Fabrics....................................... 20,411 21.77 7.50 Currently 8/31/02
Option 1.......................................... 8.50 9/1/02 8/31/07
Option 2.......................................... 9.50 9/1/07 8/31/12
Option 3.......................................... 10.50 9/1/12 8/31/17
</TABLE>
For federal income tax purposes, the Company's depreciable basis in The
Landings will be approximately $6,558,000. Depreciation expense, for tax
purposes, will be computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 40 and 15
years, respectively. Real estate taxes for the tax year ended 1997 (the most
recent tax year for which information is generally available) were $98,841.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK
117
<PAGE>
On July 31, 1998, a total of 87,590 square feet was leased to 31 tenants at
The Landings. The following tables set forth certain information with respect to
the amount of and expiration of the leases at this Neighborhood Center:
<TABLE>
<CAPTION>
APPROX. CURRENT RENT PER
GLA LEASED ANNUAL RENT(1) SQUARE FOOT
LESSEE (SQ. FT.) LEASE ENDS RENEWAL OPTIONS ($) ($)
- ---------------------------------------- ----------- ----------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Michael the Cleaner..................... 1,050 4/03 -- 10,500 10.00
Thai Garden............................. 1,750 9/01 1/5 yr. 16,625 9.50
Pak Mail Center......................... 1,400 2/03 -- 11,760 8.40
Inland Southeast Property Management
Corp.(2).............................. 1,400 -- -- -- --
International Golf...................... 2,970 2/02 1/5 yr. 35,640 12.00
New York Hair Co........................ 1,845 7/01 1/5 yr. 25,830 14.00
Sally Beauty Supply..................... 1,480 11/01 1/5 yr. 20,720 14.00
General Nutrition Center................ 2,700 3/04 1/5 yr. 33,750 12.50
Optical Outlet(3)....................... 2,500 -- -- 35,000 14.00
Radio Shack............................. 2,500 11/98 -- 27,500 11.00
Better Bagels........................... 2,809 11/01 1/5 yr. 33,708 12.00
Hot Flash............................... 1,500 11/02 1/5 yr. 21,630 14.42
Subway.................................. 1,178 3/99 6/3 yr. 14,725 12.50
Gecko's Grille.......................... 3,509 7/02 2/5 yr. 39,953 11.39
Catherine's Inc......................... 3,582 12/02 1/5 yr. 35,820 10.00
Oreck Floor Care........................ 1,558 1/03 1/5 yr. 21,812 14.00
Hear X.................................. 2,375 9/00 1/5 yr. 28,500 12.00
Bernard Jewelry......................... 2,500 8/04 -- 32,500 13.00
Nextel Communication.................... 3,700 6/02 2/5 yr. 40,700 11.00
Home Resource Center.................... 3,800 10/02 1/5 yr. 41,800 11.00
JoAnn Fabrics........................... 20,411 8/02 3/5 yr. 153,083 7.50
Uptech Computer......................... 2,500 10/99 1/5 yr. 30,000 12.00
A Beautiful Florist..................... 2,500 8/99 1/3 yr. 31,200 12.48
Nuovo Hair Salon........................ 3,000 4/01 1/3 yr. 48,180 16.06
Catalog Apparel O Outlet................ 4,010 4/02 1/5 yr. 40,100 10.00
Carefree Closets........................ 2,100 11/98 1/5 yr. 21,000 10.00
Clock Gallery........................... 1,800 12/99 -- 26,100 14.50
Collectors Wall......................... 1,700 10/99 2/3 yr. 22,950 13.50
Corkscrew............................... 900 4/00 -- 12,168 13.52
Landings Travel......................... 1,080 2/01 -- 16,200 15.00
Landings Sales Ctr...................... 1,483 11/98 -- 21,504 14.50
Vacant.................................. 6,167
</TABLE>
- ------------------------
(1) Each tenant also pays its proportionate share of real estate taxes,
insurance and common area maintenance costs. In addition, Michael the
Cleaner, Sally Beauty Supply, General Nutrition Center, Radio Shack, Hot
Flash, Gecko's Grille and Clock Gallery pay, as additional rent, a
percentage of gross sales in excess of prescribed amounts.
(2) Inland Southeast Property Management Corp. is the Management Agent. Although
the Management Agent has not been paying rent, and will continue not paying
rent, it and the Initial Property Seller of this Property paid approximately
$20,000 for leasehold improvements. The Management Agent will continue to
occupy this space until it is leased to another tenant under a
month-to-month tenancy.
(3) A month-to-month tenancy.
118
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BASE PERCENT OF PERCENT OF
RENT PER TOTAL BUILDING ANNUAL BASE
ANNUAL BASE SQUARE FOOT GLA RENT
APPROX. GLA RENT OF UNDER REPRESENTED REPRESENTED
NUMBER OF OF EXPIRING EXPIRING TOTAL ANNUAL EXPIRING BY EXPIRING BY EXPIRING
YEAR ENDING LEASES LEASES LEASES BASE RENT (1) LEASES LEASES LEASES
DECEMBER 31 EXPIRING (SQ. FT.) ($) ($) ($) (%) (%)
- -------------- --------------- ------------- ------------ ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998.......... 3 6,083 105,004 951,610 12.23 9.15 11.03
1999.......... 5 9,678 129,225 867,672 13.35 10.32 14.89
2000.......... 2 3,275 43,529 759,307 13.29 3.49 5.73
2001.......... 6 11,964 176,909 727,464 14.79 12.76 24.32
2002.......... 8 43,482 434,412 557,110 9.99 46.38 77.98
2003.......... 3 4,008 49,578 124,878 12.37 4.27 39.70
2004.......... 2 5,200 75,300 75,300 14.48 5.55 100.00
2005.......... -- -- -- -- -- -- --
2006.......... -- -- -- -- -- -- --
2007.......... -- -- -- -- -- -- --
</TABLE>
- ------------------------
(1) No assumptions were made regarding the releasing of expired leases. It is
the opinion of the Company's management that the space will be released at
market rates, at the time of releasing.
The Company received an appraisal prepared by an independent appraiser who
is a member in good standing of the Appraisal Institute which reported a fair
market value for The Landings property, as of December 5, 1997, of $9,900,000 .
Appraisals are estimates of value and should not be relied on as a measure of
true worth or realizable value.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION OF THE COMPANY
Certain statements in this "Management's Discussion and Analysis of the
Financial Condition of the Company" and elsewhere in this Prospectus constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the Company's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed under "Risk Factors" and
"Conflicts of Interest."
As of the date of this Prospectus, the Company has not yet had any
operations. The Company intends to utilize the proceeds of this Offering as set
forth under "Estimated Use of Proceeds of Offering," principally to acquire
Properties. The Company's primary business objective will be to enhance the
performance and value of its Properties through management strategies designed
to meet the needs of an evolving retail marketplace.
LIQUIDITY
The net proceeds of the Offering will provide funds to enable the Company to
purchase Properties. It will be the policy of the Company to acquire Properties
free and clear of permanent mortgage indebtedness by paying the entire purchase
price of each Property in cash or for Shares, LP Units, Interests, or a
combination thereof, and to selectively encumber all or certain Properties, if
favorable financing terms are available, following acquisition. The proceeds
from such loans shall be used to acquire additional Properties to increase cash
flow and provide further diversity. The Company has specified four Properties
(the "Initial Properties") for acquisition, which Initial Properties will be
purchased from an Affiliate. In the event that the Offering is not fully sold,
the Company's ability to diversify its investments may be diminished. The
Advisor expects that the cash to be generated from operations of the Initial
Properties, which the Company intends to acquire if sufficient proceeds are
raised in the Offering, will be adequate to pay Total Operating Expenses and
provide Distributions to Stockholders.
119
<PAGE>
Management of the Company will monitor the various qualification tests the
Company must meet to maintain its status as a REIT. Large ownership of the
Shares is tested upon purchase to determine that no more than 50% in value of
the outstanding Shares is owned, directly or indirectly, by five or fewer
persons or entities at any time. Management of the Company also determines, on a
quarterly basis, that the Gross Income, Asset and Distribution Tests as
described in the section of the Prospectus entitled "Federal Income Tax
Considerations--Taxation of the Company--REIT Qualification Tests" are met. On
an ongoing basis, as due diligence is performed by management of both the
Company and the Advisor on potential purchases of Properties or temporary
investment of uninvested capital, management of both entities will determine
that the income from the new asset will qualify for REIT purposes. The Company
intends to qualify as a REIT beginning with the year ended December 31, 1998.
RESULTS OF OPERATIONS
The Advisor is not aware of any known trends or uncertainties, other than
national economic conditions, which have had or which may be reasonably expected
to have a material impact, favorable or unfavorable, on revenues or income from
the acquisition and operation of real properties other than those referred to
herein.
INITIAL PROPERTIES
The Company has rights to acquire four Retail Centers (the "Initial
Properties"), of which three are Neighborhood Centers and one is a Community
Center. If sufficient funds are raised in the Offering, the Company, through the
Operating Partnership, will acquire the Initial Properties from Affiliates of
the Advisor.
The Company believes that the Initial Properties are well-located, have
excellent roadway access, attract high-quality tenants, are well-maintained and
have been professionally managed.
The Initial Properties have a diverse and stable base of tenants and have
historically provided steadily increasing rents which the Company believes is
due to the quality of the Initial Properties, the existence of leases with
contractual rent escalations and the strength of the markets in which the
Initial Properties are located. As of July 31, 1998, approximately 64% of the
leases for the Initial Properties, in terms of Annualized Net Rent, had
contractual rent increases, of which approximately 54% of the Annualized Net
Rent was attributable to leases with specified contractual rent increases and
approximately 10% of the Annualized Net Rent was attributable to leases with
contractual rent increases related to the CPI. Furthermore, as of July 31, 1998,
less than 49% of the Annualized Net Rent is derived from leases scheduled to
expire during the next five years. The three largest tenants in the Initial
Properties, in terms of Annualized Net Rent, are Winn Dixie, a supermarket,
K-Mart, a discount department store, and Kash N' Karry, a supermarket. As of
July 31, 1998, the 10 largest tenants (based upon Annualized Net Rent) in the
Initial Properties had leased their space (or other space in the Initial
Properties) for an average of 3.5 years, and accounted for 58% of Annualized Net
Rent.
The acquisition cost of the Initial Properties to the Initial Property
Sellers was approximately $42.7 million (the "Affiliates' Acquisition Cost").
The Affiliates' Acquisition Cost includes the purchase prices paid, plus any
Acquisition Expenses (including expenses for such things as legal, accounting,
appraisal, survey, title, engineering reports and environmental audits; however,
see the Glossary for a more complete explanation of what are included as
Acquisition Expenses) and, plus any financing costs (including expenses such as
loan fees or points or any fee of a similar nature, however designated, but not
including interest on any loans) paid by the Initial Property Sellers to either
Affiliates of TIGI or to third parties. The Initial Properties were subject to
aggregate mortgage debt of approximately $31.2 million as of the closing of such
purchases (the "Initial Mortgage Debt").
In connection with their acquisition of the Initial Properties, the Initial
Property Sellers borrowed approximately $11.7 million from an Affiliate of TIGI
(the "Affiliates' Acquisition Debt") to pay the
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<PAGE>
difference between the Affiliates' Acquisition Cost and the Initial Mortgage
Debt. The Company will retire in full the Affiliates' Acquisition Debt from the
Net Proceeds of the Offering.
The following is a list of approximate physical occupancy levels for the
Initial Properties as of December 31, 1997 and June 30, 1998:
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
GLA LEASED GLA LEASED
AS OF AS OF
PROPERTY 12/31/97 6/30/98
- ------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
NEIGHBORHOOD CENTERS
Countryside Shopping Center........................................ 95% 97%
Naples, Florida
Lake Olympia Square................................................ 99% 98%
Ocoee, Florida
The Landings....................................................... 89% 93%
Sarasota, Florida
COMMUNITY CENTER
Lake Walden Square................................................. 84% 93%
Plant City, Florida
</TABLE>
See "Real Property Investments" for a more detailed description of the
Initial Properties.
CAPITAL RESOURCES
As of the date of this Prospectus, the Company has identified only four
Initial Properties in which to invest. The operations of the Initial Properties
should provide Cash Flow to the Company, which it intends to use to meet its
investment objective of the payment of regular Distributions to its
Stockholders.
The number of Properties to be acquired will depend upon the amount of the
Net Proceeds of the Offering. The Advisor is not aware of any material trends,
favorable or unfavorable, in either capital resources or the outlook for
long-term cash generation, nor does it expect any material changes in the
availability and relative cost of such capital resources, other than as referred
to herein.
The Advisor has guaranteed payment of all Organization and Offering Expenses
(including selling commissions and the Marketing Contribution and the Due
Diligence Expense Allowance) in excess of 15% of the Gross Offering Proceeds of
the Offering and all Organization and Offering Expenses (excluding such selling
expenses) in excess of 5.5% of the Gross Offering Proceeds.
As of the date of this Prospectus, no subscriptions for Shares have been
received from the public. The only funds received to date are from the Advisor's
Company Contribution of $200,000 for 20,000 Shares and the Advisor's Partnership
Contribution of $2,000 to the Operating Partnership for 200 LP Common Units in
the Operating Partnership.
IMPACT OF ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information" was issued in 1997. The
Statement is effective for fiscal years beginning after December 31, 1997. This
Statement requires the Company to report financial and descriptive information
about its reportable operating segments.
INFLATION
Inflation is likely to increase rental income from leases to new tenants and
lease renewals, subject to market conditions, for any Retail Centers acquired by
the Company. The Company's rental income and operating expenses for any
Properties to be owned and operated on a Triple-Net Lease Basis are not likely
to be directly affected by future inflation, since rents are or will be fixed
under those leases and Property
121
<PAGE>
expenses are the responsibility of the tenants. The capital appreciation of
Properties leased on Triple-Net Lease Basis is likely to be influenced by
interest rate fluctuations. To the extent that inflation determines interest
rates, future inflation may have an effect on the capital appreciation of
Properties leased on Triple-Net Lease Basis.
YEAR 2000 ISSUES
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In the
conduct of its own business, the Company relies on computers and operating
systems provided by equipment manufacturers, and also on application software
developed internally and, to a limited extent, by outside software vendors. The
Company has undertaken an assessment of its vulnerability to the so-called
"Year-2000 Issue" with respect to its equipment and computer systems.
Based on information provided by equipment manufacturers and software
vendors, as well as testing of systems currently in use, the Company believes
its information technology systems to be Year 2000 compliant. Specifically, with
respect to software applications developed internally, including accounting,
lease management, investment portfolio tracking, and tax return preparation, all
use data formats which can represent dates well beyond the Year 2000. These
applications have been tested for Year 2000 compliance by the entry of
transactions dated beyond the Year 2000 and by simulating operating system dates
in the future. The Company expects no significant impact on its business by the
transition to the next century and has incurred minimal costs associated with
Year 2000 compliance.
The Company is in the process of surveying tenants, suppliers and other
parties with whom the Company does a significant amount of business to identify
the potential exposure in the event such parties are not Year 2000 compliant in
a timely manner. At this time, the Company is not aware of any party that is
anticipating a material Year 2000 compliance issue. Although the investigations
and assessments of possible Year 2000 issues are in a preliminary stage, the
Company does not anticipate a material impact on its business, operations or
financial condition even if one or more parties is not Year 2000 compliant in a
timely manner due to the number and nature of the Company's diverse tenant base,
and because the Company does not rely on a concentration of suppliers and other
parties to conduct its business.
In the operation of its Properties, the Company has acquired equipment with
embedded technology such as microcontrollers, which operate heating,
ventilation, and air conditioning systems, fire alarms, security systems,
telephones and other equipment utilizing time-sensitive technology. The Company
is in the process of evaluating its potential exposure to such non-information
technology systems, and expects to be able to complete its assessment during the
third quarter of 1998. However, at this time the Company does not expect to
incur significant costs to become Year 2000 compliant in a timely manner.
DESCRIPTION OF SECURITIES
The Company was formed under the laws of the State of Maryland. Rights of
Stockholders are governed by the MGCL, the Articles and the Bylaws. The
following summary of the terms of shares of stock of the Company does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Articles and Bylaws, copies of which are filed as exhibits to
the Registration Statement of which this Prospectus is a part.
AUTHORIZED STOCK
The Articles provide that the Company may issue up to 100,000,000 shares of
voting Common Stock, par value $.01 per share (collectively, the "Shares";
individually, a "Share"), and 10,000,000 shares of Preferred Stock, par value
$.01 per share ("Preferred Stock"). Upon completion of the Offering and the
consummation of the Formation Transactions, and subject to the assumptions and
exclusions set forth under "Estimated Use of Proceeds of Offering," there will
be 54,020,000 Shares issued and outstanding and no Preferred Stock issued and
outstanding.
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<PAGE>
As permitted by the MGCL, the Articles contain a provision permitting the
Board, without any action by the Stockholders, to classify or reclassify any
unissued Shares or Preferred Stock into one or more classes or series of shares
of stock by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of such new class or series
of shares of stock. The Company believes that the power of the Board to issue
additional shares of stock will provide the Company with increased flexibility
in structuring possible future financings and acquisitions and in meeting other
needs which might arise. The additional Shares, including possibly Preferred
Stock, will be available for issuance without further action by the Company's
Stockholders, unless action by the Stockholders is required by applicable law or
the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. Although the Board currently has
no intention of doing so, it could authorize the Company to issue a class or
series that could, depending upon the terms of such class or series, delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the Shares and might otherwise be in the best
interests of the Stockholders.
COMMON STOCK
All of the Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of shares of stock and to the provisions of the Articles regarding the
restriction on the transfer of shares of stock, holders of Shares will be
entitled to receive distributions on Shares if, as and when authorized and
declared by the Board out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to the
Stockholders in the event of the liquidation, dissolution or winding-up of the
Company after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Articles regarding the restrictions on the
transfer of shares of stock, each outstanding Share entitles the holder to one
vote on all matters submitted to a vote of Stockholders, including the election
of Directors. There is no cumulative voting in the election of Directors, which
means that the holders of a majority of the outstanding Shares can elect all of
the Directors then standing for election, and the holders of the remaining
Shares will not be able to elect any Directors.
Holders of Shares have no conversion, sinking fund, redemption, exchange or
appraisal rights, and have no preemptive rights to subscribe for any securities
of the Company. Subject to the provisions of the Articles regarding the
restrictions on transfer of shares of stock, Shares have equal dividend,
distribution, liquidation and other rights.
Under the MGCL and the Articles, the Company cannot dissolve or liquidate,
amend its Articles, merge or consolidate, participate in a share exchange, or
sell all or substantially all its assets other than in the ordinary course of
business, unless approved by the affirmative vote or written consent of
Stockholders holding at least a majority of the shares of stock entitled to vote
on the matter. Notwithstanding the previous sentence, share exchanges in which
the Company is the acquiror and mergers of a 90 percent or more subsidiary into
the Company or a merger in which the Company does not (i) reclassify or change
its outstanding stock, (ii) amend its Articles, or (iii) issue in the merger
more than 20 percent of its existing stock, do not require Stockholder approval.
The Company's Articles provide that the election of Directors requires a
plurality of all the votes cast at a meeting of Stockholders of the Company at
which a quorum is present, and that the affirmative vote of the holders of a
majority of the outstanding voting shares of the Company may remove any Director
with or without cause.
The Company will act as its own registrar and transfer agent for the Shares.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board. Prior to the issuance of shares of each
series, the Board is required by the MGCL and the Articles to fix for each
series, subject to the provisions of the Articles, the terms, preferences,
conversion or other
123
<PAGE>
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board has the power to establish the preferences, powers and
rights of each series of Preferred Stock, it may afford the holders of any
series of Preferred Stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of Shares. The issuance of Preferred Stock could
have the effect of delaying or preventing a change of control of the Company
that might involve a premium price for holders of Shares or otherwise be in
their best interest. The Board has no present plans to issue any Preferred
Stock.
SOLICITING DEALER WARRANTS
In certain instances, the Company has agreed to issue and sell to the Dealer
Manager, one warrant to purchase one Share for every 40 Shares sold by the
Dealer Manager (the "Soliciting Dealer Warrants") up to a maximum of 1,250,000
Soliciting Dealer Warrants to purchase an equivalent number of Shares. The
Dealer Manager has agreed to pay the Company $0.0008 for each Soliciting Dealer
Warrant or an aggregate of $1,000 if all 1,250,000 Soliciting Dealer Warrants
are issued. These warrants will be issued on a quarterly basis commencing 60
days after the date on which the Shares are first sold pursuant to this
Offering. The Dealer Manager may retain or reallow Soliciting Dealer Warrants to
Soliciting Dealers, except where prohibited by either federal or state
securities laws. The Company will not issue Soliciting Dealer Warrants to the
Dealer Manager, and the Dealer Manager will not transfer Soliciting Dealer
Warrants, in connection with the sale of Shares to residents of the States of
Minnesota or South Carolina.
The holder of a Soliciting Dealer Warrant will be entitled to purchase one
Share from the Company at a price of $12 (120% of the initial public offering
price per Share) during the time period beginning one year from the date of the
first issuance of any of the Soliciting Dealer Warrants and ending five years
after such first issuance (the "Exercise Period"). The exercise price of any
unexercised Soliciting Dealer Warrants will be adjusted in the event the
offering price of Shares pursuant to this Prospectus for this Offering is
increased, which is not presently anticipated. See "Plan of
Distribution--Compensation." A Soliciting Dealer Warrant may not be exercised
unless the Shares to be issued upon the exercise of the Soliciting Dealer
Warrant have been registered or are exempt from registration in the state of
residence of the holder of the Soliciting Dealer Warrant or if a prospectus
required under the laws of such state cannot be delivered to the buyer on behalf
of the Company. Notwithstanding the foregoing, no Soliciting Dealer Warrants
will be exercisable until one year from the date of issuance. In addition,
holders of Soliciting Dealer Warrants may not exercise the Soliciting Dealer
Warrants to the extent such exercise would jeopardize the Company's status as a
REIT under the Code. The Company has previously issued no warrants.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such Warrants, may be adjusted in the event of
stock dividends, certain subdivisions, combinations and reclassification of
Shares or the issuance to Stockholders of rights, options or warrants entitling
them to purchase Shares or securities convertible into Shares. The terms of the
Soliciting Dealer Warrants also may be adjusted if the Company engages in
certain merger or consolidation transactions or if all or substantially all of
the Company's assets are sold. Soliciting Dealer Warrants are not transferable
or assignable except by the Dealer Manager, the Soliciting Dealers, their
successors in interest, or to individuals who are both officers and directors of
such a Person. Exercise of these Soliciting Dealer Warrants will be under the
terms and conditions detailed in this Prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
As holders of Soliciting Dealer Warrants, Persons do not have the rights of
Stockholders, may not vote on Company matters and are not entitled to receive
Distributions.
ISSUANCE OF ADDITIONAL SECURITIES AND DEBT INSTRUMENTS
The Directors are authorized to issue additional Shares or convertible
securities for cash, property or other consideration on such terms as they may
deem advisable and to classify or reclassify any unissued
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<PAGE>
shares of capital stock of the Company without approval of the holders of such
outstanding securities. Subject to certain restrictions, the Directors may cause
the Company to issue debt obligation, including debt with conversion privileges
on more than one class of capital stock. The Directors may issue debt
obligations, including debt with conversion privileges, on such terms and
conditions as the Directors may determine, whereby the holders thereof may
acquire Shares. Subject to certain restrictions, the Directors may also cause
the Company to issue warrants, options and rights to buy Shares on such terms as
they deem advisable (notwithstanding the possible dilution in the value of the
outstanding Shares which may result from the exercise of such warrants, options
or rights to buy Shares) as part of a ratable issue to Stockholders, as part of
a financing arrangement, or pursuant to certain stock option plans.
RESTRICTIONS ON ISSUANCE OF CERTAIN SECURITIES
The Articles provide that the Company shall not issue: (a) Shares which are
redeemable at the option of the holder; (b) debt securities unless the
historical debt service coverage (in the most recently completed fiscal year) as
adjusted for known charges is sufficient to properly service the higher level of
debt; (c) options or warrants to purchase Equity Stock to the Advisor, the
Sponsor, any Director or Affiliates thereof except on the same terms as sold to
the general public, provided that the Company may issue options or warrants to
persons not affiliated with the Company at exercise prices not less than the
fair market value of such securities on the date of grant and for consideration
(which may include securities that in the judgment of the Independent Directors
have a market value not less than the value of such option on the date of grant
and does include issuance of options to Independent Directors under the
Company's Independent Director Stock Option Plan); options or warrants issuable
to the Advisor, the Sponsor, any Director or Affiliates thereof shall not exceed
an amount equal to 10% of the outstanding Equity Stock on the date of grant of
any options or warrants; or (d) Equity Stock on a deferred payment basis or
similar arrangement;
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, among other things, no
more than 50% in value of its outstanding shares of stock may be owned, actually
or constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain Tax-Exempt Entities
other than, in general, qualified domestic pension funds) during the last half
of a taxable year (other than the first year for which the election to be taxed
as a REIT has been made) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Requirement"). In addition, if the Company, or an owner
of 10% or more of the Company, actually or constructively owns 10% or more of a
tenant of the Company, the rent received by the Company (either directly or
through any partnership) from such tenant will not be qualifying income for
purposes of the REIT gross income tests of the Code. A REIT's stock must also be
owned by 100 or more Persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year (other than the
first year for which an election to be treated as a REIT has been made).
BECAUSE THE BOARD BELIEVES IT IS ESSENTIAL FOR THE COMPANY TO CONTINUE TO
QUALIFY AS A REIT, THE ARTICLES PROVIDE THAT, SUBJECT TO CERTAIN EXCEPTIONS
DESCRIBED BELOW, ON OR AFTER JULY 1, 1999, NO PERSON MAY OWN, OR BE DEEMED TO
OWN BY VIRTUE OF THE ATTRIBUTION PROVISIONS OF THE CODE, SHARES OR PREFERRED
STOCK IN EXCESS OF THE OWNERSHIP LIMIT (9.8% IN NUMBER OF SHARES OR VALUE OF THE
OUTSTANDING EQUITY STOCK OF THE COMPANY). THE ARTICLES FURTHER PROVIDE THAT (A)
ON OR AFTER JULY 1, 1999, ANY OWNERSHIP, DIRECTLY OR INDIRECTLY, OF SHARES OR
PREFERRED STOCK IN EXCESS OF THE OWNERSHIP LIMIT (WHENEVER OR HOWEVER SUCH
SHARES OR PREFERRED STOCK ARE ACQUIRED), SHALL BE NULL AND VOID, AND (B) ANY
TRANSFER OF SHARES OR PREFERRED STOCK THAT WOULD (I) ON OR AFTER JULY 1, 1999,
RESULT IN ANY PERSON OWNING, DIRECTLY OR INDIRECTLY, SHARES OR PREFERRED STOCK
IN EXCESS OF THE OWNERSHIP LIMIT, (II) ON OR AFTER JANUARY 1, 1999, RESULT IN
THE SHARES AND PREFERRED STOCK BEING OWNED BY FEWER THAN 100 PERSONS (DETERMINED
WITHOUT REFERENCE TO ANY RULES OF ATTRIBUTION), (III) RESULT IN THE COMPANY
BEING "CLOSELY HELD" WITHIN THE MEANING OF SECTION 856(H) OF THE CODE, OR (IV)
CAUSE THE COMPANY TO DIRECTLY OR CONSTRUCTIVELY OWN 10% OR MORE OF THE OWNERSHIP
INTERESTS IN A TENANT OF THE COMPANY'S OR THE OPERATING PARTNERSHIP'S REAL
PROPERTY, WITHIN THE MEANING OF SECTION 856(D)(2)(B)
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OF THE CODE, SHALL BE NULL AND VOID, AND THE INTENDED TRANSFEREE WILL ACQUIRE NO
RIGHTS IN SUCH SHARES OR PREFERRED STOCK (A "NULL TRANSFER").
SUBJECT TO THE EXCEPTIONS DESCRIBED BELOW, TO THE EXTENT THAT ON OR AFTER
JULY 1, 1999, (I) ANY PERSON OWNS, DIRECTLY OR INDIRECTLY, SHARES OR PREFERRED
STOCK IN EXCESS OF THE OWNERSHIP LIMIT OR (II) A TRANSFER OF SHARES OR PREFERRED
STOCK WOULD RESULT IN A NULL TRANSFER, THE SHARES OR PREFERRED STOCK SO OWNED OR
ATTEMPTED TO BE TRANSFERRED IN VIOLATION OF THE RESTRICTIONS IN THE ARTICLES
WOULD BE DESIGNATED AS "EXCESS SHARES" AND TRANSFERRED BY OPERATION OF LAW TO
THE COMPANY AS TRUSTEE FOR A TRUST (THE "SHARE TRUST") FOR THE EXCLUSIVE BENEFIT
OF THE PERSON OR PERSONS TO WHOM THE SHARES OR PREFERRED STOCK COULD BE
TRANSFERRED WITHOUT CAUSING A NULL TRANSFER. THE ARTICLES REQUIRE THE RECORD
OWNER OF THE EXCESS SHARES (THE "PROHIBITED OWNER") TO SUBMIT THE EXCESS SHARES
TO THE COMPANY FOR REGISTRATION IN THE NAME OF THE SHARE TRUST.
The Excess Shares would continue as issued and outstanding Shares or
Preferred Stock of the Company. While the Excess Shares are held by the Share
Trust, they would not have any voting rights, they would not be considered for
purposes of any Stockholder vote or of determining a quorum for such a vote, and
they would not be entitled to any dividends or other periodic distributions. As
a result, the Prohibited Owner would be required to repay to the Company any
dividends or other distributions received on the Excess Shares.
The Prohibited Owner would have the right to direct the Share Trust to
transfer the Excess Shares to any Person or Persons to whom the Excess Shares
can be transferred without causing another Null Transfer at a price not in
excess of the price paid by the Prohibited Owner for such Excess Shares. In
addition, Excess Shares would be deemed to have been offered for sale to the
Company or its designees for a 90-day period, at the lesser of the price paid
for the stock and its "Market Price" (as defined in the following paragraph) on
the date the Company accepts the offer. The 90-day period begins on the later of
the date the Prohibited Owner notifies the Company of its purported acquisition
of the Excess Shares or the date the Board of Directors determines in good faith
that a Null Transfer occurred if no such notice is provided.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) per Share for the five consecutive Trading Days (as defined
below) ending on such date. The "Closing Price" on any date shall mean the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the Shares
are not listed or admitted to trading on any national securities exchange, the
last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by The Nasdaq Stock
Market, Inc. ("Nasdaq") or, if Nasdaq is no longer in use, the principal
automated quotation system that may then be in use or, if the Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Shares
selected by the Board or, if there is no professional market maker making a
market in the Shares, the average of the last 10 sales pursuant to the Offering
if the Offering has not concluded, or, if the Offering has concluded, the
average of the last 10 purchases by the Company pursuant to its Share Repurchase
Program (the "SRP"), and if there are fewer than 10 of such purchases under the
SRP, then the average of such lesser number of purchases, or, if the SRP is not
then in existence, the price at which the Company is then offering Shares to the
public if the Company is then engaged in a public offering of Shares, or if the
Company is not then offering Shares to the public, the price at which a
Stockholder may purchase Shares pursuant to the Company's Distribution
Reinvestment Program (the "DRP") if such DRP is then in existence, or if the DRP
is not then in existence, the fair market value of the Shares as determined by
the Company, in its sole discretion. "Trading Day" shall mean a day on which the
principal national securities exchange or national automated quotation system on
which the Shares are listed or admitted to trading is open for the transaction
of business or, if the Shares are not listed or admitted to trading on any
national securities exchange or national automated quotation system, shall mean
any day other than a Saturday, a Sunday or a day on which banking institutions
in the State of Illinois are authorized or obligated by law or executive order
to close.
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ANY PERSON WHO ACQUIRES OR ATTEMPTS TO ACQUIRE SHARES OR PREFERRED STOCK IN
VIOLATION OF THE FOREGOING RESTRICTIONS, OR ANY PERSON WHO OWNED SHARES OR
PREFERRED STOCK THAT WERE TRANSFERRED TO A SHARE TRUST, WILL BE REQUIRED (I) TO
GIVE IMMEDIATE WRITTEN NOTICE TO THE COMPANY OF SUCH EVENT AND (II) TO PROVIDE
TO THE COMPANY SUCH OTHER INFORMATION AS THE COMPANY MAY REQUEST IN ORDER TO
DETERMINE THE EFFECT, IF ANY, OF SUCH TRANSFER ON THE COMPANY'S STATUS AS A
REIT.
THE ARTICLES REQUIRE ALL PERSONS WHO OWN, DIRECTLY OR INDIRECTLY, MORE THAN
5% (OR SUCH LOWER PERCENTAGES AS REQUIRED PURSUANT TO REGULATIONS UNDER THE
CODE) OF THE OUTSTANDING SHARES AND PREFERRED STOCK, WITHIN 30 DAYS AFTER
JANUARY 1 OF EACH YEAR, TO PROVIDE TO THE COMPANY A WRITTEN STATEMENT OR
AFFIDAVIT STATING THE NAME AND ADDRESS OF SUCH DIRECT OR INDIRECT OWNER, THE
NUMBER OF SHARES AND PREFERRED STOCK OWNED DIRECTLY OR INDIRECTLY, AND A
DESCRIPTION OF HOW SUCH SHARES ARE HELD. IN ADDITION, EACH DIRECT OR INDIRECT
STOCKHOLDER SHALL PROVIDE TO THE COMPANY SUCH ADDITIONAL INFORMATION AS THE
COMPANY MAY REQUEST IN ORDER TO DETERMINE THE EFFECT, IF ANY, OF SUCH OWNERSHIP
ON THE COMPANY'S STATUS AS A REIT AND TO ENSURE COMPLIANCE WITH THE OWNERSHIP
LIMIT.
The Ownership Limit generally will not apply to the acquisition of Shares or
Preferred Stock by an underwriter that participates in a public offering of such
Equity Stock. In addition, the Board, upon receipt of a ruling from the Service
or an opinion of counsel and upon such other conditions as the Board may direct,
may exempt a Person from the Ownership Limit under certain circumstances.
However, the Board may not grant an exemption from the Ownership Limit to any
proposed transferee whose ownership, direct or indirect, of Equity Stock of the
Company in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT.
The Ownership Limit could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Shares or otherwise be in the best interest of
the Stockholders of the Company, or of compelling a Stockholder to involuntarily
dispose of Equity Stock held in excess of the Ownership Limit.
All certificates representing any Shares or Preferred Stock will bear a
legend referring to the restrictions described above.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE ARTICLES OF INCORPORATION AND
BYLAWS
The following paragraphs summarize certain provisions of Maryland law and of
the Articles and the Bylaws of the Company. This summary does not purport to be
complete and is subject to and qualified in its entirety by reference to the
MGCL, the Articles and the Bylaws of the Company. The business combination
provisions and the control share acquisition provisions of the MGCL, and the
advance notice provisions of the Bylaws could have the affect of delaying,
deferring or preventing a transaction or a change in control of the Company that
might involve a premium price for holders of Shares or otherwise be in their
best interest.
BUSINESS COMBINATIONS. Under the MGCL, certain Business Combinations
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland corporation and any Interested Stockholder (I.E., any Person who
beneficially owns, directly or indirectly, 10% or more of the voting power of
the Company's outstanding stock or is an affiliate or associate of the Company
who, at any time within the two-year period prior to the date in question, was
the beneficial owner, directly or indirectly, of 10% or more of such voting
power) or any affiliate of an Interested Stockholder are prohibited for five
years after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such Business Combination must be
recommended by the Board and approved by the affirmative vote of at least (a)
80% of the votes entitled to be cast by holders of the Company's outstanding
voting stock, and (b) two-thirds of the votes entitled to be cast by holders of
the Company's outstanding voting stock, other than shares held by the Interested
Stockholder with whom or with whose Affiliate the Business Combination is to be
effected, unless, among other conditions, the Company's common stockholders
receive a minimum price (as defined in the MGCL) for their Shares and the
consideration is received in cash or in the same form as previously
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paid by the Interested Stockholder for its shares. These provisions of the MGCL
do not apply, however, to Business Combinations that are approved or exempted by
the Board prior to the time that the Interested Stockholder becomes an
Interested Stockholder. As permitted by the MGCL, the Articles of Incorporation
exempts any Business Combinations involving the issuance of Shares to TIGI or to
any Affiliate of TIGI. Accordingly, the five-year prohibition and the
super-majority vote requirement will not apply to any Business Combinations
between any of the TIGI Affiliated Companies and the Company. As a result, any
of the TIGI Affiliated Companies may be able to enter into Business Combinations
with the Company, which may or may not be in the best interests of the
Stockholders, without the super-majority Stockholder approval.
CONTROL SHARE ACQUISITION. As permitted by the MGCL, the Bylaws contain a
provision exempting from the control share acquisition statute any and all
acquisitions by TIGI or any Affiliate of TIGI. There can be no assurance that
such provision will not be amended or eliminated at any point in the future.
With certain exceptions, the MGCL provides that "Control Shares" of a Maryland
corporation acquired in a Control Share Acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter, excluding shares owned by the acquiring Person (the "Acquiror")
or by officers or trustees who are employees of the Company, and may be redeemed
by the Company. "Control Shares" are voting shares which, if aggregated with all
other such shares owned by the Acquiror or in respect of which the Acquiror is
able to exercise or direct the exercise of voting power, would entitle the
Acquiror to exercise voting power in electing Directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority, or (iii) a majority or more of
all voting power. Control Shares do not include shares the Acquiror is then
entitled to vote as a result of having previously obtained Stockholder approval.
A Control Share Acquisition means the acquisition of Control Shares, subject to
certain exceptions. A person who has made or proposes to make a Control Share
Acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the Board to call a special meeting of Stockholders
to be held within 50 days of demand to consider the voting rights of such
Control Shares. If no request for a meeting is made, the Company may itself
present the question at any Stockholders' meeting.
MEETINGS OF STOCKHOLDERS. The Articles and Bylaws provide for annual
meetings of Stockholders, commencing with the year 1999, to elect the Board and
transact such other business as may properly be brought before the meeting.
Special meetings of Stockholders may be called by the President, a majority of
the Directors or a majority of the Independent Directors, and shall be called at
the request in writing of the holders of 10% or more of the outstanding shares
of the Company entitled to vote.
The Bylaws provide that any action required or permitted to be taken at a
meeting of Stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
Stockholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each Stockholder entitled to notice of the meeting but not
entitled to vote at such meeting.
CERTAIN RESPONSIBILITIES AND INDEMNIFICATION. See "Certain Responsibilities
of Directors and The Advisor; Indemnification" above for an explanation of
certain responsibilities of Directors and the Advisor and limitations on their
liability and indemnification.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES TO BE OUTSTANDING OR ISSUABLE UPON EXERCISE OR CONVERSION OF OTHER
OUTSTANDING SECURITIES
Upon the completion of the Offering and the consummation of the Formation
Transactions, the Company will have outstanding 54,020,000 Shares, assuming all
50,000,000 Shares offered on a "best efforts" basis and all 4,000,000 Shares to
be issued pursuant to the DRP are sold and that there is no exercise of options
or warrants expected to be outstanding and exercisable. In addition, the Company
has reserved (i) 1,250,000 Shares for issuance upon exercise of up to 1,250,000
Soliciting Dealer Warrants,
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(ii) 75,000 Shares for issuance upon exercise of options which may be granted
pursuant to the Company's Independent Director Stock Option Plan, and (iii) 200
Shares for issuance upon the exchange of 200 LP Common Units of the Operating
Partnership issued to the Advisor for the Advisor's Partnership Contribution.
Subject to the provisions of the Articles, including the number of authorized
shares of Equity Stock, the Company could issue an undetermined number of Shares
or Preferred Stock (i) directly for equity interests in Properties or (ii) upon
exchange of any LP Units (other than the Advisor's 200 LP Common Units) in the
Operating Partnership, or of any Interests in Property Partnerships, which might
be issued for equity interests in Properties. All of the Shares sold in the
Offering offered hereby will be freely tradable in the public market, if any, by
persons other than "Affiliates" of the Company and Soliciting Dealers considered
underwriters without restriction or limitation under the Securities Act of 1933,
as amended (the "Act"), except however, they will be subject to the restrictions
explained under "Description of Securities-- Restrictions on Ownership and
Transfer."
SECURITIES ACT RESTRICTIONS
The Shares owned by "Affiliates" of the Company and the Shares issuable upon
exchange of LP Units (other than those issued pursuant to registration rights,
as described below), will be subject to Rule 144 ("Rule 144") promulgated under
the Act (if Rule 144 is then applicable to the proposed transactions involving
the Shares) and may not be sold in the absence of registration under the Act
unless an exemption from registration is available, including exemptions
contained in Rule 144.
In general, under Rule 144 as currently in effect, a Person (or Persons
whose Shares are aggregated with them in accordance with Rule 144) who has
beneficially owned "restricted securities" (defined generally as securities
acquired from the issuer or an Affiliate of the issuer) for at least one year,
and including the holding period of any prior owner unless such prior owner is
an Affiliate, would be entitled to sell within any three-month period a number
of Shares that does not exceed the greater of 1% of the then-outstanding number
of Shares or the average weekly reported trading volume of the Shares on a
national securities exchange or market during the four calendar weeks preceding
each such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any Person (or Persons whose Shares are
aggregated with them in accordance with Rule 144) who is not deemed to have been
an Affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned Shares for at least two years (including
any period of ownership of preceding non-affiliated holders), would be entitled
to sell such Shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, notice requirements or public information
requirements. An "Affiliate" of the Company, for purposes of the Act, is a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or under common control with, the Company.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
The Company has established the Independent Director Stock Option Plan for
the purpose of attracting and retaining Independent Directors. See
"Management--Independent Director Stock Option Plan." The Company has issued in
the aggregate options to purchase 9,000 Shares to the Independent Directors
(3,000 Shares as to each of the three Independent Directors) at the exercise
price of $9.05 per Share, one-third of which are currently exercisable. An
additional 66,000 Shares will be available for future option grants under the
Independent Director Stock Option Plan. See "Management--Independent Director
Stock Option Plan." Rule 701 under the Act provides that Shares acquired on the
exercise of outstanding options by Affiliates may be resold by them beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
except its one-year minimum holding period. The Company intends to register the
Shares to be issued under the Independent Director Stock Option Plan in a
registration statement or statements on Form S-8.
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SOLICITING DEALER WARRANTS
The Company will issue up to 1,250,000 Soliciting Dealer Warrants in
connection with the Offering, which will allow the holders to purchase up to
1,250,000 Shares upon the terms specified in the Soliciting Dealer Warrants. See
"Description of Securities--Soliciting Dealer Warrants" for a description of the
Soliciting Dealer Warrants.
EFFECT OF AVAILABILITY OF SHARES ON MARKET PRICE OF SHARES
Prior to the date of this Prospectus, there has been no public market for
the Shares. No assurance can be given that a public market for the Shares will
develop. No prediction can be made as to the effect, if any, that future sales
of Shares (including sales pursuant to Rule 144) or the availability of Shares
for future sale will have on the market price, if any, prevailing from time to
time. Sales of substantial amounts of Shares (including Shares issued upon the
exercise of options or the exchange of LP Units or Interests), or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Shares and impair the Company's ability to obtain additional capital through
the sale of equity securities. See "Risk Factors--Investment Risks--Possible
Adverse Effects on Share Price Arising from Shares Eligible for Future Sale."
For a description of certain restrictions on transfers of Shares, see
"Description of Securities--Restrictions on Ownership and Transfer." Also, see
the following two paragraphs regarding conversion, redemption and registration
rights pertaining to LP Common Units.
CONVERSION AND REDEMPTION RIGHTS
Pursuant to the terms of the Operating Agreement and subject to certain
conditions, each LP Common Unit may be converted into that number of Shares
which shall have a value as of the date of conversion equal to the "Net Equity
Value" of the Property or Properties (such Net Equity Value being as of the date
of contribution of the Property or Properties) contributed by such holder
divided by the total number of Units received by such holder for such Property
or Properties (the "Conversion Shares"); provided, however, that at the option
of the Company, the Company may satisfy the conversion right by delivering cash
in lieu of such Conversion Shares in an amount equal to the value on the date of
conversion of the Conversion Shares. The "Net Equity Value" of a Property as of
the date of contribution of the Property to the Operating Partnership,
generally, will be the purchase price of the Property to the Operating
Partnership (I.E., its fair market value), less the amount, as of the date of
such contribution, of any liabilities (E.G., mortgages or other monetary
encumbrances) to which the Property is subject or which are assumed by the
Operating Partnership in connection with such contribution. It is contemplated
that the Limited Partner contributing such Property and the General Partner of
the Operating Partnership will agree upon the amount of the Net Equity Value at
the time of such contribution.
Pursuant to the terms of the Operating Agreement and subject to certain
conditions, each holder of an LP Common Unit will have the right to have all or
any portion of his LP Common Units redeemed. The redemption price for each LP
Common Unit shall be equal to the Net Equity Value (on the date of contribution)
of the Property or Properties contributed by such holder divided by the total
number of Units received by such holder for such Property or Properties;
provided, however, at the option of the Company, the Company may satisfy the
redemption right by delivering Shares having a fair market value as of the date
the holder exercises such redemption right equal to the amount of the redemption
price for all Units being redeemed by the holder.
In order to protect the Company's status as a REIT, the Company and each
holder of LP Units are prohibited from exchanging LP Units for Shares under
certain circumstances. See "Operating Partnership Agreement--Limited Partner
Conversion Rights and "--Limited Partner Redemption Rights" for an explanation
of those circumstances.
Similar conversion and redemption rights may be given to holders of other
classes of Units in the Partnership and to holders of Interests in the Property
Partnerships, if any.
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REGISTRATION RIGHTS
Although there are no current agreements to do so, in the future the Company
may grant Stockholders, if any, receiving Shares directly for their equity
interests in Properties, Persons, if any, receiving Interests in any Property
Partnership for their interests in Properties, and Limited Partners, if any,
receiving LP Units in the Operating Partnership for their interests in
Properties, certain "demand" and/or "piggyback" registration rights
(collectively, the "Registration Rights") for registration under the Act of any
Shares acquired by them directly or pursuant to the terms and conditions of the
applicable Operating Partnership Agreement or Property Partnership agreement
upon exchange of their Units in the Operating Partnership or their Interests in
Property Partnerships. The terms and conditions of any agreements for
Registration Rights will be negotiated and determined at such future time as the
Company determines advisable in connection with the acquisition of one or more
Properties.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Stockholder is bound by and deemed to have agreed to the terms of the
Organizational Documents by his, her or its election to become a Stockholder.
The Organizational Documents, consisting of the Articles and Bylaws, were
reviewed and ratified by a majority of the Directors (including a majority of
the then Independent Directors) at the first meeting of the Board. The following
is a summary of certain provisions of the Organizational Documents and does not
purport to be complete. This summary is qualified in its entirety by specific
reference to the Organizational Documents filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part. See "Additional
Information."
CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
Stockholders' rights and related matters are governed by the Maryland
General Corporation Law ("MGCL"), the Articles and Bylaws. Certain provisions of
the Articles and Bylaws, which are summarized below, may make it more difficult
to change the composition of the Board and may discourage or make more difficult
any attempt by a Person or group to obtain control of the Company.
STOCKHOLDERS' MEETINGS
As provided in the Bylaws, an annual meeting of the Stockholders shall be
held on the first Tuesday in May of each year or on such other day in May as the
Board may determine; provided however, such meeting shall not be held less than
30 days after the delivery of the Company's annual report to the Stockholders.
The purpose of each annual meeting of the Stockholders is to elect Directors and
to transact such other business as may properly come before the meeting. A
special meeting of the Stockholders may be called by the Chairman, the
President, a majority of the Directors or a majority of the Independent
Directors, and shall be called by the Secretary or another officer of the
Company upon written request of the Stockholders holding in the aggregate not
less than 10% of the outstanding shares entitled to vote. Upon receipt of such a
written request, either in person or by mail, stating the purpose(s) of the
meeting and the matters to be acted upon, the Company shall inform the
Stockholders making the request of the reasonably estimated cost of preparing
and mailing a notice of such meeting. Upon payment to the Company of such costs,
the Company shall provide all Stockholders, written notice, either in person or
by mail, of a meeting and the purpose of such meeting to be held on a date not
less than 10 nor more than 90 days after the distribution of such notice, at a
time and place specified in the request. At any meeting of the Stockholders,
each Stockholder is entitled to one vote for each Share owned of record on the
applicable record date. In general, the presence in person or by proxy of a
majority of the outstanding Shares shall constitute a quorum, and the majority
vote of the Stockholders will be binding on all Stockholders of the Company.
BOARD OF DIRECTORS
The Articles and Bylaws provide that the number of Directors of the Company
may not be fewer than three nor more than eleven, a majority of which will be
Independent Directors. A vacancy in the Board
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caused by the death, resignation or incapacity of a Director or by an increase
in the number of Directors (within the limits described above) may be filled by
the vote of a majority of the remaining Directors. With respect to a vacancy
created by the death, resignation or incapacity of an Independent Director, the
remaining Independent Directors must nominate a replacement. Vacancies occurring
as a result of the removal of a Director by Stockholders must be filled by a
majority vote of the Stockholders. Any Director may resign at any time and may
be removed with or without cause by the Stockholders owning at least a majority
of the outstanding Shares.
A Director must have at least three years of relevant experience and
demonstrate the knowledge required to successfully acquire and manage the type
of assets being acquired by the Company. At least one of the Independent
Directors shall have three years of relevant real estate experience.
STOCKHOLDER VOTING RIGHTS
Each Share has one vote on each matter submitted to a vote of Stockholders.
Shares do not have cumulative voting rights nor preemptive rights. Stockholders
may vote in person or by proxy.
All elections for Directors are decided by the affirmative vote of a
majority of votes cast at a meeting, provided that a quorum was present when the
meeting commenced (defined as a majority of the aggregate number of votes
entitled to be cast thereon). Any or all Directors may be removed, with or
without cause, by the affirmative vote of the holders of at least a majority of
the outstanding voting shares of Equity Stock entitled to vote at an annual or
special meeting. All other questions must be decided by a majority of the votes
cast at a meeting. The MGCL provides that any action required or permitted to be
taken at a meeting of Stockholders may be taken without a meeting by the
unanimous written consent of all Stockholders.
Without approval of a majority of the outstanding voting shares of Equity
Stock, the Directors may not: (a) amend the Articles, (b) sell all or
substantially all of the Company's assets other than in the ordinary course of
the Company's business or in connection with liquidation and dissolution; (c)
cause certain mergers, consolidations or share exchanges of the Company; or (d)
dissolve or liquidate the Company. See "Description of Securities--Common Stock"
for an explanation of certain instances where Stockholder approval is not
required.
With respect to voting shares of Equity Stock owned by the Advisor, the
Sponsor, the Directors or any Affiliate, neither the Advisor, the Sponsor, the
Directors, nor any Affiliate may vote or consent on matters submitted to the
Stockholders regarding the removal of the Advisor, the Sponsor, the Directors or
any Affiliate or any transaction between the Company and any of them. In
determining the requisite percentage and interest of Shares necessary to approve
a matter on which the Advisor, the Sponsor, the Directors and any Affiliate may
not vote or consent, any Shares owned by them shall not be included.
STOCKHOLDER LISTS; INSPECTION OF BOOKS AND RECORDS
An alphabetical list of names, record addresses and business telephone
numbers (if any) of all Stockholders with the number of Shares held by each (the
"Stockholder List"), is maintained as part of the books and records of the
Company at the Company's principal office. The Stockholder List is updated at
least quarterly and is open for inspection by a Stockholder or his designated
agent upon such Stockholder's request. The purposes for which a Stockholder may
request a copy of the Stockholder List include: matters relating to the
Stockholder's voting rights and the exercise of the Stockholder's rights under
federal proxy laws. The Stockholder List will also be mailed to any Stockholder
requesting the list within 10 days of receipt of a request. The Company may
impose a reasonable charge for expenses incurred in reproducing the Stockholder
List.
If the Advisor or the Directors of the Company neglect or refuse to exhibit,
produce or mail a copy of the Stockholder List as requested in accordance with
and as required by applicable law and the Articles, the Advisor and the
Directors shall be liable to any Stockholder requesting the Stockholder List,
for the costs, including reasonable attorneys' fees, incurred by that
Stockholder for compelling the production of
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the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense to such liability that
the actual purpose and reason for the requests for inspection or for a copy of
the Stockholder List is to secure such list of Stockholders or other information
for the purpose of selling such Stockholder List or copies thereof, or of using
the same for a commercial purpose or other purpose not in the interest of the
applicant as a Stockholder relative to the affairs of the Company. The Company
may require the Stockholder requesting the Stockholder List to represent that
the Stockholder List is not requested for a commercial purpose unrelated to the
Stockholder's interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition to, and
shall not in any way limit, other remedies available to the Stockholders under
federal law, or the laws of any state.
Any Stockholder and any designated representative thereof is permitted
access to all records of the Company at all reasonable times and may inspect and
copy any of them for the purposes specified above. In addition, the books and
records of the Company are open for inspection by state securities
administrators upon reasonable notice and during normal business hours at the
principal place of business of the Company.
AMENDMENT OF THE ORGANIZATIONAL DOCUMENTS
The Articles may be amended by the affirmative vote of a majority of the
then outstanding voting shares of Equity Stock. The Bylaws may be amended in a
manner not inconsistent with the Articles by a majority vote of the Directors.
DISSOLUTION OR TERMINATION OF THE COMPANY
The Company is a Maryland corporation which may be dissolved pursuant to the
procedures set forth in the MGCL at any time with the approval of a majority of
the outstanding shares of stock. However, the Company anticipates that, within
five years of the date of this Prospectus, the Board will determine whether to:
(i) apply to have the Shares listed for trading on a national stock exchange or
included for quotation on a national market system, provided the Company meets
the then applicable listing requirements; and/or (ii) commence subsequent
offerings after completion of this Offering. If listing of the Shares is not
feasible by that time, the Board may decide to: (i) sell the Company's assets
individually; (ii) list the Shares at a future date; or (iii) liquidate the
Company within 10 years of the date thereof.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that: (a) with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board and the proposal
of business to be considered by Stockholders may be made only: (i) pursuant to
the Company's notice of the meeting; (ii) by or at the direction of the Board;
or (iii) by a Stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Bylaws; and (b)
with respect to special meetings of Stockholders, only the business specified in
the Company's notice of meeting may be brought before the meeting of
Stockholders, and nominations of persons for election to the Board may be made
only: (i) pursuant to the Company's notice of the meeting; (ii) by or at the
direction of the Board; or (iii) provided that the Board has determined that
Directors shall be elected at such meeting, by a Stockholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.
RESTRICTIONS ON CERTAIN CONVERSION TRANSACTIONS AND ROLL-UPS
The Articles require that, until the Board determines that it is no longer
in the best interests of the Company to attempt, or continue, to qualify as a
REIT, certain transactions involving the acquisition, merger, conversion or
consolidation, directly or indirectly, of the Company in which the Stockholders
receive securities in a surviving entity, called a "Roll-Up Entity," shall be
approved by the holders of a majority of the Shares, except for any such
transaction effected because of changes in applicable law, or to preserve tax
advantages for a majority in interest of the Stockholders.
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In connection with a proposed Roll-Up, as defined below, an appraisal of all
of the Company's assets must be obtained from a Person with no current or prior
business or personal relationship with the Advisor or the Directors. Further,
such Person must be engaged, to a substantial extent, in the business of
rendering valuation opinions of assets held by the Company (an "Independent
Expert"). The appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity, as defined below, and filed with the Commission
and the state regulatory commissions as an exhibit to the registration statement
for the offering of the Roll-Up Entity's shares. Accordingly, an issuer using
the appraisal will be subject to liability for violation of Section 11 of the
Act and comparable provisions under state laws for any material
misrepresentations or material omissions in the appraisal. The Company's assets
shall be appraised in a consistent manner and the appraisal shall: (i) be based
on an evaluation of all relevant information, (ii) indicate the value of the
Company's assets as of a date immediately prior to the announcement of the
proposed Roll-Up transaction, and (iii) assume an orderly liquidation of the
Company's assets over a 12-month period. The terms of the engagement of the
Independent Expert shall clearly state that the engagement is for the benefit of
the Company and its Stockholders. A summary of the independent appraisal,
indicating all material assumptions underlying the appraisal, shall be included
in a report to the Stockholders in connection with a proposed Roll-Up. A
"Roll-Up" is a transaction involving the acquisition, merger, conversion or
consolidation, either directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity, as defined below. A "Roll-Up" does not include:
(i) a transaction involving securities of the Company that have been listed on a
national securities exchange or traded through The Nasdaq Stock Market--Nasdaq
National Market for at least 12 months; or (ii) a transaction involving the
conversion of the Company to trust or association form if, as a consequence of
the transaction, there will be no significant adverse change in any of the
following: (a) Stockholders' voting rights; (b) the term and existence of the
Company; (c) Sponsor or Advisor compensation; or (d) the Company's investment
objectives. A "Roll-Up Entity" is a partnership, REIT, corporation, trust or
other entity that would be created or would survive after the successful
completion of a proposed Roll-Up transaction.
Notwithstanding the foregoing, the Company may not participate in any
proposed Roll-Up which would:
(i) result in the Stockholders having rights to meetings less frequently or
which are more restrictive to Stockholders than those provided in the
Articles;
(ii) result in the Stockholders having voting rights that are less than
those provided in the Articles;
(iii) result in the Stockholders having greater liability than as provided
in the Articles;
(iv) result in the Stockholders having rights to receive reports that are
less than those provided in the Articles;
(v) result in the Stockholders having access to records that are more
limited than those provided in the Articles;
(vi) include provisions which would operate to materially impede or
frustrate the accumulation of Shares by any purchaser of the
securities of the Roll-Up Entity, except to the minimum extent
necessary to preserve the tax status of the Roll-Up Entity;
(vii) limit the ability of an investor to exercise the voting rights of its
securities in the Roll-Up Entity on the basis of the number of the
Shares held by that investor;
(viii) result in investors in the Roll-Up Entity having rights of access to
the records of the Roll-Up Entity that are less than those provided in
the Articles; or
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(ix) place any of the costs of the transaction on the Company if the
Roll-Up is not approved by the Stockholders;
provided, however, that the Company may participate in a proposed Roll-Up if the
Stockholders would have rights and be subject to restrictions comparable to
those contained in the Articles, with the prior approval of a majority of the
Stockholders.
Stockholders who vote "no" on the proposed Roll-Up shall have the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the proposed
Roll-Up; or
(ii) one of either:
(a) remaining as Stockholders of the Company and preserving their
interests therein on the same terms and conditions as previously
existed; or
(b) receiving cash in an amount equal to the Stockholders' pro rata share
of the appraised value of the net assets of the Company.
The foregoing provisions in the Articles, Bylaws and the MGCL could have the
effect of discouraging a takeover or other transaction in which holders of some,
or a majority, of the Shares might receive a premium for their Shares over the
then prevailing market price or which these holders might believe to be
otherwise in their best interests.
The limitations and restrictions set forth below under "--Limitation on
Total Operating Expenses," "--Transactions with Affiliates," and "--Restrictions
on Borrowing" in this Section shall be effective until such time as the Board
shall determine that it is no longer in the best interests of the Company or its
Stockholders that the Company continue to operate as a REIT, or until such time
as the Company shall fail to qualify as a REIT.
LIMITATION ON TOTAL OPERATING EXPENSES
The Articles provides that, subject to the conditions described in the
following paragraph, the annual Total Operating Expenses of the Company shall
not exceed in any fiscal year the greater of 2% of the Average Invested Assets
of the Company or 25% of the Company's Net Income. The Independent Directors
have a fiduciary responsibility to limit the Company's annual Total Operating
Expenses to amounts that do not exceed the limitations described above. The
Independent Directors may, however, determine that a higher level of Total
Operating Expenses is justified for such period because of unusual and
non-recurring expenses. Any such finding by the Independent Directors and the
reasons in support thereof shall be recorded in the minutes of the meeting of
Directors. Within 60 days after the end of any fiscal quarter of the Company for
which Total Operating Expenses (for the 12 months then ended) exceed 2% of
Average Invested Assets or 25% of Net Income, whichever is greater, as described
above, there shall be sent to the Stockholders a written disclosure of such
fact. If the Independent Directors determine that such higher Total Operating
Expenses are justified, such disclosure will also contain an explanation of the
Independent Directors' conclusion. In the event the Total Operating Expenses
exceed the limitations described above and if the Independent Directors are
unable to conclude that such excess was justified then, within 60 days after the
end of the Company's fiscal year, the Advisor shall reimburse the Company the
amount by which the aggregate annual Total Operating Expenses paid or incurred
by the Company exceed the limitation.
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TRANSACTIONS WITH AFFILIATES
The Articles impose certain restrictions on transactions between the Company
and the Advisor, the Sponsor, any Director or Affiliates thereof, as follows:
(i) SALES AND LEASES TO COMPANY. The Company shall not purchase
Property from the Sponsor, Advisor, Directors or any Affiliate thereof,
unless a majority of Directors (including a majority of Independent
Directors) not otherwise interested in such transaction approve the
transaction as being fair and reasonable to the Company and at a price to
the Company no greater than the cost of the asset to such Sponsor, Adviser,
Director or any Affiliate thereof, or if the price to the Company is in
excess of such cost, that substantial justification for such excess exists
and such excess is reasonable. In no event shall the cost of such Property
to the Company exceed its appraised value at the time of its acquisition by
the Company.
(ii) SALES AND LEASES TO SPONSOR, ADVISOR, DIRECTOR OR ANY
AFFILIATE. A Sponsor, Advisor, Director or any Affiliate thereof shall not
acquire assets from the Company unless approved by a majority of Directors
(including a majority of Independent Directors), not otherwise interested in
such transaction, as being fair and reasonable to the Company. The Company
may lease assets to a Sponsor, Advisor, Director or any Affiliate thereof
only if approved by a majority of the Directors (including a majority of
Independent Directors), not otherwise interested in such transaction, as
being fair and reasonable to the Company.
(iii) LOANS. No loans may be made by the Company to the Sponsor,
Advisor, Director or any Affiliate thereof except as provided in clauses
(iv) and (vi) under "--Restrictions on Investments" below in this Section,
or to wholly owned subsidiaries of the Company. The Company may not borrow
money from the Sponsor, Advisor, Director or any Affiliate thereof, unless a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in such transactions, approve the transaction as being
fair, competitive and commercially reasonable and no less favorable to the
Company than loans between unaffiliated parties under the same
circumstances.
(iv) INVESTMENTS. The Company shall not invest in joint ventures with
the Sponsor, Advisor, Director or any Affiliate thereof, unless a majority
of Directors (including a majority of Independent Directors) not otherwise
interested in such transactions, approve the transaction as being fair and
reasonable to the Company and on substantially the same terms and conditions
as those received by the other joint ventures. The Company shall not invest
in equity securities unless a majority of Directors (including a majority of
Independent Directors) not otherwise interested in such transaction approve
the transaction as being fair, competitive, and commercially reasonable.
(v) OTHER TRANSACTIONS. All other transactions between the Company and
the Sponsor, Advisor, Director or any Affiliate thereof, shall require
approval by a majority of the Directors (including a majority of Independent
Directors) not otherwise interested in such transactions as being fair and
reasonable to the Company and on terms and conditions not less favorable to
the Company than those available from unaffiliated third parties.
RESTRICTIONS ON BORROWING
The Company may not incur indebtedness to enable it to make Distributions
except as necessary to satisfy the requirement that the Company distribute at
least 95% of its REIT Taxable Income, or otherwise as necessary or advisable to
ensure that the Company maintains its qualification as a REIT for federal income
tax purposes. The aggregate borrowings of the Company, secured and unsecured,
shall be reasonable in relation to the Net Assets of the Company and reviewed by
the Board at least quarterly. The Company anticipates that, in general,
aggregate borrowings secured by all of the Company's Properties will not exceed
55% of their combined fair market value, and the aggregate amount of borrowing
in relation to the Company's Net Assets shall, in the absence of a satisfactory
showing that a higher level of borrowing is
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appropriate, not exceed 300% of Net Assets. Any excess in borrowing over such
300% of Net Assets level shall be (i) approved by a majority of the Independent
Directors, (ii) disclosed to Stockholders in the Company's next quarterly report
to Stockholders, along with justification for such excess, and (iii) subject to
approval of the Stockholders. See "Investment Objections and
Policies--Borrowing."
RESTRICTIONS ON INVESTMENTS
The investment policies set forth in the Articles have been approved by a
majority of Independent Directors. The Articles prohibits investments in: (i)
any foreign currency or bullion; (ii) short sales; and (iii) any security in any
entity holding investments or engaging in activities prohibited by the Articles.
In addition to other investment restrictions imposed by the Directors from
time to time consistent with the Company's objective to qualify as a REIT, the
Company observes the following restrictions on its investments as set forth in
its Articles:
(i) Not more than 10% of the Company's total assets will be invested in
unimproved real property or mortgage loans on unimproved real property.
For purposes of this paragraph, "unimproved real properties" does not
include properties under construction, under contract for development
or plan for development within one year. The Company does not intend to
invest in any unimproved real property which is not intended to be
developed;
(ii) The Company shall not invest in commodities or commodity future
contracts. This limitation does not apply to interest rate futures
when used solely for hedging purposes;
(iii) The Company shall not invest in contracts for the sale of real estate;
(iv) The Company shall not invest in or make mortgage loans unless an
appraisal of the underlying Property is obtained. Mortgage
indebtedness on any Property shall not exceed the Property's appraised
value. In cases in which the majority of Independent Directors so
determine, and in all cases in which the mortgage loan involves the
Advisor, the Sponsor, the Directors or any Affiliates, the appraisal
must be obtained from an Independent Expert. The appraisal shall be
maintained in the Company's records for at least five years, and shall
be available for inspection and duplication by any Stockholder. In
addition to the appraisal, a mortgagee's or owner's title insurance
policy or commitment as to the priority of the mortgage or condition
of the title must be obtained. The Company may not invest in real
estate contracts of sale otherwise known as land sale contracts;
(v) The Company shall not make or invest in mortgage loans, including
construction loans, on any one Property if the aggregate amount of all
mortgage loans outstanding secured by the Property, including the loans
of the Company, would exceed an amount equal to 85% of the appraised
value of the Property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting
criteria provided that such loans would in no event exceed the
appraised value of the Property at the date of the loans;
(vi) The Company shall not make or invest in any mortgage loans that are
subordinate to any mortgage or equity interest of the Advisor, the
Sponsor, any Director or Affiliates thereof;
(vii) The Company shall not invest in equity securities unless a majority of
the Directors (including a majority of the Independent Directors) not
otherwise interested in the transaction approves the transaction as
being fair, competitive and commercially reasonable. Investments in
entities affiliated with the Advisor, the Sponsor, any Director or
Affiliates thereof are subject to the restrictions on joint venture
investments. Notwithstanding these restrictions, the Company may
purchase its own securities, when traded on a national securities
exchange or market, if a majority of the Directors (including a
majority of the Independent Directors) determine such purchase to be
in the best interests of the Company;
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(viii) The Company shall not engage in any short sale or borrow on an
unsecured basis, if such borrowing will result in an asset coverage of
less than 300%;
(ix) To the extent the Company invests in Properties, a majority of the
Directors (including a majority of the Independent Directors) shall
determine that the consideration paid for such Properties is equal to
fair market value of such Properties. If any Property is acquired from
the Sponsor, the Advisor, any Director, or any Affiliate thereof, such
fair market value shall be determined by a qualified independent real
estate appraiser selected by the Independent Directors;
(x) The Company shall not invest in indebtedness (herein called "Junior
Debt") secured by a mortgage on real property which is subordinate to
the lien of other indebtedness (herein called "Senior Debt"), except
where the amount of the Junior Debt, plus the outstanding amount of the
Senior Debt, does not exceed 90% of the appraised value of such real
property, if after giving effect thereto, the value of all such
investments of the Company (as shown on the books of the Company in
accordance with generally accepted accounting principles, after all
reasonable reserves but before provision for depreciation) would not
then exceed 25% of the Company's tangible assets. The value of all
investments in Junior Debt of the Company which does not meet these
requirements shall be limited to 10% of the Company's tangible assets
(which would be included within the 25% limitation);
(xi) The Company shall not engage in trading, as compared with investment,
activities; and
(xii) The Company shall not engage in underwriting or the agency
distribution of securities issued by others;
(xiii) The Company shall not acquire securities in any company holding
investments or engaging in activities prohibited by the restrictions
on investments set forth in the foregoing clauses (i) through (xii).
Subject to the above restrictions and so long as the Company qualifies as a
REIT, a majority of the Directors (including a majority of the Independent
Directors) may alter the investment policies if they determine that a change is
in the best interests of the Company.
OPERATING PARTNERSHIP AGREEMENT
The following summary of the Agreement of Limited Partnership of Inland
Retail Real Estate Limited Partnership (the "Operating Partnership Agreement"),
and the descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, are qualified in their entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Company's
Registration Statement of which this Prospectus is a part. See "Additional
Information."
MANAGEMENT OF THE OPERATING PARTNERSHIP
The Operating Partnership is organized as an Illinois limited partnership
pursuant to the terms of the Operating Partnership Agreement. The Company is the
General Partner of the Operating Partnership. The Company anticipates that it
will conduct substantially all of its business through the Operating
Partnership, except for certain development, leasing and property management
services, which will be conducted through Affiliates of TIGI in order to
preserve the Company's REIT status and to minimize liabilities. Generally,
pursuant to the Operating Partnership Agreement, the Company, as the General
Partner of the Operating Partnership, will have full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, including the ability to cause the Operating Partnership to enter
into certain major transactions, including acquisitions, dispositions and
refinancings and to cause changes in the Operating Partnership's line of
business and distribution policies.
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The Limited Partners in their capacities as limited partners of the
Operating Partnership will have no authority to transact business for, or
participate in the management or decisions of, the Operating Partnership, except
as provided in the Operating Partnership Agreement and as required by applicable
law.
The Company, as General Partner of the Operating Partnership, may amend the
Operating Partnership Agreement without the consent of the Limited Partners;
provided however, that any amendment which (i) subject to certain exceptions
discussed below under "--Distributions" in this Section, alters or changes the
distribution rights of any Limited Partners, (ii) alters or changes a Limited
Partner's redemption rights or conversion rights, (iii) imposes on the Limited
Partners any obligation to make additional Capital Contributions, or (iv) alters
the terms of the Operating Partnership Agreement regarding the rights of the
Limited Partners with respect to certain extraordinary transactions or the
indemnification provisions of the Operating Partnership Agreement, shall require
the unanimous written consent of the Limited Partners. The General Partner may,
without the consent of the Limited Partners, (i) file a voluntary petition
seeking liquidation, reorganization, arrangement or readjustment, in any form,
of the Operating Partnership's debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other federal or state
insolvency law, or file an answer consenting to or acquiescing in any such
petition; or (ii) cause the Operating Partnership to make an assignment for the
benefit of its creditors or admit in writing of its inability to pay its debts
as they mature. The Limited Partners have no right to remove the Company as the
General Partner of the Operating Partnership.
INDEMNIFICATION
To the extent permitted by law, the Operating Partnership Agreement provides
for indemnification of the Company, as General Partner, and its directors,
officers and such other Persons as the Company may designate against damages and
other liabilities under the same conditions and subject to the same restrictions
applicable to the indemnification of officers, directors, employees and
Stockholders under the Articles. See "Certain Responsibilities of Directors and
the Advisor; Indemnification."
TRANSFERABILITY OF INTERESTS
Except for a transaction described below under "--Extraordinary
Transactions" in this Section, the Operating Partnership Agreement provides that
the Company may not withdraw from the Operating Partnership or transfer or
assign its general partnership interest in the Operating Partnership. A Limited
Partner may transfer its interests in the Operating Partnership to a transferee
subject to certain conditions, including the written consent of the Company,
provided further that such transferee assumes all obligations of the transferor
Limited Partner and provided that such transfer does not cause the Operating
Partnership to be treated as an association taxable as a corporation, does not
cause a termination of the Operating Partnership for federal or state income tax
purposes and does not cause the Company to cease to comply with requirements
under the Code for qualification as a REIT. Such transferee will be admitted as
a substitute Limited Partner only upon assumption of all obligations of the
transferor Limited Partner, and the consent of the Company, as General Partner
of the Operating Partnership. Pursuant to the Operating Partnership Agreement,
except as described below under "--Limited Partner Conversion Rights" in this
Section and notwithstanding the foregoing, the Limited Partners have generally
agreed not to transfer, assign, sell, encumber or otherwise dispose of their LP
Units for one year from their date of acquisition of such Units.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that neither the Company nor
the Operating Partnership may generally engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or liquidation, or any reclassification, recapitalization or
change of outstanding Shares (a "Business Combination") for which the Company
conducted a vote of the Stockholders unless the Business Combination would have
been approved had holders of Units with voting
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rights been entitled to vote together with the Stockholders of the Company on
such Business Combination. The foregoing provision of the Operating Partnership
Agreement would under no circumstances enable or require the Company to engage
in a Business Combination which required the approval of the Company's
Stockholders if the Company's Stockholders did not in fact give the requisite
approval. Rather, if the Company's Stockholders did approve a Business
Combination, the Company would not consummate the transaction unless (i) the
Company as General Partner of the Operating Partnership first conducts a vote of
holders of voting Units (including the Company) on the matter; (ii) the Company
votes the Units held by it in the same proportion as the Stockholders of the
Company voted on the matter at the Stockholder vote; and (iii) the result of
such vote of the Unit holders (including the proportionate vote of the Company's
Units) is that had such vote been a vote of Stockholders, the Business
Combination would have been approved. In addition, the Company generally may not
engage in a Business Combination for which a vote of the Stockholders was
conducted unless (i) Limited Partners holding more than 50% of the total voting
power held by Limited Partners in the Operating Partnership approve the Business
Combination or (ii) each holder of a Unit convertible into Shares will either
receive or will have the right to elect to receive for each such Unit an amount
of cash, securities or other property paid to the holder of one Share (exclusive
of tax consequences), if any, pursuant to the terms of the Business Combination,
multiplied by a conversion factor (initially one, but adjusted to reflect the
effect of prior Share dividends, Share splits and reverse Share splits);
provided that, if in connection with the Business Combination, a purchase,
tender or exchange offer shall have been made to and accepted by the holders of
a majority of the outstanding Shares, each holder of a Unit convertible into
Shares shall receive, or shall have the right to elect to receive, the greatest
amount of cash, securities or other property which such holder would have
received had it exercised its conversion rights and received Shares in exchange
for its Units immediately prior to the expiration of such purchase, tender or
exchange offer.
In the event that the conditions described in the preceding paragraph are
not met, the Operating Partnership Agreement provides that the Company generally
may still engage in a Business Combination for which a vote of the Stockholders
was conducted if (i) immediately after the Business Combination, substantially
all of the assets directly or indirectly owned by the surviving entity, other
than Units held by the Company, are owned directly or indirectly by the
Operating Partnership or another limited partnership or limited liability
company which is the survivor of a Business Combination with the Operating
Partnership (the "Surviving Entity"); (ii) the Limited Partners own an interest
in the Surviving Entity based on the relative fair market value of the net
assets of the Operating Partnership and the other net assets of the Surviving
Entity prior to the consummation of the Business Combination; (iii) the rights,
preferences and privileges of the Limited Partners in the Surviving Entity are
at least as favorable as those in effect immediately prior to the consummation
of such Business Combination and as those generally applicable to limited
partners or non-managing members of the Surviving Entity holding a comparable
class of interest; and (iv) such rights of the Limited Partners include the
right to exchange their interests in the Surviving Entity for at least one of:
(a) the consideration available to such Limited Partner under the preceding
paragraph or (b) if the ultimate controlling person of the Surviving Entity has
publicly traded common equity securities, such common equity securities, with an
exchange ratio based on the relative fair market value of such securities and
the Shares immediately prior to the consummation of such transaction.
Similar limitations on the ability of the Company to engage in Business
Combinations may be imposed in the agreements governing the Property
Partnerships, if any, and in the articles of incorporation of any qualified REIT
subsidiary, if any.
As a result of these provisions of the Operating Partnership Agreement, a
third party may be inhibited from making an acquisition proposal that it would
otherwise make, or the Company, despite having the requisite authority under its
Articles, may not be authorized to engage in a proposed Business Combination.
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ISSUANCE OF ADDITIONAL UNITS
As General Partner of the Operating Partnership, the Company has the ability
to cause the Operating Partnership to issue additional Units representing
general or limited partnership interests in the Operating Partnership, including
Preferred Units.
CAPITAL CONTRIBUTIONS
The Operating Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in excess
of funds available to the Operating Partnership from borrowings or prior capital
contributions, the General Partner shall also have the right to raise additional
funds required by the Operating Partnership by causing the Operating Partnership
to borrow the necessary funds from third parties on such terms and conditions as
the General Partner shall deem appropriate. As an alternative to borrowing funds
required by the Operating Partnership, the Company may contribute the amount of
such required funds as an additional capital contribution to the Operating
Partnership. The Operating Partnership Agreement also provides that in the event
the Company issues additional shares of stock (including any issuance of Shares
pursuant thereto), the Company is required to contribute to the Operating
Partnership as an additional capital contribution any net proceeds from such
issuance in exchange for additional partnership interests with preferences and
rights corresponding to the shares of stock so issued. If the Company so
contributes additional capital to the Operating Partnership, the Company's
partnership interest in the Operating Partnership will be increased on a
proportionate basis. Conversely, the partnership interests of the Limited
Partners will be decreased on a proportionate basis in the event of additional
capital contributions by the Company.
DISTRIBUTIONS
The Operating Partnership Agreement sets forth the manner in which
distributions from the Operating Partnership will be made to Unit holders.
Distributions from the Operating Partnership are made at the times and in the
amounts determined by the Company as the General Partner. Pursuant to the
Operating Partnership Agreement, Preferred Units, if any, may entitle the holder
of the Preferred Unit to distributions prior to the payment of distributions
with respect to the Common Units. The Operating Partnership Agreement further
provides that remaining amounts available for distribution shall be distributed,
at the times and in the amounts determined by the General Partner in its sole
discretion, PARI PASSU, to the holders of the Common Units (and to the holders
of LP Preferred Units, if any, which are entitled to share in the net profits of
the Operating Partnership beyond, or in lieu of, the receipt of any preferred
return). Liquidating distributions will generally be made in the same manner and
amounts as operating distributions. The Operating Partnership Agreement also
provides that the General Partner shall have the right to amend the distribution
provisions of the Operating Partnership Agreement to reflect the issuance of
additional classes of Units with rights different from, and possibly superior
to, the rights of the holders of Common Units or Preferred Units.
OPERATIONS
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income or excise tax
liability, unless the Company otherwise ceases to qualify as a REIT and to
ensure that the Partnership will not be classified as a publicly traded
partnership under the Code. Pursuant to the Operating Partnership Agreement, the
Operating Partnership will assume and pay when due, or reimburse the Company for
payment of, all expenses it incurs relating to the ownership and operation of,
or for the benefit of, the Operating Partnership and all costs and expenses
relating to the operations of the Company.
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LIMITED PARTNER CONVERSION RIGHTS
Pursuant to the terms of the Operating Partnership Agreement, and subject to
certain conditions, each LP Common Unit may be converted into that number of
Shares which shall have a value as of the date of conversion equal to the "Net
Equity Value" of the Property or Properties (such Net Equity Value being as of
the date of contribution of the Property or Properties) contributed by such
holder divided by the total number of Units received by such holder for such
Property or Properties (the "Conversion Shares"); provided, however, at the
option of the Company, the Company may satisfy the conversion right by
delivering cash in lieu of such Conversion Shares in an amount equal to the
value on the date of conversion of the Conversion Shares. However, no Limited
Partner may convert any LP Common Units for Shares during the first year
following the issuance of such Units or at any other time if such Limited
Partner's actual or constructive ownership of such Shares would (i) violate the
Ownership Limit, (ii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iii) cause the Company to own, directly
or constructively, 10% or more of the ownership interests in a tenant of the
Company's or of the Operating Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, (iv) cause, in the opinion of counsel to the
General Partner, the Company to no longer qualify (or that there is a material
risk that the Company no longer would qualify) as a REIT, or (v) cause the
acquisition of Shares by such Limited Partner to be "integrated" with any other
distribution of Shares for purposes of complying with the registration
provisions of the Act. In addition, the General Partner shall not have the right
to satisfy the conversion right by paying the Limited Partner seeking
conversion, in lieu of the Conversion Shares, the amount of cash equal to the
value on the date of conversion of the Conversion Shares if, in the opinion of
counsel to the General Partner, the General Partner would, as a result thereof,
no longer qualify (or if there is a material risk that the General Partner no
longer would qualify) as a REIT. See "Description of Securities--Restrictions on
Ownership and Transfer." Any Shares issued to the Limited Partners upon exchange
of their respective LP Common Units may be sold in the public market, if any,
pursuant to any effective registration under the Act or pursuant to any
available exemption from such registration. See "Shares Eligible for Future
Sale--Conversion and Redemption Rights" and "--Registration Rights."
The General Partner shall have the right to grant similar conversion rights
to holders of other classes of Units, if any, in the Operating Partnership, and
to holders of equity interests in the Property Partnerships, if any.
Exercise of conversion rights will be a taxable transaction in which gain or
loss will be recognized by the Limited Partner exercising its right to convert
its Units into Shares to the extent that the amount realized exceeds the Limited
Partner's adjusted basis in the Units converted.
LIMITED PARTNER REDEMPTION RIGHTS
Pursuant to the terms of the Operating Partnership Agreement and subject to
certain conditions, each holder of an LP Common Unit will have the right to have
all or any portion of his LP Common Units redeemed. The redemption price for
each LP Common Unit shall be equal to the Net Equity Value (on the date of
contribution) of the Property or Properties contributed by such holder divided
by the total number of Units received by such holder for such Property or
Properties; provided, however, that at the option of the Company, the Company
may satisfy the redemption right by delivering Shares having a fair market value
as of the date the holder exercises such redemption right equal to the amount of
the redemption price for all Units being redeemed by the holder. The holder may
not exercise this redemption right during the first year following the receipt
of the LP Common Units, or if in the opinion of counsel to the General Partner,
the General Partner would, as a result thereof, no longer qualify (or if there
is a material risk that the General Partner no longer would qualify) as a REIT.
The Company may not exchange any Shares for Units if the Limited Partner's
actual or constructive ownership of such Shares would (i) violate the Ownership
Limit, (ii) result in the Company being "closely held" within the meaning of
Section 856(h) of the Code, (iii) cause the Company to own, directly or
constructively, 10% or more of the ownership
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interests in a tenant of the Company's or of the Operating Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, (iv) cause, in
the opinion of counsel to the General Partner, the Company to no longer qualify
(or that there is a material risk that the Company no longer would qualify) as a
REIT, or (v) cause the acquisition of Shares by such Limited Partner to be
"integrated" with any other distribution of Shares for purposes of complying
with the registration provisions of the Act. See "Description of
Securities--Restrictions on Ownership and Transfer." Any Shares issued to the
Limited Partners upon redemption of their Units may be sold in the public
market, if any, pursuant to any effective registration under the Act or pursuant
to any available exemption from such registration. See "Shares Eligible for
Future Sale--Conversion and Redemption Rights" and "--Registration Rights."
The General Partner shall have the right to grant similar redemption rights
to holders of other classes of Units, if any, in the Operating Partnership, and
to holders of equity interests in the Property Partnerships, if any.
Exercise of redemption rights will be a taxable transaction in which gain or
loss will be recognized by the Limited Partner exercising its right to have its
Units redeemed to the extent that the amount realized exceeds the Limited
Partner's adjusted basis in the Units redeemed.
REGISTRATION RIGHTS
For a description of certain registration rights which in the future may be
granted to Limited Partners, see "Shares Eligible for Future Sale--Registration
Rights."
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the Company will be the
"tax matters partner" of the Operating Partnership and, as such, will have
authority to make certain tax decisions under the Code on behalf of the
Operating Partnership.
The net profits of the Operating Partnership generally will be allocated for
federal income tax purposes among the partners in the following order and
priority. First, net profits shall be allocated to the holders of the LP
Preferred Units, if any, until the amount of such net profits allocated to each
such holder for the current and all prior taxable years equals the preferred
return, if any, distributed to such holder for the current and all prior taxable
years. Second, net profits shall be allocated to the General Partner and the
Limited Partners, PARI PASSU, until the amount of such net profits allocated for
the current year and all prior taxable years to each such partner equals the
cumulative amount distributed to each such partner (other than distributions of
the preferred return) for the current and all prior taxable years. Third, net
profits shall be allocated to the holders of the LP Preferred Units, if any,
until the amount of such net profits equals the amount of any accrued but unpaid
preferred return, if any, for the current and all prior taxable years for which
net profits have not been allocated previously. Fourth, any remaining amounts of
net profits shall be allocated to the General Partner and to the holders of the
LP Common Units (and to the holders of LP Preferred Units, if any, which are
entitled to share in the Operating Partnership beyond, or in lieu of, the
receipt of any preferred return) in proportion to the number of Units owned by
each such holder.
The net loss of the Operating Partnership generally will be allocated among
the partners in accordance with their relative positive capital account
balances.
In some cases, special allocations of net profits and net loss will be
required to comply with the federal income tax on principles governing tax
allocations.
DUTIES AND CONFLICTS
Except as otherwise set forth under "Conflicts of Interest" and
"Management," any Limited Partner may engage in other business activities
outside the Operating Partnership, including business activities that directly
compete with the Operating Partnership.
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TERM
The Operating Partnership will continue in full force and effect until
December 31, 2040 or until sooner dissolved and terminated upon the dissolution,
bankruptcy, insolvency or termination of the Company, the election of the
Company, the passage of 60 days after the sale or other disposition of all or
substantially all of the assets of the Operating Partnership or by operation of
law.
LOCK OUT POLICY
See "Risk Factors--Risks of Real Estate Ownership--the Company May Acquire
Properties with Lock-Out Provisions" for an explanation of potential lock-out
provisions that may, under certain circumstances, prohibit the Company from
selling or reducing the debt level on a Property acquired and the possible
consequences thereof. The Company will not permit the General Partner to acquire
Properties containing lock-out provisions if the lock-out period exceeds three
years.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax considerations
that may be relevant to a prospective holder of Shares who purchases such Shares
in the Offering. This summary should not be construed as tax advice. The summary
does not address all aspects of federal income taxation that may be relevant to
particular holders in light of their personal investment or tax circumstances,
or to certain types of holders (including, without limitation, insurance
companies, financial institutions, broker-dealers, Stockholders who hold an
interest in the Company as part of a straddle, hedging or tax conversion
transaction or, except as specifically described herein, tax-exempt entities and
foreign persons) who are subject to special treatment under the federal income
tax laws. In addition, this summary is generally limited to investors who will
hold Shares in the Company as "capital assets" (generally property held for
investment) within the meaning of Section 1221 of the Code.
The statements in this summary are based on current provisions of the Code,
the Treasury Regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly with retroactive effect. The requirements for qualification as
a REIT are highly technical and complex, and this summary is qualified in its
entirety by the applicable REIT qualification provisions contained in the Code,
the Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof. No assurance can be given that future legislative,
judicial, or administrative actions or decisions will not affect the accuracy of
any statements in this summary.
On February 2, 1998, President Clinton presented his Fiscal Year 1999 Budget
Proposals. These budget proposals, if enacted, would materially affect several
of the qualification requirements for REITs. See "--Other Tax
Considerations--President's 1999 Budget Proposals" in this Section for a
discussion of the impact of these budget proposals.
No ruling will be sought from the Internal Revenue Service (the "Service")
with respect to any matter discussed herein, and there can be no assurance that
the Service or a court will agree with the statements made herein.
EACH PROSPECTIVE PURCHASER OF SHARES, THEREFORE, IS URGED TO CONSULT HIS TAX
ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES WHICH MAY BE
APPLICABLE TO HIS PARTICULAR TAX SITUATION.
GENERAL
The Company has been organized and intends to operate in a manner that will
permit it to qualify as a REIT under the applicable provisions of the Code and
Treasury Regulations (the "REIT Requirements")
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and receive the beneficial tax treatment described below beginning with its
taxable year ending December 31, 1998. However, no assurance can be given that
the activities and operations of the Company will allow it to meet the REIT
Requirements or continue to meet the REIT Requirements in future years.
In general, a corporation that invests primarily in real estate can qualify
as a REIT, if it complies with the detailed REIT Requirements in Code Sections
856-860. As a REIT, a corporation can generally claim tax deductions for the
dividends it pays to its stockholders. Such a corporation is, therefore,
generally not taxed on its "REIT Taxable Income" to the extent such income is
currently distributed to stockholders, thereby substantially eliminating the
"double taxation" to which an ordinary corporation is generally subject.
However, as discussed in greater detail below, the Company could be subject to
tax in certain circumstances even if it qualifies as a REIT, and would likely
suffer adverse consequences as a result, including a reduction in cash available
for distribution to its Stockholders. See "--Taxation of the Company--Failure to
Qualify" in this Section for a discussion of those consequences. The Company
represents that it will file the election to be recognized as a REIT with its
tax return for its taxable year ending December 31, 1998, which tax return will
be filed on a timely basis. The Company intends to operate in a manner that will
permit it to elect REIT status beginning with its taxable year ending December
31, 1998, and to continue to maintain this status in each taxable year
thereafter so long as REIT status remains advantageous to the Company and the
Stockholders. Management of the Company and the Advisor currently expect that
the Company will operate in a manner that permits the Company to elect REIT
status for its taxable year ending December 31, 1998, and each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a REIT depends on the Company's ability to
continue to satisfy numerous asset, income and distribution tests described
below, which in turn will be dependent in part on the Company's operating
results.
OPINION OF TAX COUNSEL
Wildman, Harrold, Allen & Dixon ("Counsel") has acted as special tax counsel
to the Company and is of the opinion, based on the assumptions and
representations described in this Section and throughout the Prospectus, and on
various representations made by the Company and the Advisor to Counsel as to
certain factual matters, that as of the date of this Prospectus: (i) the Company
has been organized in conformity with the requirements for qualification as a
REIT beginning with its taxable year ending December 31, 1998, and that its
prior, current and anticipated methods of operation have enabled and will enable
the Company to satisfy the REIT Requirements; and (ii) distributions to a
Stockholder which is a Tax-Exempt Entity will not constitute UBTI under current
law, unless: (a) such Stockholder has financed the acquisition of its Shares
with "acquisition indebtedness" (within the meaning of the Code); or (b) a
Qualified Trust owns more than 10% of the Shares and the Company is a
"Pension-Held REIT." This opinion has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and is based and
conditioned on various assumptions and representations as to certain factual
matters made by the Company and the Advisor to Counsel. The Company's
qualification and taxation as a REIT will depend upon the Company's ability to
meet the REIT Requirements through the operation of the Properties it acquires.
Counsel has not independently verified the Company's representations and will
not review compliance with these tests on a continuing basis after the initial
effective date of the Registration Statement or issue additional opinions unless
expressly requested to do so by the Company. Accordingly, no assurance can be
given that the actual operating results of the Company will allow the Company to
satisfy the REIT Requirements or continue to satisfy the REIT Requirements, or
would not result in the recognition of UBTI by Tax Exempt Entities. See
"--Taxation of the Company--Failure to Qualify" in this Section. In addition,
these opinions represent counsel's legal judgment. An opinion of counsel is not
binding on the Service or a court and there can be no assurance that the Service
or a court will not take a position different from that expressed by this
opinion. These opinions are based on the Code and Treasury Regulations, and
judicial and administrative interpretations thereof, in effect as of the date of
this Prospectus, any of which are subject to change, possibly with retroactive
effect.
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TAXATION OF THE COMPANY
OVERVIEW. In any taxable year in which the Company qualifies as a REIT and
has a valid election to be taxed as a REIT in effect, it would be entitled to
claim a deduction for the dividends it pays to the Stockholders. As a result,
the Company would generally not be subject to federal income tax on that portion
of its ordinary income and net capital gain which are distributed to its
Stockholders. The Company would be subject to federal income tax on any ordinary
income and on any net capital gain which are not distributed. Accordingly, the
Company generally should be able to eliminate or substantially reduce its
federal income tax liability for any taxable year in which it qualifies as a
REIT and has a valid election to be taxed as a REIT in effect by distributing
its ordinary income and net capital gain to its Stockholders.
Even if the Company maintains its status as a REIT, however, it could be
subject to federal income tax in certain circumstances. First, if the Company
fails to satisfy either the 95% Gross Income Test or the 75% Gross Income Test
(both of which are discussed below in this Section under "--Taxation of the
Company-- Gross Income Tests"), but nonetheless maintains its REIT qualification
because certain other requirements are met, the Company would be subject to a
100% tax on the greater of the amount by which it failed the 95% Gross Income
Test or the amount by which it failed the 75% Gross Income Test multiplied by a
fraction meant to reflect the Company's profitability. Second, the Company would
be subject to a 100% tax on its net income from any "Prohibited Transaction."
See "--Taxation of the Company-- Prohibited Transactions" in this Section.
Third, if the Company fails to annually distribute at least the sum of: (i) 85%
of its ordinary income for such year; (ii) 95% of its capital gain net income
for such year; and (iii) any undistributed taxable income from prior years, it
would be subject to an excise tax equal to 4% of the difference between the
amount required to be distributed under such formula and the amount actually
distributed. Fourth, the Company may be subject to the corporate alternative
minimum tax. Fifth, the Company would be subject to tax at the highest corporate
rate on any non-qualifying income from "Foreclosure Property." Any tax the
Company pays due to any of the aforementioned provisions would reduce the cash
available to make Distributions to the Stockholders.
In addition, if the Company acquires any asset from a C corporation
(generally, a corporation subject to full corporate-level tax) in a transaction
in which the basis of the asset in the Company's hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
transferor corporation, and the Company recognizes gain on the disposition of
such an asset during the 10-year period beginning on the date on which such
asset was acquired by the Company (the "Recognition Period"), then, pursuant to
guidelines issued by the Service, the excess of the fair market value of the
assets as of the beginning of the applicable Recognition Period over the
Company's adjusted basis in such assets (the "Net Built-in Gain") at the
beginning of such Recognition Period would be subject to tax at the highest
regular corporate tax rates (currently 35%). Under Regulations which the Service
has been instructed to issue, the Company would also be subject to tax on the
Net Built-in Gain of any acquired corporation that becomes a qualified REIT
subsidiary ("QRS") at the time the acquired corporation becomes a QRS. As
discussed in more detail below under "--Taxation of the Company--Ownership of a
Qualified REIT Subsidiary" in this Section, a QRS is generally any corporation
that is wholly-owned by a REIT.
If the Company invests in Properties in foreign countries, the Company's
profits from such investments will generally be subject to tax in the countries
where such Properties are located. The precise nature and amount of any such
taxation would depend on the laws of the countries where the Properties are
located. If the Company satisfies the Distribution Test for qualification as a
REIT (discussed below) and is therefore not subject to federal corporate income
tax on that portion of its ordinary income and capital gain that is currently
distributed to its Stockholders, the Company will generally not be able to
recover the cost of any foreign tax imposed on profits from its foreign
investments by claiming foreign tax credits against its U.S. tax liability on
such profits. See "--Taxation of the Company--Annual Distribution Requirements"
in this Section. Moreover, a REIT is not able to pass foreign tax credits
through to its stockholders. Accordingly, the Company may be subject to double
taxation on all or a portion of its income
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from investments in Properties in foreign countries. Such double taxation would
reduce the amount of cash the Company has available to make Distributions to its
Stockholders. The Company does not intend to invest in Properties in foreign
countries.
REIT QUALIFICATION TESTS. The Code defines a REIT as a corporation, trust
or association:
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;
(iii) that would be taxable as a domestic corporation but for its status as
a REIT;
(iv) that is neither a financial institution nor an insurance company;
(v) the beneficial ownership of which is held by 100 or more persons on at
least 335 days in each full taxable year, proportionately adjusted for a
partial taxable year;
(vi) at all times during the second half of each taxable year, no more than
50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer persons or entities; and
(vii) with respect to which the Gross Income Tests, Asset Tests and
Distribution Tests, described in greater detail below, are met.
Conditions (i) through (iv) and (vii) above must be met during each taxable
year for which REIT status is sought while conditions (v) and (vi) above do not
have to be met until after the first taxable year for which a REIT election is
made.
On February 2, 1998, President Clinton introduced his Fiscal Year 1999
Budget Proposals. These budget proposals include a provision that would impose
an additional REIT Requirement if enacted. The provision would specify that no
person may own stock of a REIT possessing more than 50% of the total combined
voting power of all classes of voting stock, or more than 50% of the total value
of shares of all classes of stock. Certain attribution rules would be applied to
determine a person's stock ownership. If enacted, this proposal would be
effective for entities electing REIT status for taxable years beginning on or
after the date of first committee action. See "--Other Tax
Considerations--President's 1999 Budget Proposals" below in this Section.
OWNERSHIP OF A PARTNERSHIP INTEREST. The Company may in the future hold
direct or indirect interests in one or more partnerships or joint ventures. For
example, the Company will be the General Partner of the Operating Partnership.
To satisfy the REIT Requirements, the Company will have to meet certain Asset
Tests and Gross Income Tests. These tests are described in detail below in this
Section under "--Taxation of the Company--Gross Income Tests," and "--Taxation
of the Company--Asset Tests." For purposes of satisfying these Asset Tests and
Gross Income Tests, the Company will be deemed to own directly an undivided
interest in each asset and a share of each item of gross income of a partnership
corresponding to the Company's capital interest in the partnership. The
character of the assets and income of the partnership will have the same
character as if the Company had realized them directly rather than through the
partnership. Accordingly, to the extent that any partnership owned by the
Company is treated as a partnership for federal income tax purposes, the Company
must take into account its proportionate share of the assets, liabilities, and
items of income, gain, loss, deduction and credit of the partnership for
purposes of the Asset Tests and Gross Income Tests. See "--Taxation of the
Company--Tax Aspects of the Company's Investments in Partnerships" and
"--Taxation of the Company--Partnership Classification" in this Section.
OWNERSHIP OF A QUALIFIED REIT SUBSIDIARY. A QRS is disregarded for federal
income tax purposes, but may be subject to state and local tax in some
jurisdictions. All of the assets, liabilities, and items of
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income, deduction and credit of a QRS are treated as assets, liabilities, and
items of income, deduction and credit of the REIT. Accordingly, the assets,
liabilities, and items of income, deduction and credit of any QRS must be taken
into account in determining whether the Company satisfies the REIT Requirements.
If the Company were to acquire a QRS by acquiring all of the stock of an
existing corporation, the corporation would be treated as if it had liquidated
at the time of acquisition and then reincorporated. Under Regulations which the
Service has been instructed to issue, the corporation's Net Built-in Gain would
be subject to tax at the time the acquired corporation becomes a QRS. See
"--Taxation of the Company--Overview" in this Section. In addition, all earnings
and profits of the corporation that were accumulated before it was acquired by
the Company would have to be distributed before the end of the Company's taxable
year in which it acquired the corporation.
In the event that a corporation that is a QRS ceases to meet the
requirements for qualification as a QRS, the corporation is deemed to have
liquidated and is treated as a new corporation that acquired all of its assets
from the REIT in exchange for its stock.
The Company does not intend to acquire or form a QRS, but may do so if it
determines that a QRS would be in the Company's best interests.
The Company, in satisfying the REIT qualification tests set forth above,
must meet, among others, the following requirements:
SHARE OWNERSHIP TESTS. The Shares and any other Equity Stock the Company
issues must be held by at least 100 persons (determined without attribution to
the owners of any entity owning Equity Stock) for at least 335 days in each full
taxable year, proportionately adjusted for partial taxable years. In addition,
at all times during the second half of each taxable year, no more than 50% in
value of the Equity Stock may be owned, directly or indirectly, by five or fewer
individuals (determined with attribution to the owners of any entity owning
Equity Stock) (the "Five or Fewer Requirement"). However, these two requirements
do not apply until after the first taxable year an entity seeks REIT status. In
addition, the Five or Fewer Requirement will be treated as having been met if:
(i) the Company maintains records which disclose the actual ownership of the
outstanding Equity Stock, and demands written statements each year from the
record holders of 5% or more of the Equity Stock disclosing the beneficial
owners thereof; and (ii) the Company does not know, or exercising reasonable
diligence would not have known, that it did not satisfy this requirement.
The Company represents that it: (i) will issue sufficient Equity Stock
pursuant to the Offering to allow the Company to satisfy these requirements;
(ii) will not admit investors as Stockholders until the admission will allow
there to be sufficient Stockholders to meet these requirements; and (iii) will
thereafter admit only those Stockholders that allow the Company to continue to
meet these requirements. In addition, the Company's Articles contain provisions
restricting the transfer of Equity Stock, which provisions are intended to
assist the Company in satisfying these requirements. The Company will also
utilize computerized systems designed to prevent violations of these
requirements. Furthermore, the Company's Distribution Reinvestment Program
contains provisions that prevent its operations from causing a violation of
these tests as do the terms of the options granted to the Independent Directors
and the terms of the Soliciting Dealer Warrants. See "Distribution Reinvestment
and Share Repurchase Programs." Moreover, the Company will maintain records
which disclose the actual ownership of the outstanding Equity Stock, and the
Company will demand written statements each year from each record holder of 5%
or more of the Equity Stock disclosing the beneficial owners thereof. Those
Stockholders failing or refusing to comply with the Company's written demand are
required by the Code and the Articles to submit, with their tax returns, a
similar statement disclosing the actual ownership of Equity Stock and certain
other information. See "Description of Securities--Restrictions on Ownership and
Transfer." These restrictions are intended to allow the Company to satisfy the
Five or Fewer Requirement. However, there can be no assurance that these
provisions will allow the Company to satisfy the Share ownership tests described
above in any year. If the Company fails to satisfy the Share ownership tests
described above, the Company's status as a REIT
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would terminate, and the Company would not be able to prevent such termination.
See "--Taxation of the Company--Failure to Qualify" in this Section.
On February 2, 1998, President Clinton introduced his Fiscal Year 1999
Budget Proposals. These budget proposals include a provision that impose an
additional requirement for REIT qualification. The provision would specify that
no person may own stock of a REIT possessing more than 50% of the total combined
voting power of all classes of voting stock, or more than 50% of the total value
of shares of all classes of stock. Certain attribution rules would be applied to
determine a person's stock ownership. If enacted, this proposal would be
effective for entities electing REIT status for taxable years beginning on or
after the date of first committee action. See "--Other Tax
Considerations--President's 1999 Budget Proposals" in this Section. The
restrictions on Share ownership described in the preceding paragraph should
permit the Company to satisfy this requirement if it should be enacted, but
there can be no assurance that these restrictions will allow the Company to
satisfy this requirement in any taxable year.
ASSET TESTS. The Company must satisfy, on the last day of each calendar
quarter, two tests based on the composition of its assets (the "Asset Tests").
After initially meeting the Asset Tests at the close of any quarter, the Company
will not lose its status as a REIT for failure to satisfy the Asset Tests at the
end of a later quarter if it did not acquire any additional assets and the
failure is due solely to changes in the value of its existing assets. In
addition, if the failure to satisfy the Asset Tests results from an acquisition
during a quarter, the failure can be cured by disposing of non-qualifying assets
within 30 days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to insure compliance with the Asset
Tests, and will take such other actions as may be required to cure any
non-compliance. However, there can be no assurance that these measures will be
sufficient to guarantee satisfaction of the Asset Tests. Failure to satisfy the
Asset Tests would cause the Company's status as a REIT to terminate. See
"--Taxation of the Company--Failure to Qualify" in this Section.
- 75% ASSET TEST. At least 75% of the value of the Company's total assets
must be represented by "Real Estate Assets," cash, cash items (including
receivables from the operations of the Company) and government securities (the
"75% Asset Test"). "Real Estate Assets" include Interests in Real Property
(including undivided interests in real property, leaseholds of land and
improvements thereon, and options to acquire land and leaseholds of land and
improvements thereon), interests in mortgages on real property (including
interests in mortgages on leaseholds or improvements thereon), shares in other
qualifying REITs and property attributable to certain temporary investments of
new capital for a one-year period beginning on the date the REIT received the
new capital. Property will qualify as attributable to the temporary investment
of new capital if the property is stock or a debt instrument and the money used
to purchase such stock or debt instrument is received by the REIT in exchange
for stock in the REIT (other than amounts received pursuant to a dividend
reinvestment plan) or in a public offering of debt obligations which have a
maturity of at least five years. In addition, regular and residual interests in
a real estate mortgage investment conduit ("REMIC") and regular interests in
financial asset securitization investment trusts ("FASIT") are considered "Real
Estate Assets." However, if less than 95% of a REMIC's assets are Real Estate
Assets, a REIT is treated as if it held its proportionate share of the assets
and income of the REMIC directly.
The Company represents that the purchase contracts for the Properties it
will own will apportion in the aggregate no more than 5% of the purchase price
of all Properties to property other than "real property," as defined in the
Code, to reflect the fair market value of such non-real estate assets. In
addition, the Company represents that in the event it rents any personal
property to any tenant at any Property, no more than 15% of the total rent
received under such lease will be attributable to such personal property. The
Company will maintain depreciation schedules which corroborate these
representations. In addition, the Company has and will invest funds not used to
acquire Properties in cash sources, GNMA certificates, REMIC interests, "new
capital" investments (as defined below in this Section under "--Taxation of the
Company--Gross Income Tests--75% Gross Income Test (the "75% Test")") or other
liquid investments which will allow it to qualify under the 75% Asset Test.
Therefore, the Company's
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investment in the Properties will constitute "Real Estate Assets" and should
allow the Company to meet the 75% Asset Test.
- 25% ASSET TEST. The remaining 25% of the Company's assets generally may
be invested without restriction, although if invested in securities other than
Real Estate Assets, such securities may not exceed either: (i) 5% of the value
of the Company's total assets as to any one non-government issuer; or (ii) 10%
of the outstanding voting securities of any one non-governmental issuer. A
partnership interest held by a REIT and an interest in a QRS are not considered
"securities" for purposes of these tests. The Company represents that as of the
date hereof, it does not own any stock or securities of any other company, and
will not acquire securities which would cause the Company to violate these
limitation tests.
On February 2, 1998, President Clinton introduced his Fiscal Year 1999
Budget Proposals. These budget proposals include a provision that would amend
the 25% Asset Test to prohibit a REIT from holding stock possessing more than
10% of the vote or value of all classes of stock of a corporation. If enacted,
this proposal would be effective with respect to stock acquired on or after the
date of the first committee action. See "--Other Tax Considerations--President's
1999 Budget Proposals" in this Section.
GROSS INCOME TESTS. The Company must satisfy for each calendar year two
separate tests based on the composition of its gross income, as determined under
its method of accounting (the "Gross Income Tests"). There can be no assurance
that the actual operating results of the Company will allow it to satisfy these
tests. For purposes of determining whether the Company complies with the 75%
Gross Income Test and 95% Gross Income Test, gross income does not include
income from Prohibited Transactions. Failure to satisfy the Gross Income Tests
would generally result in the loss of REIT status. See "--Taxation of the
Company--Failure to Qualify" in this Section.
- 75% GROSS INCOME TEST (THE "75% TEST"). At least 75% of the Company's
gross income for the taxable year must constitute "Rents from Real Property" (as
discussed below and as defined in the Glossary), interest on obligations secured
by real property mortgages, gains from the sale of Interests in Real Property
and real property mortgages (other than gain from property held primarily for
sale to customers in the ordinary course of the Company's trade or business),
dividends from other qualifying REITs, refunds and abatements of real property
taxes, income and gain from the sale of Foreclosure Property (as discussed below
and as defined in the Glossary), certain other investments relating to real
property or mortgages thereon, and, for a limited time, income from the
investment of new capital.
Income attributable to a lease of real property will generally qualify as
"Rents from Real Property" under the 75% Gross Income Test (and the 95% Gross
Income Test described below) subject to the following rules:
(i) Rent from a particular tenant will not qualify if the Company, or an
owner of 10% or more of the stock of the Company, directly or indirectly
owns 10% or more of the stock, assets or net profits of the tenant.
(ii) The portion of rent attributable to personal property rented with real
property will not qualify unless the portion attributable to personal
property is 15% or less of the total rent received under the lease.
(iii) Rent will not qualify if it is based in whole, or in part, on the
income or profits of any person. However, rent will not fail to qualify
if it is based on a fixed percentage (or designated varying percentages)
of receipts or sales, including amounts above a base amount so long as
the base amount is fixed at the time the lease is entered into, the
provisions are in accordance with normal business practice and the
arrangement is not an indirect method for basing rent on income or
profits.
(iv) Rental income will not qualify if the Company furnishes or renders more
than DE MINIMIS services to tenants, other than through an "independent
contractor" from whom the Company derives no
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revenue. The "independent contractor" requirement, however, does not
apply to the extent that the services provided by the Company are
"usually or customarily rendered" in connection with the rental of space,
and are not otherwise considered "rendered to the occupant."
The Company has represented that:
(i) The leases of tenants in the Initial Properties provided to Counsel
represent the only arrangements between the Company and tenants with
regard to the rental of the Initial Properties or any portion thereof;
(ii) It has not and will not directly or indirectly own 10% or more of any
tenant that leases space in the Properties, and no person who owns more
than 10% of the Equity Stock of the Company will own, directly or
indirectly, 10% or more of any tenant that leases space in the
Properties;
(iii) The portion of any payments received under each lease which are
attributable to personal property constitutes less than 15% of the total
rent received under such lease, and the depreciation schedules maintained
for each Property corroborate this representation;
(iv) It has not and will not charge rent that is based on the income or
profits of any person in certain Properties and that the percentage rent
clauses, if any, in its current and future leases are not intended to
provide the Company with a prohibited share of income or profits;
(v) In the case of any lease providing for rents based on a fixed percentage
of receipts, such percentage will be fixed at the time the lease is
entered into, the provisions will be consistent with normal business
practices, and the arrangement will not be intended to provide the
Company with a prohibited share of income or profits; and
(vi) Services received by tenants in connection with their leases of the
Properties are usually or customarily rendered in connection with the
rental of space, and therefore the provision of these services will not
cause the rents received with respect to the Properties to fail to
qualify as Rents from Real Property for purposes of the 75% Gross Income
Test and the 95% Gross Income Test. The Company intends to hire
"independent contractors" to render services which it believes are not
"usually or customarily rendered" in connection with the rental of space,
including physical development or redevelopment activities. The Company
will not derive any revenue from such independent contractors. See
"Investment Objectives and Policies--Construction and Development
Activities."
Income will qualify as attributable to the temporary investment of "new
capital" if the income is attributable to the ownership of a stock or debt
instrument, but only during the one year period beginning on the date the REIT
receives such new capital. "New capital" is defined as amounts received in
exchange for the issuance of stock (other than amounts received pursuant to a
dividend reinvestment plan) or a public offering of debt obligations which have
a maturity of at least five years. The Company represents that it will invest
funds not otherwise invested in Properties in cash sources, GNMA certificates,
REMIC interests, "new capital" investments or other liquid investments which
will allow the Company to satisfy the 75% Gross Income Test.
- 95% GROSS INCOME TEST (THE "95% GROSS INCOME TEST"). At least 95% of the
Company's gross income for the taxable year must be derived from income that
satisfies the 75% Gross Income Test, or from dividends, interest or gains from
the sale of securities other than securities held as Dealer Property. Dividends
and interest on obligations not collateralized by an interest in real property
qualify under the 95% Gross Income Test, but not under the 75% Gross Income
Test. The Company will invest funds not otherwise invested in Properties in cash
sources, GNMA certificates, REMIC interests, "new capital" investments or other
liquid investments which will allow the Company to qualify under the 95% Gross
Income Test.
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Based upon the foregoing representations, the Company's share of income from
the Properties will primarily give rise to rental income qualifying under the
75% Gross Income Test and the 95% Gross Income Test, and gains on sales of the
Properties, substantially all of which should qualify under the 75% Gross Income
Test and the 95% Gross Income Test. The Company's anticipated operations
indicate that it is unlikely that the Company will have sufficient, if any,
non-qualifying income to cause adverse consequences. However, no assurance can
be given that the actual operations of the Company would allow it to satisfy the
Gross Income Tests.
If the Company fails to satisfy either the 75% Gross Income Test or the 95%
Gross Income Test for any taxable year, it may retain its status as a REIT for
such year if the failure was due to reasonable cause and not due to willful
neglect, the Company attached to its return a schedule of the sources of its
income, and any incorrect information on the schedules was not due to fraud. If
this relief provision was available, the Company would remain subject to a 100%
tax with respect to the greater of the excess net income that caused it not to
comply with the 75% Gross Income Test or the 95% Gross Income Test.
Should the potential amount of non-qualifying income in the future create a
risk as to the qualification of the Company as a REIT, the Company intends to
take action to avoid not qualifying as a REIT. However, there can be no
assurance that such action would be successful in maintaining the Company's
status as a REIT. In addition, such action could reduce the amount of cash
available for Distributions to the Stockholders. See "--Taxation of the
Company--Failure to Qualify" in this Section.
ANNUAL DISTRIBUTION REQUIREMENTS (THE "DISTRIBUTION TEST"). To qualify as a
REIT, the Company is required to distribute dividends (other than capital gain
dividends) to the Stockholders each year in an amount at least equal to the
difference between: (i) the sum of: (a) 95% of the Company's REIT Taxable Income
(computed without regard to the dividends paid deduction and the Company's net
capital gain); and (b) 95% of the net income (after tax), if any, from
Foreclosure Property; and (ii) the sum of certain items of non-cash income.
Subject to two exceptions, whether sufficient amounts have been distributed is
based on amounts paid in the taxable year to which they relate. Under the first
exception, dividends declared by the Company in October, November or December
will be treated as having been paid on December 31 of such year so long as the
dividends are actually paid during January of the following year. Under the
second exception, a dividend is treated as paid in the prior taxable year if the
Company declares the dividend and files an election before it timely files its
tax return for such prior taxable year and the dividend is paid within the
12-month period following the close of the prior taxable year and not later than
the date of the first regular dividend payment made after such declaration. A
distribution which is not pro rata within a class of Equity Stock or which is
not consistent with the rights to distributions between classes of Equity Stock
is not taken into consideration for purposes of satisfying the Distribution
Test. If the Company fails to meet the Distribution Test as a result of an
adjustment to the Company's tax return by the Service, the Company may cure the
failure by paying a "deficiency dividend" (plus penalties and interest to the
Service) within a specified period. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT Taxable Income, as adjusted, it will be subject to tax on
the undistributed portion. Further, to the extent that the Company fails to
distribute at least the sum of 85% of its REIT Taxable Income for such year, 95%
of its capital gain net income, and any undistributed taxable income from prior
taxable years, the Company would be subject to a 4% excise tax.
A REIT is subject to tax on its net capital gain, but can reduce its capital
gain tax liability by paying capital gain dividends to its stockholders. The
amount of capital gain dividends that a REIT may pay for the year is limited to
its net capital gain, calculated without taking into account any current net
operating loss or net operating loss carryover. To the extent that a REIT elects
to pay capital gain dividends in excess of its net income for the taxable year,
it must increase its net operating loss carryover by such amount. In the
alternative, a REIT may declare a capital gain dividend but elect to retain and
pay tax on its net long-term capital gains. If the Company were to make such an
election, the Stockholders would be required to report the amount of the capital
gain dividend on their income tax returns, but would be entitled to claim a
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credit or refund for a proportionate amount of the tax paid by the Company and
to increase their basis in the Shares by the excess of the amount of the capital
gain they must report over the tax on that capital gain the Stockholder would be
deemed to have paid.
The Company intends to pay sufficient dividends each year to satisfy the
Distribution Test. See "Investment Objectives and Policies--Distributions." It
is possible that the Company may not have sufficient cash or other liquid assets
to meet the Distribution Test due to tax accounting rules and other timing
differences. The Company will closely monitor the relationship between its REIT
Taxable Income and cash flow and, if necessary to comply with the Distribution
Test, will borrow funds to provide cash flow needed to satisfy the Distribution
Test. However, there can be no assurance that the Company's actual operations
will generate sufficient liquid assets, or would allow it to borrow, sufficient
cash to satisfy this requirement in any taxable year.
FAILURE TO QUALIFY. If the Company fails to qualify as a REIT in any
taxable year and the relief provisions are not available or cannot be met, the
Company will not be able to deduct its dividends and will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, thereby reducing cash available for Distributions.
Unless entitled to relief under specific statutory provisions, the Company will
not be eligible to elect REIT status for the four taxable years following the
year during which qualification was lost.
PROHIBITED TRANSACTIONS. The Company will be subject to a 100% tax on any
net income from "Prohibited Transactions." Net income from a Prohibited
Transaction arises from the sale or exchange by a REIT of Dealer Property unless
such property is Foreclosure Property. In addition, there is an exception for
certain sales of Dealer Property so long as the property sold: (i) is a Real
Estate Asset under the 75% Asset Test; (ii) has been held for at least four
years, (iii) has capitalized expenditures not in excess of 30% of the net sales
price, (iv) was held for production of rental income for at least four years;
and (v) when combined with other sales in the year, does not cause the REIT to
have made more than seven sales of Dealer Property during the taxable year.
Although the Company may eventually sell each of the Properties it acquires, its
primary intention in acquiring and operating the Properties is the production of
rental income and it does not expect to hold any Property as Dealer Property.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS. The Company may
hold direct or indirect interests in the one or more partnerships (the
"Partnerships"), including the Operating Partnership. The Company anticipates
that it will operate as an Umbrella Partnership Real Estate Investment Trust (an
"UPREIT") holding an interest in the Operating Partnership directly and
interests in one or more Property Partnerships through the Operating
Partnership. The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investments in the
Partnerships. The discussion does not address state or local tax laws or any
federal tax laws other than income tax laws.
PARTNERSHIP CLASSIFICATION. The Company is entitled to include in its
income its distributive share of the income, and to deduct its distributive
share of the losses, of each of the Partnerships only to the extent that each
such Partnership is classified for federal income tax purposes as a partnership
rather than as an association (or publicly-traded partnership) taxable as a
corporation.
Prior to January 1, 1997, an organization formed as a partnership was
treated as a partnership for federal income tax purposes rather than a
corporation only if it had no more than two of the four corporate
characteristics that the Treasury Regulations in effect at that time used to
distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
Treasury Regulations which became effective January 1, 1997, the four factor
test has been eliminated, and an entity with two or more members formed as a
partnership or limited liability company under relevant state law will be taxed
as a partnership for federal income tax purposes unless it specifically elects
otherwise. The final Treasury Regulations also provide that the Service will not
challenge the classification
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of an existing partnership for tax periods prior to January 1, 1997 so long as
(1) the entity had a reasonable basis for its claimed classification, (2) the
entity and all its members recognized the federal income tax consequences of any
changes in the entity's classification within the 60 months prior to January 1,
1997, and (3) neither the entity nor any member of the entity had been notified
in writing on or before May 8, 1996, that the classification of the entity was
under examination by the Service.
The Company believes that the Operating Partnership will be treated as a
partnership for federal income tax purposes because it was formed as a
partnership under state law after January 1, 1997, and will have two or more
partners. Further, for each Property Partnership that was formed prior to
January 1, 1997, if any, and acquired by the Company hereafter, the Company
expects to determine prior to such acquisition that such Property Partnership
was treated as a partnership for federal income tax purposes for the periods
before January 1, 1997, and such Partnership had a reasonable basis for its
claimed classification.
Additionally, the Company believes that none of the Partnerships will be
treated as publicly traded partnerships within the meaning of Section 7704 of
the Code, which are taxed as corporations for federal income tax purposes. The
Company represents that none of the interests in the Partnerships are or will be
registered under the Securities Act or traded on an established securities
market and none of the Partnerships have more than 100 partners for purposes of
Section 7704 of the Code (or will otherwise fall within one of the other "safe
harbors" for the Partnership to avoid being treated as having interests which
are "readily tradable on a secondary market (or the substantial equivalent
thereof)." The Company further believes that none of the Partnerships will be
treated as a publicly traded partnership on the basis that 90% or more of the
annual gross income of such Partnerships will be from certain passive sources,
such as Rents from Real Property, interest, and the sale or disposition of real
property and capital assets, and that none of the Partnerships would be
described as an investment company if it were a domestic corporation. However,
the ability to satisfy the requirements of these safe harbors and avoid
treatment as a publicly traded partnership will depend on the results of the
actual operations of the Partnerships.
If for any reason any of the Partnerships were taxable as a corporation
rather than as a partnership for federal income tax purposes, the character of
the Company's assets and items of gross income would change, and, as a result,
the Company would most likely be unable to satisfy the Gross Income Tests and
Asset Tests, which would thus prevent the Company from qualifying as a REIT. See
"--Taxation of the Company--Failure to Qualify" in this Section. In addition,
any change in the status for tax purposes of any of the Partnerships might be
treated as a taxable event, in which case the Company could incur a tax
liability without any related cash distribution. Further, if any of the
Partnerships were treated as an association taxable as a corporation, items of
income, gain, loss, deduction and credit of such Partnership would be subject to
corporate tax. The partners of any such Partnership would be treated for federal
income tax purposes as stockholders, with distributions to such partners being
treated as dividends. Finally, to the extent that the Company owned more than
10% of the interests of such Partnership, the Company would no longer satisfy
the 25% Asset Test and therefore would no longer qualify as a REIT. See
"--Taxation of the Company--Gross Income Tests" and "--Asset Tests" in this
Section.
INCOME TAXATION OF THE PARTNERSHIPS AND THEIR PARTNERS
PARTNERS, NOT PARTNERSHIP, SUBJECT TO TAX. A partnership (that is not a
publicly traded partnership) is not subject to tax as an entity for federal
income tax purposes. Rather, partners are allocated their proportionate share of
the items of income, gain, loss, deduction and credit of the partnership, and
are potentially subject to tax thereon, without regard to whether the partners
receive any distributions from the partnership. The Company will be required to
take into account its allocable share of the foregoing items of the Partnerships
for purposes of the various REIT Gross Income Tests and Asset Tests, and in the
computation of its REIT Taxable Income. See "--Taxation of the
Company--Ownership of a Partnership Interest" in this Section.
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PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of a partnership's income and losses among the
partners, such allocations may be disregarded for tax purposes under Section
704(b) of the Code and the Treasury Regulations promulgated thereunder. If any
allocation is not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the partners' interests
in the partnership, which will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners
with respect to such item. The Company believes that the allocations of taxable
income and loss contained in the Operating Partnership Agreement complies with
the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. For a discussion of the allocations provided for in the
Operating Partnership Agreement, see "Operating Partnership Agreement--Tax
Matters."
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated Property that is contributed to the Partnerships in exchange for an
interest in the Partnerships must be allocated for federal income tax purposes
in a manner such that the contributing partner is charged with, or benefits
from, respectively, the unrealized gain or unrealized loss associated with the
Property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of the Property at the time of contribution. These allocations are
solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners.
The Partnerships will be formed by way of contributions, including
contributions of appreciated Property by certain limited partners. Consequently,
the Operating Partnership Agreement requires allocations of income, gain, loss
and deduction attributable to such contributed Property to be made in a manner
that is consistent with Section 704(c) of the Code.
In general, these allocations tend to eliminate the book-tax differences
over the life of the Partnerships by allocating to the Limited Partners of the
Operating Partnership, solely for tax purposes, lower amounts of depreciation
deductions and increased taxable income and gain on the sale by the Partnerships
of the Properties than would ordinarily be the case for economic or book
purposes. The Partnerships and the Company will elect to use the "traditional
method" under Treasury Regulation Section 1.704-3(c) as the method of accounting
for the book-tax differences with respect to Properties contributed to the
Partnerships. However, this allocation method may not always entirely rectify
book-tax differences on an annual basis or with respect to a specific taxable
transaction such as a sale. Moreover, the application of the principles of
Section 704(c) of the Code in tiered partnership arrangements is not entirely
clear. Accordingly, the Service may assert that a different allocation should be
used to eliminate any such book-tax difference.
With respect to any Property purchased by any of the Partnerships subsequent
to the formation of the Company, such Property will initially have a tax basis
equal to its fair market value and Section 704(c) of the Code will not apply.
DEPRECIATION DEDUCTIONS AVAILABLE TO THE OPERATING PARTNERSHIP. Certain
assets owned by the Partnerships may consist of Property contributed by their
partners. In general, when Property is contributed in a tax-free transaction
under Section 721 of the Code, the transferee partnership is treated in the same
manner as the contributing partner for purposes of computing depreciation. The
effect of this rule is to continue the historical basis, placed in service dates
and depreciation methods with respect to Property contributed to a partnership.
In general, this will result in the Operating Partnership and the Property
Partnerships claiming less depreciation than if the contributed Properties were
purchased in a taxable transaction. Generally, the burden of the lower
depreciation deductions will fall first on the contributing partner, but may
also reduce the depreciation allocated to other partners.
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BASIS IN PARTNERSHIP INTEREST. The Company's adjusted tax basis in its
partnership interest in the Partnerships is generally (i) equal to the amount of
cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) increased by (A) the Company's allocable share
of the Partnerships' income and (B) the Company's allocable share of
indebtedness of the Partnerships, and (iii) reduced, but not below zero, by (A)
the Company's allocable share of the Partnerships' losses and (B) the amount of
cash and the basis of any other property distributed by the Operating
Partnership to the Company, including any constructive cash distributions
resulting from a reduction in the Company's allocable share of indebtedness of
the Partnership.
If the allocation to the Company of its distributive share of any loss of
the Partnerships would reduce the adjusted tax basis in its partnership interest
in the Partnerships below zero, the recognition of such excess loss will be
deferred until such time and to the extent that the Company has sufficient tax
basis in its partnership interest so that the recognition of such loss would not
reduce the amount of such tax basis below zero. To the extent that the
Partnerships' distributions, or any decrease in the Company's share of the
indebtedness of the Partnerships (each such decrease being considered a
constructive cash distribution to the Company), would reduce the Company's
adjusted tax basis in its partnership interest below zero, such excess
distributions (including such constructive distributions) would constitute
taxable income to the Company. Such distributions and constructive distributions
will normally be characterized as a capital gain, and if the Company has held
its partnership interest in the Partnerships for longer than one year, the
distributions and constructive distributions will be taxed at favorable capital
gains rates. Currently, the maximum capital gains rate is 28%. However, the
maximum rate applicable generally to individuals who have held property longer
than 12 months currently is 20%. Beginning in the year 2002, the maximum capital
gains rate applicable to property held by an individual for at least 12 months
will be 18%.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Company qualifies
as a REIT, Distributions paid to the Company's taxable domestic Stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be ordinary dividend income to the Stockholder.
Distributions in excess of current and accumulated earnings and profits are
treated first as a tax-deferred return of capital to the Stockholder, reducing
the Stockholder's tax basis in its Equity Stock by the amount of such
Distribution. The adjustment to tax basis will result in increased gain or a
reduced loss on sales of the Stockholder's Equity Stock. Because earnings and
profits are reduced for depreciation and other non-cash items, it is possible
that a portion of each Distribution will constitute a tax-deferred return of
capital. Distributions in excess of the Stockholder's tax basis are taxable as
capital gains.
Dividend income is characterized as "portfolio" income under the passive
loss rules and cannot be offset by a Stockholder's current or suspended passive
losses. Corporate Stockholders cannot claim the dividends received deduction for
such dividends as long as the Company qualifies as a REIT. Distributions that
are designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the Company's actual net capital gain
for the taxable year). However, corporate Stockholders may be required to treat
up to 20% of certain capital gain dividends as ordinary income. Although
Stockholders generally recognize taxable income in the year that a Distribution
is received, any Distribution declared by the Company in October, November or
December of any year and payable to a Stockholder of record on a specific date
in any such month shall be treated as both paid by the Company and received by
the Stockholder on December 31 of the year it was declared if paid by the
Company during January of the following calendar year. Because the Company is
not a pass-through entity for tax purposes, Stockholders may not use any
operating or capital losses, or foreign tax credits, of the Company to reduce
their tax liabilities.
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to U.S. Stockholders as
long-term capital gain for the taxable year (to the extent they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period
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for which the U.S. Stockholders has held other Equity Stock. U.S. Stockholders
that are corporations may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income.
The Company may elect to designate amounts retained as long-term capital
gain income. As discussed above, the Company would be taxed at regular corporate
capital gains tax rates on such amounts. See "--Taxation of the Company--Annual
Distribution Requirements (the "Distribution Test")" in this Section. In that
case, each Stockholder would increase the adjusted basis in the Shares owned by
the Stockholder by the amount of the allocable long-term capital gains retained
by the Company and would also receive a credit for a proportionate share of the
tax paid by the Company. Each Stockholder would increase the adjusted basis in
the Equity Stock owned by the Stockholder by the amount of the allocable
long-term capital gain.
In general, the sale of Equity Stock held for more than 12 months will
produce long-term capital gain or loss, while all other sales will produce
short-term gain or loss, in each case with the gain or loss equal to the
difference between the amount of cash received from the sale and the
Stockholder's adjusted tax basis in the Equity Stock sold. Sales of Equity Stock
held for more than 12 months by individual Stockholders may qualify for the 20%
reduced capital gains rate. Sales of Equity Stock held for more than 12 months
may qualify for an 18% reduced capital gains rate if recognized in tax years
beginning after December 31, 2002. However, any loss from a sale or exchange of
Equity Stock by a Stockholder who has held such Equity Stock for six months or
less (after applying certain holding period rules) will be treated as a long-
term capital loss, to the extent of any Distributions from the Company that the
Stockholder treated as long-term capital gain. In addition, Distributions to
Stockholders in excess of earnings and profits that reduce a Stockholder's basis
will increase the gain or reduce the loss recognized upon the sale of the Equity
Stock.
BACKUP WITHHOLDING. The Company will report to its domestic Stockholders
and to the Service the amount of dividends paid during each calendar year, and
the amount (if any) of tax it withheld. A Stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such
Stockholder: (a) is a corporation or comes within other exempt categories; or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption, and otherwise complies with applicable requirements. A Stockholder
that does not provide the Company with its correct taxpayer identification
number may also be subject to penalties imposed by the Service. Any amount paid
as backup withholding can be credited against the Stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any Stockholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Stockholders--Taxation of
Foreign Stockholders" in this Section.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Distributions by the Company to a
Stockholder that is a Tax-Exempt Entity should not constitute unrelated business
taxable income ("UBTI") unless the Tax-Exempt Entity borrows funds to acquire
its Shares (or otherwise incurs acquisition indebtedness within the meaning of
the Code with respect to its acquisition of the Equity Stock), or the Shares are
otherwise used in an unrelated trade or business of the tax-exempt entity.
Notwithstanding the foregoing, if the Company constitutes a "Pension-Held
REIT," qualified plans exempt from tax under Section 401(a) of the Code
("Qualified Plans") that hold 10% or more of the Equity Stock (by value) could
recognize UBTI. The Company will constitute a Pension-Held REIT if either: (i)
at least one Qualified Plan holds more than 25% (by value) of the Equity Stock;
or (ii) one or more Qualified Plans (each of which owns more than 10% by value
of the Equity Stock) hold an aggregate of more than 50% (by value) of the Equity
Stock. If the Company were a Pension-Held REIT, then a portion of the dividends
received by any Qualified Plan that holds 10% or more of the Shares will
constitute UBTI based on the ratio that the Company's gross income (less
allowable deductions) which would be considered UBTI if the REIT were a
Qualified Plan bears to the Company's total gross income (less certain allowable
deductions). The Ownership Limit contained in the Articles provides that no
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Stockholder, whether a Qualified Plan or otherwise, is permitted to own more
than 9.8% (by number or by value) of the Shares without requesting and obtaining
prior Board approval. The Ownership Limit should prevent the Company from
unintentionally becoming a Pension-Held REIT; however, there can be no assurance
that the Company will not be a Pension-Held REIT. The Company represents that
the Board of Directors will not consent to allow anyone to acquire more than
9.8% of the Shares if doing so would cause the Company to be a Pension-Held
REIT.
In connection with the offering of the Shares pursuant to this Prospectus,
Counsel has given its Opinion, based on the assumptions and representations made
in this Section and throughout this Prospectus, and on various representations
made by the Company and the Advisor to Counsel as to certain factual matters,
that, as of the date of this Prospectus, Distributions to a Stockholder which is
a Tax-Exempt Entity will not constitute UBTI under current law, unless: (a) such
Stockholder has financed the acquisition of its Shares with "acquisition
indebtedness" (within the meaning of the Code); or (b) a Qualified Trust owns
more than 10% of the Equity Stock and the Company is a Pension-Held REIT. The
Opinion is subject to certain limitations and qualifications. See "Risk
Factors--Tax Risks--Risks Regarding REIT Qualification and Consequences of
Failure to So Qualify" and "--Limitations on Opinion of Counsel"; and "--Opinion
of Tax Counsel" in this Section.
TAXATION OF FOREIGN STOCKHOLDERS. The following discussion is intended only
as a summary of the rules governing income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Foreign Stockholders").
PROSPECTIVE FOREIGN STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF UNITED STATES, STATE AND LOCAL INCOME TAX LAWS ON AN
INVESTMENT IN THE COMPANY, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE
TAX CONSEQUENCES IN OTHER COUNTRIES IN WHICH THEY ARE SUBJECT TO TAX.
In general, Foreign Stockholders will be subject to regular U.S. income tax
with respect to their investment in the Company if the investment is
"effectively connected" with the conduct of a trade or business in the United
States. A corporate Foreign Stockholder that receives income that is treated as
effectively connected with a U.S. trade or business may also be subject to the
"branch profits tax" under Section 884 of the Code. The following discussion
applies to Foreign Stockholders whose investment in the Company is not
considered "effectively connected."
Generally, any dividend that constitutes ordinary income for tax purposes
will be subject to a U.S. tax equal to the lesser of 30% of the dividend or the
rate in an applicable tax treaty. A distribution in excess of the Company's
earnings and profits is treated first as a return of capital that will reduce a
Foreign Stockholder's basis in its Shares (but not below zero) and then as gain
from the disposition of such Shares, subject to the rules discussed below for
dispositions.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest (a "USRPI") are taxed to a
Foreign Stockholder as if the Distributions were gains "effectively connected"
with a United States trade or business. Accordingly, a Foreign Stockholder will
be taxed at the capital gain rates applicable to a U.S. Stockholder (subject to
any applicable alternative minimum tax and a special alternative minimum tax in
the case of non-resident alien individuals). In addition, such Distributions may
also be subject to branch profits tax when made to a corporate Foreign
Stockholder that is not entitled to treaty exemptions.
Although tax treaties may reduce the Company's withholding obligations, the
Company will generally be required to withhold from dividends to Foreign
Stockholders, and remit to the Service, 35% of designated capital gain dividends
and 30% of ordinary dividends paid out of earnings and profits. Solely for this
purpose, the Company will be deemed to have designated the largest portion of a
distribution that could be designated as a capital gain dividend under the Code,
regardless of the amount actually designated by the Company. Thus, the 35%
withholding rate may apply to a portion of ordinary dividends
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in some cases. In addition, if the Company designates prior dividends as capital
gain dividends, subsequent dividends, up to the amount of such prior dividends,
will be treated as capital gain dividends for purposes of withholding. If the
amount of tax withheld by the Company with respect to a distribution to a
Foreign Stockholder exceeds its U.S. tax liability with respect to such
distribution, the Foreign Stockholder may file for a refund of such excess from
the Service. The 35% withholding tax rate on capital gain dividends currently
corresponds to the maximum income tax rate applicable to corporations, but is
higher than the 28% maximum rate on capital gains of individuals.
Unless the Shares constitute a USRPI under Section 897 of the Code, a sale
of Shares by a Foreign Stockholder generally will not be subject to U.S. income
taxation. The Shares will not constitute a USRPI if the Company is a
"Domestically Controlled REIT." A Domestically Controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Foreign Stockholders. It is
currently anticipated that the Company will be a Domestically Controlled REIT,
and therefore that the sale of Shares will not be subject to such taxation.
However, because the Shares may be (but are not guaranteed to be) publicly
traded, no assurance can be given that the Company will continue to be a
Domestically Controlled REIT. Notwithstanding the foregoing, capital gain which
is not subject to U.S. income taxation under these rules will be taxable to a
Foreign Stockholder if the Foreign Stockholder is a non-resident alien
individual who is present in the U.S. for 183 days or more during the taxable
year and certain other conditions apply, in which case the non-resident alien
individual will be subject to a 30% tax on his or her U.S. source capital gains.
If the Company does not constitute a Domestically Controlled REIT, whether a
Foreign Stockholder's sale of his or her Shares would be subject to tax as a
sale of a U.S. real property interest would depend on whether the Shares were
"regularly traded" on an established securities market and on the size of the
selling Stockholder's interest in the Company. If the gain on the sale of Shares
was subject to taxation under these rules, the Foreign Stockholder would be
subject to the same treatment as a U.S. Stockholder with respect to the gain
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of non-resident alien individuals). In addition, Distributions
that are treated as gain from the disposition of Shares and are subject to tax
under Section 897 of the Code may also be subject to a 30% branch profits tax
when made to a corporate Foreign Stockholder that is not entitled to treaty
exemptions. In any event, a purchaser of Shares from a Foreign Stockholder will
not be required to withhold on the purchase price if the purchased Shares are
"regularly traded" on an established securities market or if the Company is a
Domestically Controlled REIT. Otherwise, the purchaser of the Shares may be
required to withhold 10% of the purchase price and remit this amount to the
Service.
If the proceeds of a disposition of Shares are paid by or through a U.S.
office of a broker-dealer, the payment is subject to information reporting and
to backup withholding unless the disposing Foreign Stockholder certifies as to
his name, address and non-U.S. status or otherwise establishes an exemption.
Generally, U.S. information reporting and backup withholding will not apply to a
payment of disposition proceeds if the payment is made outside the U.S. through
a non-U.S. office of a non-U.S. broker-dealer. U.S. information reporting
requirements (but not backup withholding) will apply, however, to a payment of
disposition proceeds outside the U.S. if (i) the payment is made through an
office outside the U.S. of a broker-dealer that is either (a) a U.S. person, (b)
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S. or (c) a "controlled
foreign corporation" for U.S. federal income tax purposes, and (ii) the
broker-dealer fails to initiate documentary evidence that the Stockholder is a
Foreign Stockholder and that certain conditions are met or that the Foreign
Stockholder otherwise is entitled to an exemption.
OTHER TAX CONSIDERATIONS
COMPANY'S PURCHASE OF PROPERTIES WITH SHARES. If the Company acquires
Properties with Equity Stock, the Company will not have any gain or loss on the
issuance of its Equity Stock in exchange for such Properties, regardless of the
tax consequences for the seller. If the transaction is structured as a tax-free
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transaction for the seller, such as a merger, the Company will take a carry-over
basis for tax purposes in the Property. Such a carry-over basis will produce a
lower basis for purposes of depreciation then would arise if the Company
acquired the Property in a taxable transaction, in which event, the Company's
basis in the acquired Property would be the same as if the Property was
purchased outright. This lower basis will result in lower depreciation
deductions on an annual basis which, all things equal, will increase the
Company's income, and, therefore, increase the amount of Distributions the
Company must pay in order to maintain its status as a REIT as compared to the
effects on income and Distributions had the Property been acquired in a taxable
transaction. In addition, if the Company acquires the Property in a tax-free
transaction, the built-in gain on the asset will be subject to tax at the
highest effective corporate rates if the Company sells such asset during the
10-year Recognition Period. See "--Taxation of the Company-- Overview" in this
Section. The Company represents that it will acquire only those Properties which
it intends to hold for more than 10 years.
DISTRIBUTION REINVESTMENT PROGRAM. Stockholders who purchase Shares in the
Offering and participate in the Distribution Reinvestment Program will recognize
taxable dividend income on the amount they would have received as Distributions
had they not elected to participate, even though they receive no cash. These
deemed dividends will be treated as actual dividends from the Company to the
participating Stockholders and will retain the character and tax effects
applicable to all dividends. See "--Taxation of Stockholders" in this Section.
Shares received under the DRP will have a holding period beginning with the day
after purchase, and a tax basis equal to their cost, which is the gross amount
of the deemed Distribution.
STATE AND LOCAL TAXES. The Company and its Stockholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its Stockholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective Stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on a investment in the Shares.
PRESIDENT'S 1999 BUDGET PROPOSALS. On February 2, 1998, President Clinton
introduced his Fiscal Year 1999 Budget Proposals. These budget proposals contain
a number of provisions which, if enacted, would affect the federal income tax
treatment of REITs. First, the budget proposals provide for a freeze on the
grandfathered status of "stapled" or paired share REITs. The Company will not
have stapled or paired shares and therefore would not be affected by this
proposal.
Second, the budget proposals would amend the 25% Asset Test to prohibit a
REIT from holding stock possessing more than 10% of the voting power or value of
all classes of stock of a corporation. If enacted, this proposal would be
effective with respect to stock acquired on or after the date of the first
committee action. The Company represents that it will observe this requirement
if this proposal is submitted for committee action.
Third, the budget proposals included a provision that would impose an
additional requirement for REIT qualification. The provision would specify that
no person may own stock of a REIT possessing more than 50% of the total combined
voting power of all classes of voting stock, or more than 50% of the total value
of shares of all classes of stock. Certain attribution rules would be applied to
determine a person's stock ownership. If enacted, this proposal would be
effective for entities electing REIT status for taxable years beginning on or
after the date of the first committee action. The restrictions on share
ownership described above should prevent the Company from violating this
requirement. See "--Taxation of the Company--Share Ownership Tests" in this
Section. However, there can be no assurance that these restrictions would permit
the Company to satisfy this requirement. In the event that this provision is
enacted and the Company failed to satisfy its requirements, the Company would
not qualify as a REIT. See "--Taxation of the Company--Failure to Qualify" in
this Section.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of ERISA and of Section 4975 of the
Code that may be relevant to a prospective purchaser of the Shares. This
discussion does not deal with all aspects of ERISA or Section 4975 of the Code
or, to the extent not preempted, state law that may be relevant to particular
employee benefit plan Stockholders (including plans subject to Title I of ERISA,
other employee benefit plans and IRAs subject to the prohibited transaction
provisions of Section 4975 of the Code, and governmental plans and church plans
that are exempt from ERISA and Section 4975 of the Code but that may be subject
to state law requirements) in light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES ON BEHALF OF A
PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT PLAN,
AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP, OR SALE OF SHARES BY SUCH PLAN OR IRA. PLANS SHOULD ALSO
CONSIDER THE ENTIRE DISCUSSION UNDER THE PRECEDING SECTION ENTITLED "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS," AS MATERIAL CONTAINED THEREIN IS RELEVANT TO
ANY DECISION BY A PLAN TO PURCHASE THE SHARES.
In considering whether to invest a portion of the assets of a pension,
profit-sharing, retirement, IRA or other employee benefit plan ("Plan") in
Shares, fiduciaries of the Plan should consider, among other things, whether the
investment: (i) will be in accordance with the governing documents of the Plan
and is authorized and consistent with their fiduciary responsibilities under
ERISA; (ii) will allow the Plan to satisfy the diversification requirements of
ERISA, if applicable; (iii) will result in UBTI to the Plan (see "Federal Income
Tax Considerations--Taxation of Stockholders--Taxation of Tax-Exempt
Stockholders"); (iv) will be sufficiently liquid; and (v) is prudent and in the
best interests of the Plan, its participants and beneficiaries under ERISA
standards.
The fiduciary of an IRA, or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan or because it does not
cover common law employees (a "Non-ERISA Plan"), should consider that such an
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.
In addition to imposing general fiduciary standards of investment prudence
and diversification, ERISA and the corresponding provisions of the Code prohibit
a wide range of transactions involving the assets of the Plan and persons who
have certain specified relationships to the Plan ("parties in interest" within
the meaning of ERISA, "disqualified persons" within the meaning of the Code).
A Prohibited Transaction may occur if the assets of the Company are deemed
to be assets of a Plan (I.E., the "look-through rule") which invests in Shares
and thereafter a "party in interest" or a "disqualified person" deals with the
assets in a manner not permitted under ERISA or the Code. Under such
circumstances, any person that exercises authority or control with respect to
the management or disposition of Plan assets is a Plan fiduciary and, therefore,
is a "party in interest" and a "disqualified person" capable of participating in
a Prohibited Transaction with the Plan. Thus, the action of an employee of the
Company in dealing with the assets of the Company can, under certain
circumstances, cause a Plan which invests in the Shares to be a participant in a
Prohibited Transaction. While "Plan assets" are not defined in ERISA or the
Code, the United States Department of Labor ("DOL") has issued regulations (the
"DOL Regulations") that provide guidance on the circumstances under which a
Plan's investment in Shares will be subject to the "look-through rule" and thus
turn the Company's assets into Plan assets. The DOL Regulations provide an
exception to the "look-through rule" for a Plan which invests in a
"publicly-offered security." This exception would apply to the Shares, if they
are part of a class of securities that is "widely-
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held," "freely-transferable," and either registered under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or sold
pursuant to an effective registration statement under the Act, provided the
class of securities of which the security is a part are registered under the
Exchange Act within 120 days or such longer period as is allowed by the SEC
after the end of the fiscal year of the issuer during which the offering
occurred. The Shares are being sold in an offering registered under the Act and
the Company represents that the class of securities of which the Shares are a
part will be registered under the Exchange Act within applicable time limits.
The DOL Regulations indicate that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely-held"
because the number of independent investors falls below 100 subsequent to the
initial offering as a result of events beyond the issuer's control. The Company
represents that the Shares will be held by over 100 independent investors upon
conclusion of the Offering and, therefore should be considered "widely-held."
The DOL Regulations further provide that whether a security is
"freely-transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations state that generally, when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with this Offering, certain restrictions ordinarily will
not, alone or in combination, affect the determination of the finding that such
securities are "freely-transferable." The DOL Regulations indicate that a
restriction or prohibition against a transfer or assignment which would result
in a termination or reclassification of an entity for federal or state income
tax purposes will not affect the determination of whether securities are "freely
transferable." The Company believes that the Ownership Limits imposed under the
Articles on the transfer of the Shares are designed to prevent violations of the
Five or Fewer Requirement (which would cause a termination of REIT status for
tax purposes) or are otherwise permitted under the DOL Regulations and,
therefore, will not cause the Shares to not be "freely-transferable."
The DOL Regulations are interpretive in nature and, therefore, no assurance
can be given that the DOL and the United States Department of the Treasury will
not conclude that the Shares are not "freely-transferable," or not
"widely-held". However, the Company believes that the Shares will be "publicly
offered securities" for purposes of the DOL Regulations and that (i) the assets
of the Company will not be deemed to be "plan assets" of any Plan that invests
in the Shares and (ii) any person who exercises authority or control with
respect to the Company's assets should not be treated as a Plan fiduciary of any
Plan that invests in the Shares, for purposes of the prohibited transaction
rules of ERISA and Section 4975 of the Code.
WHO MAY INVEST
An investment in Shares involves certain risks and is suitable only as a
long-term investment for Persons of adequate financial means who have no
immediate need for liquidity in their investment. Shares will be sold only to
Persons who initially purchase a minimum of 300 Shares ($3,000) or Tax-Exempt
Entities which purchase a minimum of 100 Shares ($1,000), except for investors
resident in the State of Iowa where the minimum investment for IRAs will be 300
Shares ($3,000) and for investors resident in the State of Minnesota where the
minimum investment for IRAs and qualified plan accounts will be 200 Shares
($2,000). In addition, the Company has established financial suitability
standards for investors who purchase Shares. These standards require investors
to have either: (i) a minimum annual gross income of $45,000 and a minimum net
worth (exclusive of home, home furnishings and automobiles) of $45,000; or (ii)
a minimum net worth (determined with the foregoing exclusions) of $150,000. As
explained below, there are higher standards for residents of certain states.
If the investor is a resident of California, Massachusetts or Tennessee, the
investor must have either: (i) a minimum net worth (excluding home, home
furnishings and automobiles) of $225,000; or (ii) a
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minimum annual gross income of $60,000 and a minimum net worth (exclusive of
home, home furnishings and automobiles) of $60,000.
If the investor is a resident of Maine, the investor must have either: (i) a
minimum net worth (excluding home, home furnishings and automobiles) of
$200,000; or (ii) a minimum annual gross income of $50,000 and a minimum net
worth (exclusive of home, home furnishings and automobiles) of $50,000.
In the case of sales to fiduciary accounts, these minimum standards must be
met by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the Shares if the donor or
the grantor is the fiduciary.
In the case of gifts to minors, the suitability standards must be met by the
custodian account or by the donor. By acceptance of the confirmation of the
purchase or delivery of the Shares, an investor represents that he satisfies any
applicable suitability standards.
In purchasing Shares, custodians or trustees of employee pension benefits
plans or IRAs may be subject to the fiduciary duties imposed by ERISA or other
applicable laws and to the prohibited transaction rules prescribed by ERISA and
related provisions of the Code. In addition, prior to purchasing Shares, the
trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. See "Federal Income Tax
Considerations--Taxation of Stockholders--Taxation of Tax-Exempt Stockholders";
and "ERISA Considerations."
Suitability standards may be higher in certain states. Investors must meet
all of the applicable requirements set forth in the Subscription Agreement
relating to the Shares (the "Subscription Agreement"). A specimen copy of the
Subscription Agreement, including instructions for completing the Subscription
Agreement, is contained in Appendix C to this Prospectus. Under the laws of
certain states, an investor may transfer his or her Shares only to persons who
meet similar standards, and the Company may require certain assurances that
these standards are met. Investors should carefully read the requirements in
connection with resales of Shares set forth in the Subscription Agreement and
under "Description of Securities--Restrictions on Ownership and Transfer."
The agreements between the Dealer Manager and each of the Soliciting Dealers
requires each Soliciting Dealer to make diligent inquiries as required by law of
all prospective purchasers in order to ascertain whether a purchase of Shares is
suitable and appropriate based upon information provided by the prospective
purchaser regarding his financial situation and investment objectives and to
transmit promptly to the Company, the fully completed subscription documentation
and any other supporting documentation reasonably required by the Company. By
executing the Subscription Agreement, by tendering payment for Shares and by
accepting confirmation of purchase or delivery of the Shares, an investor
represents that it, he or she satisfies any applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the Subscription
Agreement, acknowledge its determination that the Shares are a suitable and
appropriate investment for the subscriber, and will be required to represent and
warrant his or her compliance with applicable laws requiring the determination
of the suitability and appropriateness of the Shares as an investment for the
subscriber. The Company will, in addition to the foregoing, coordinate the
processes and procedures utilized by the Dealer Manager and Soliciting Dealers
and, where necessary, implement such additional reviews and procedures deemed
necessary to assure the adherence by registered representatives to the
suitability standards set forth herein.
PLAN OF DISTRIBUTION
GENERAL
Of the 55,250,000 Shares offered by this Prospectus, the Company is offering
50,000,000 Shares on a "best efforts" basis at a purchase price of $10 per Share
with a minimum initial investment of $3,000 ($1,000 in the case of Tax-Exempt
Entities, except for Iowa where the minimum investment for IRAs will
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be $3,000 and for Minnesota where the minimum investment for IRAs and qualified
plan accounts will be $2,000); 4,000,000 Shares at a purchase price of $9.50 per
Share are being offered for issuance through the Distribution Reinvestment
Program; 1,250,000 Soliciting Dealer Warrants to purchase 1,250,000 Shares and
the 1,250,000 Shares underlying the Soliciting Dealer Warrants are also being
offered. See "Description of Securities--Soliciting Dealer Warrants." "Best
efforts" means that the Dealer Manager is not guaranteeing that any specified
amount of capital will be raised. The Offering will commence as of the date of
this Prospectus and will terminate not later than , 2000. The Company
reserves the right to terminate the Offering at any time.
See "Management--Inland Securities Corporation" for a description of the
past activities of the Dealer Manager and of its key personnel.
ESCROW CONDITIONS
Subscription proceeds for qualified subscriptions will be deposited in a
segregated escrow account with the LaSalle National Bank, N.A., 120 South
LaSalle Street, Chicago, Illinois, and will be held in trust for the benefit of
the subscribers pending release to the Company, and will not be commingled.
Subscription proceeds are expected to be released to the Company as
subscriptions are accepted. All subscriptions will be accepted or rejected
within 10 days (and generally within 24 hours) after receipt by the Company.
ADVISOR'S COMPANY CONTRIBUTION AND ADVISOR'S PARTNERSHIP CONTRIBUTION
The Advisor purchased 20,000 Shares in connection with the organization of
the Company for $10 per Share, an aggregate purchase price of $200,000. The
Advisor also made a capital contribution in the amount of $2,000 prior to the
offering of Shares by the Company pursuant to this Prospectus, for which the
Advisor received 200 LP Common Units in the Operating Partnership valued at
$2,000. The Advisor may not sell or otherwise transfer these 20,000 Shares or
the 200 LP Common Units (or the Shares for which they may be exchanged) while it
remains the Advisor except to an Affiliate. The Advisor and its Affiliates may
purchase Shares for their own accounts. However, at no time on or after July 1,
1999 will the Advisor own 9.8% or more of the total number of the Company's
outstanding Shares. Any purchases of Shares by the Advisor during the Offering
will be for investment purposes only and not with a view toward distribution.
SUBSCRIPTION PROCESS
The Shares are being offered to the public by the Dealer Manager and the
Soliciting Dealers. The form of Soliciting Dealers Agreement between the Dealer
Manager and the Soliciting Dealers requires the Soliciting Dealers to make
diligent inquiries, as required by law, of all prospective purchasers in order
to ascertain whether a purchase of Shares is suitable for the person and
transmit promptly to the Company the completed subscription documentation and
any supporting documentation reasonably required by the Company.
The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the Company
of certain other conditions and approval by counsel of certain legal matters.
The Company has the unconditional right to accept or reject any subscription. A
subscription will be accepted or rejected within 10 days (and generally within
24 hours) after the receipt by the Company of a copy of the Subscription
Agreement, fully completed, and payment in good funds for the number of
subscribed Shares. If the subscription is accepted, a confirmation will be
mailed not more than three business days after acceptance by the Company. A sale
of the Shares may not be completed until at least three business days after the
date the subscriber receives a Prospectus and, as may be required by certain
state regulatory authorities, a copy of the Organizational Documents. If for any
reason the subscription is rejected, the check and Subscription Agreement will
be returned to the subscriber, without interest or deduction, within 10 days
after receipt.
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Shares will only be sold to persons who initially purchase a minimum of 300
Shares ($3,000) or Tax-Exempt Entities which purchase a minimum of 100 Shares
($1,000), except for investors in the State of Iowa where the minimum investment
for IRAs will be 300 Shares ($3,000) and investors in the State of Minnesota
where the minimum investment for IRAs and qualified plan accounts will be 200
Shares ($2,000). Subscriptions will be accepted for fractional Shares only in
the discretion of the Company.
DETERMINATION OF INVESTOR SUITABILITY
The Company, the Dealer Manager and each Soliciting Dealer will make
reasonable efforts to determine that those persons being offered or sold the
Shares satisfy the suitability standards set forth herein and that an investment
in the Shares is an appropriate investment for the investor. The Soliciting
Dealers must ascertain that the investors can reasonably benefit from an
investment in the Company. In making the determination, the Soliciting Dealers
will consider whether: (i) the investor has the capability of understanding the
fundamental aspects of the Company based on the investor's employment
experience, education, access to advice from qualified sources such as
attorneys, accountants and tax advisors and prior experience with investments of
a similar nature; (ii) the investor has apparent understanding of: (a) the
fundamental risks and possible financial hazards of this type of investment; (b)
the lack of liquidity of this investment; (c) the Advisor's role in directing or
managing the investment; and (d) the tax consequences of the investment; and
(iii) the investor has the financial capability to invest in the Company.
By executing the Subscription Agreement, each Soliciting Dealer acknowledges
its determination that the Shares are a suitable investment for the investor.
Each Soliciting Dealer is required to represent and warrant that it has complied
with all applicable laws in determining the suitability of the Shares as an
investment for the subscriber. The Company and its Affiliates will coordinate
the processes and procedures utilized by the Dealer Manager and Soliciting
Dealers and, where necessary, implement such additional reviews and procedures
deemed necessary to determine that investors meet the suitability standards set
forth herein. The Dealer Manager and/or the Soliciting Dealers must maintain,
for at least six years, a record of the information obtained to determine that
an investor meets the suitability standards and a representation of the investor
that the investor is investing for the investor's own account or, in lieu of
such representation, information indicating that the investor for whose account
the investment was made met the suitability standards.
COMPENSATION
Except for Special Sales, the Company will pay the Dealer Manager cash
selling commissions of 7% on all of the 50,000,000 Shares sold on a "best
efforts" basis for serving as the Dealer Manager of the Offering and for the
sale of Shares through its efforts. A portion of these selling commissions may,
at the discretion of the Dealer Manager, be retained or reallowed to Soliciting
Dealers, as compensation for their services in soliciting and obtaining
subscribers for the purchase of Shares. Except for Special Sales, an additional
2% of the Gross Offering Proceeds from the 50,000,000 Shares sold on a "best
efforts" basis shall be paid to the Dealer Manager as a Marketing Contribution
in lieu of reimbursement of certain expenses associated with marketing. In
addition, the Dealer Manager may be reimbursed by the Company for BONA FIDE due
diligence expenses of the Dealer Manager and the Soliciting Dealers not to
exceed a maximum of 0.5% of the Gross Offering Proceeds from the 50,000,000
Shares sold on a "best efforts" basis (the Due Diligence Expense Allowance). All
or any portion of the Marketing Contribution and Due Diligence Expense Allowance
may, at the discretion of the Dealer Manager, be retained or reallowed to
Soliciting Dealers. Generally, no portion of the Marketing Contribution will be
reallowed to Soliciting Dealers unless they have a prescribed minimum annual
sales volume of Shares. Marketing and due diligence costs paid by the Dealer
Manager on behalf of, or to, the Soliciting Dealers, will be deducted from any
Marketing Contribution or Due Diligence Expense Allowance otherwise payable to
the Soliciting Dealers.
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The Company will issue and sell to the Dealer Manager one Soliciting Dealer
Warrant (for a price of $.0008 per Soliciting Dealer Warrant) for each 40 Shares
sold during the Offering, subject to federal and state securities laws and
subject to the issuance of a maximum of 1,250,000 Soliciting Dealer Warrants,
except in the case of Shares sold to residents of the States of Minnesota or
South Carolina where the Company will not issue and the Dealer Manager will not
transfer Soliciting Dealer Warrants. The Dealer Manager may retain or reallow
the Soliciting Dealer Warrants to the Soliciting Dealer who sold the Shares. The
holder of a Soliciting Dealer Warrant will be entitled to purchase one Share
from the Company at a price of $12.00 per Share for each Soliciting Dealer
Warrant during the period commencing one year from the first date upon which any
of the Soliciting Dealer Warrants are issued and ending five years after such
first date of issuance (the "Exercise Period"). If, at the time of any exercise
of a Soliciting Dealer Warrant, the then offering price of Shares pursuant to
this Prospectus for this Offering has been increased (which is not presently
anticipated), then the exercise price of each unexercised warrant issued in
connection with this Offering shall be adjusted to be equal to 120% of the then
current offering price per Share of the Shares offered or sold pursuant to this
Prospectus. Subject to certain limitations, the Soliciting Dealer Warrants may
not be transferred, assigned, pledged or hypothecated for a period of one year
following issuance thereof. In addition, no Soliciting Dealer Warrant will be
exercisable until one year from the date of issuance. Holders of the Soliciting
Dealer Warrants, therefore, have, at nominal cost, the opportunity to profit
from a rise in the market price for the Shares without assuming the risk of
ownership. Exercise of these warrants will dilute the interest of other security
holders. Moreover, the holders of the Soliciting Dealer Warrants might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain needed capital by a new offering of its securities on terms
more favorable than those provided by the Soliciting Dealer Warrants. See
"Description of Securities--Soliciting Dealer Warrants."
The maximum compensation to be paid by the Company in connection with the
Offering (assuming that there are no Special Sales) will not exceed: (i) a total
of 7% of the Gross Offering Proceeds from the sale of the 50,000,000 Shares sold
on a "best efforts" basis for selling commissions; and (ii) a total of 2% of the
Gross Offering Proceeds from the sale of the 50,000,000 Shares sold on a "best
efforts" basis as the Marketing Contribution. The aggregate of these commissions
and expenses plus the value attributable to the Soliciting Dealer Warrants that
may be issued to the Dealer Manager and the Soliciting Dealers will not exceed
10% of the Gross Offering Proceeds. In addition, the Dealer Manager and the
Soliciting Dealers may be reimbursed for BONA FIDE due diligence expenses not to
exceed a maximum of 0.5% of the Gross Offering Proceeds from the sale of the
50,000,000 Shares sold on a "best efforts" basis.
The Company may not pay or award, directly or indirectly, any commissions or
other compensation to any person engaged by a potential investor for investment
advice as an inducement to such advisor to advise the investor to purchase
Shares; provided that nothing herein shall prohibit the registered broker-dealer
or other properly licensed person from earning a sales commission in connection
with a sale of the Shares.
VOLUME DISCOUNTS
Investors purchasing at least $200,000 worth of Shares (20,000 Shares)
through the same Soliciting Dealer will be entitled to a reduction in the
selling commission payable in connection with the sale of those Shares in
accordance with the following schedule:
<TABLE>
<CAPTION>
AMOUNT OF
PURCHASER'S INVESTMENT
- -------------------------- MAXIMUM COMMISSION PER
FROM TO SHARE
- ------------ ------------ -------------------------
<S> <C> <C>
$ 200,000 $ 499,999 5.5%
500,000 999,999 4.0%
1,000,000 1,999,999 2.5%
2,000,000 and over 1.0%
</TABLE>
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Any reduction in the selling commission in respect of the above volume
discounts will be credited to the investor in the form of additional whole
Shares or fractional Shares purchased net of commissions. As to sales of Shares
which are entitled to volume discounts, the Company will pay the reduced selling
commissions set forth above.
Certain subscriptions may be combined for the purpose of crediting an
investor with additional Shares for the volume discount and for determining
commissions payable to the Dealer Manager and reallowable to Soliciting Dealers
so long as all combined purchases are made through the same Soliciting Dealer.
Subscriptions of spouses and of Persons holding as joint tenants or tenants in
common may be combined for purposes of computing amounts invested. Subscriptions
from Tax-Exempt Entities may be combined for purposes of computing amounts
invested if investment decisions are made by the same Person, except however, if
the investment decisions are made by an independent investment adviser, that
investment adviser may not have any direct or indirect beneficial interest in
any of the Tax-Exempt Entities whose subscriptions are sought to be combined.
Subscriptions of Tax-Exempt Entities may not be combined with subscriptions of
any Persons other than such other Tax-Exempt Entities. The investor must mark
the "Additional Investment" space on the Subscription Agreement Signature Page
in order for subscriptions to be combined. The Company is not responsible for
failing to combine subscriptions, where the investor fails to mark the
"Additional Investment" space.
If the Subscription Agreements for the subscriptions to be combined are
submitted at the same time, then the additional Shares to be credited to the
purchasers as a result of such combined purchases will be credited on a pro rata
basis. If the Subscription Agreements for the subscriptions to be combined are
not submitted at the same time, then any additional Shares to be credited as a
result of such combined purchases will be credited to the last component
purchase, unless the Company is otherwise directed in writing at the time of
such submission; except however, the additional Shares to be credited to any
Tax-Exempt Entities whose subscriptions are combined for purposes of the volume
discount will be credited only on a pro rata basis based on the amount of the
investment of each Tax-Exempt Entity and their combined purchases.
In the event the dollar amount of commissions paid for such combined
purchases exceeds the maximum commissions for such combined purchases (taking
the volume discount into effect), the Dealer Manager will be obligated to
forthwith return to the Company (and Soliciting Dealers will be obligated to
return to the Dealer Manager) any excess commissions received. The Company (as
to the Dealer Manager) and the Dealer Manager (as to the Soliciting Dealers) may
adjust any future commissions due for any such excess commissions that have not
been returned.
OTHER DISCOUNTS
Due to lower administrative costs, employees and associates of the Company
and its Affiliates, the Advisor, Affiliates of the Advisor, the Dealer Manager
and the Soliciting Dealers will be permitted to purchase Shares net of sales
commissions and the Marketing Contribution and Due Diligence Expense Allowance
or for $9.05 per Share. Any Shares purchased by the Advisor or its Affiliates
will be purchased for investment purposes only and not with a view toward
distribution.
Participants in the Company's DRP may purchase Shares for a reduced price of
$9.50 per Share due to lower administrative costs.
TRANSFER OF SHARES
A Stockholder may assign all or some of his Shares, subject to certain
restrictions contained in the Articles. See "Description of
Securities--Restrictions on Ownership and Transfer." An assignment will confer
upon the assignee, the right to become a Stockholder in the following manner and
subject to certain conditions, including the following: (i) an instrument of
assignment executed by both the assignor and assignee of the Shares satisfactory
in form to the Company must be delivered to the Company;
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(ii) reimbursement of the Company for reasonable expenses and filing costs
incurred in connection with such transfer not to exceed $100; (iii) no
assignment will be effective until the first day of the month following the
month in which the Company actually receives the instrument of assignment which
complies with the requirements of (i) and (ii) above; (iv) no assignment will be
effective if such assignment would, in the opinion of counsel to the Company,
result in the termination of the Company's status as a REIT under the Code; (v)
an assignment may be rejected if it would cause 25% or more of the issued and
outstanding Shares to be held by Tax-Exempt Entities that are considered
"benefit plan investors" under ERISA or otherwise cause the assets of the
Company to be Plan Assets; and (vi) no assignment will be effected if the
assignment would, to the knowledge of the Company, violate the provisions of any
applicable federal or state securities laws.
The Shares will not initially be listed on a national stock exchange or
included for quotation on a national market system. The Company will determine
when and if to apply to have the Shares listed for trading on a national stock
exchange or included for quotation on a national market system, provided the
Company meets the then applicable listing requirements. There is no assurance
that the Company will apply for such listing or inclusion, even if it satisfies
the appropriate listing or inclusion standards.
INDEMNIFICATION
The Company will indemnify the Dealer Manager and the Soliciting Dealers
against certain liabilities, including liabilities under the Act; provided,
however, that the Company will not indemnify the Dealer Manager or any
Soliciting Dealer from any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless one or more
of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and a court of competent jurisdiction
has approved indemnification of the litigation costs; or (ii) the claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee and the court has approved indemnification of
the litigation costs; or (iii) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and approves
indemnification of the settlement and related costs after being advised of the
position of the Commission and the published opinions of any state securities
regulatory authority in which securities of the Company were offered and sold
respecting the availability and/or propriety of indemnification for securities
law violations. The Soliciting Dealer will be required to indemnify the Company
and the Advisor against certain such liabilities. In the opinion of the
Commission, indemnification for liabilities arising under the Act is against
public policy and, therefore, unenforceable. The Dealer Manager and each of the
Soliciting Dealers may be deemed to be an "underwriter" as that term is defined
in the Act.
HOW TO SUBSCRIBE
Shares may be purchased by investors who meet the suitability standards
described above under "Who May Invest" and "Plan of Distribution--Determination
of Investor Suitability" by proceeding as follows:
1. Read the entire Prospectus and the current supplement(s), if any,
accompanying the Prospectus.
2. Complete the execution copy of the Subscription Agreement. A
specimen copy of the Subscription Agreement, including instructions for
completing the Subscription Agreement, is included in the Prospectus as
Appendix C.
3. Deliver a check for the full purchase price of the Shares being
subscribed for, payable to "LNB/Escrow Agent for IRRET along with the
completed Subscription Agreement to the Soliciting Dealer whose name appears
on the Subscription Agreement.
4. By executing the Subscription Agreement and by paying the full
purchase price for the Shares subscribed for, each investor attests that he
or she meets the suitability standards as stated in
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the Subscription Agreement and agrees to be bound by all of the terms of the
Subscription Agreement.
Within 10 days (and generally within 24 hours) of the Company's receipt of
each completed Subscription Agreement, the Company will accept or reject the
subscription. If the subscription is accepted, a confirmation will be mailed
within three days. If for any reason the subscription is rejected, the check and
Subscription Agreement will be promptly returned to the subscriber, without
interest or deduction, within 10 days after receipt.
Subscriptions made through IRAs, Keogh plans and 401(k) plans must be
processed through and forwarded to the Company by an approved trustee. In the
case of IRA, Keogh plans and 401(k) plan Stockholders, the confirmation will be
sent to the trustee.
SALES LITERATURE
In addition to and apart from this Prospectus, the Company may use certain
supplemental sales material in connection with the Offering. This material,
prepared by the Advisor, may consist of a brochure describing the Advisor and
its Affiliates and the objectives of the Company and may contain pictures and
summary descriptions of properties similar to those to be acquired by the
Company that Affiliates of the Company have previously acquired. This material
may also include audiovisual materials and taped presentations highlighting and
explaining various features of the Offering, properties of prior real estate
programs and real estate investments in general; and articles and publications
concerning real estate. Business reply cards, introductory letters and seminar
invitation forms may be sent to Soliciting Dealers and prospective investors. No
person has been authorized to prepare for, or furnish to, a prospective investor
any sales literature other than: (i) that described herein; and (ii) "tombstone"
newspaper advertisements or solicitations of interest limited to identifying the
Offering and the location of sources of further information.
The use of any sales materials is conditioned upon filing with and, if
required, clearance by appropriate regulatory agencies. Such clearance (if
provided), however, does not indicate that the regulatory agency allowing the
use of the materials has passed on the merits of the Offering or the adequacy or
accuracy of the materials.
This Offering is made only by means of this Prospectus. Except as described
herein, the Company has not authorized the use of other supplemental literature
or sales material in connection with this Offering.
DISTRIBUTION REINVESTMENT AND SHARE REPURCHASE PROGRAMS
DISTRIBUTION REINVESTMENT PROGRAM
The Distribution Reinvestment Program (the "DRP") provides the Company's
Stockholders with an opportunity to purchase additional Shares by reinvesting
Distributions. Stockholders who elect to take part in the DRP ("Participants")
will authorize the Company to use Distributions payable to them to purchase
additional Shares. A Participant will not be able to acquire Shares under the
DRP to the extent such purchase would cause it to exceed the Ownership Limit.
Purchases under the DRP are made at a price equal to $9.50 per Share, a
reduction from the $10 offering price per Share, which reduced price reflects a
decrease in costs associated with these issuances. Participants in the DRP may
also purchase fractional Shares, so that 100% of Distributions will be used to
acquire Shares. Shares will be purchased under the DRP on the record date for
the Distribution used to purchase the Shares. Distributions for Shares acquired
under the DRP are intended to be paid monthly and are calculated with a daily
record and Distribution declaration date. Each Participant agrees that if, at
any time prior to listing of the Shares on a national stock exchange or
inclusion of the Shares for quotation on a national market system, he or she
fails to meet the suitability requirements for making an investment
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in the Company or cannot make the other representations or warranties set forth
in the Subscription Agreement, he or she will promptly so notify the Company in
writing.
Commencing with the first Distribution paid after the effective date of the
Offering and continuing until the termination of the Offering, Participants will
acquire Shares from the Company at a fixed price of $9.50 per Share. It is
possible that a secondary market will develop for the Shares, and that Shares
may be bought and sold on the secondary market at prices lower or higher than
the price at which Shares may be purchased through the DRP. Neither the Company
nor its Affiliates will receive a fee for selling Shares under the DRP. The
Company does not warrant or guarantee that Participants will be acquiring Shares
at the lowest possible price. A Participant may terminate participation in the
DRP at any time without penalty, by delivering written notice to the Company.
Prior to listing of the Shares on a national securities exchange or including
the Shares for quotation on a national market system, any transfer of Shares by
a Participant to a non-Participant will terminate participation in the DRP with
respect to the transferred Shares. Within 90 days after the end of the Company's
fiscal year, the Company will: (i) issue certificates evidencing ownership of
Shares purchased through the DRP during the prior fiscal year (ownership of
these Shares will be in book-entry form prior to the issuance of certificates);
and (ii) provide each Participant with an individualized report on his or her
investment, including the purchase date(s), purchase price and number of Shares
owned, as well as the dates of distribution and amount of Distributions received
during the prior fiscal year. The individualized statement to Participants will
include receipts and purchases relating to each Participant's participation in
the DRP including the tax consequences relative thereto. The Directors by
majority vote (including a majority of Independent Directors) may amend or
terminate the DRP upon 30 days notice to Participants.
Stockholders who participate in the DRP will recognize dividend income,
taxable to the extent of the Company's current or accumulated earnings and
profits, in the amount and as though they had received the cash rather than
purchased Shares through the DRP. These deemed dividends will be treated as
actual dividends from the Company to the participating Stockholders and will
retain the character and tax effects applicable to all dividends. Shares
received under the DRP will have a holding period, for tax purposes, beginning
with the day after purchase, and a tax basis equal to their cost, which is the
gross amount of the deemed Distribution. See "Federal Income Tax
Considerations--Taxation of Stockholders--Taxation of Taxable Domestic
Stockholders" for a full discussion of the tax effects of dividend
distributions.
If the Company's Shares are listed on a national securities exchange or
included for quotation on a national market system and the DRP is continued,
Shares purchased by the Company for the DRP will be purchased on such exchange
or market, at the prevailing market price, and will be sold to Stockholders at
such price.
As explained under "Description of Securities--Restrictions on Ownership and
Transfer," the certificates representing Shares purchased through the DRP will
bear a legend referring to the restrictions on their ownership and transfer.
SHARE REPURCHASE PROGRAM
The Share Repurchase Program ("SRP") may, subject to certain restrictions,
provide eligible Stockholders with limited, interim liquidity by enabling them
to sell Shares back to the Company at a price of $9.05 per Share (a reduction of
$.95 from the $10 Offering price, reflecting the elimination of selling
commissions and the Marketing Contribution and Due Diligence Expense Allowance).
Repurchases under the SRP will be made quarterly by the Company on a
first-come, first-served basis, and will be limited in the following manner: (i)
not more than $500,000 worth of the outstanding Shares may be repurchased in any
given year; and (ii) the funds available for repurchase are limited to available
proceeds received by the Company from the sale of Shares under the DRP. The
determination of available funds from sales under the DRP will be made at the
sole discretion of the Board. In making this determination, the Board will
consider the need to use proceeds from the Share sales under the DRP for
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investment in additional Properties, or for maintenance or repair of existing
Properties. Such Property-related uses are given priority over the need to
allocate funds to the SRP. To be eligible to offer Shares for purchase to the
SRP, the Stockholder must have beneficially held the Shares for at least one
year.
The Company cannot guarantee that funds will be available for repurchase. If
no funds are available for the SRP at the time when repurchase is requested, the
Stockholder could: (i) withdraw his or her request for repurchase; or (ii) ask
that the Company honor the request at such time, if any, when funds are
available. Such pending requests will be honored on a first come, first served
basis. There is no requirement that Stockholders sell their Shares to the
Company. The SRP is only intended to provide interim liquidity for Stockholders
until a secondary market develops for the Shares. No such market presently
exists and no assurance can be given that one will develop. The SRP will exist
during the Offering period and will be terminated following the close of the
Offering period: (i) at such time as a secondary market-maker quotes a bid and
ask price for at least 30 continuous trading days; or (ii) upon the listing of
the Shares on a national securities exchange or the inclusion of the Shares for
quotation on a national market system.
Shares purchased by the Company under the SRP will be canceled, and will
have the status of authorized but unissued Shares. Shares acquired by the
Company through the SRP will not be reissued unless they are first registered
with the Commission under the Act and under appropriate state securities laws or
otherwise issued in compliance with such laws.
REPORTS TO STOCKHOLDERS
The Advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles ("GAAP"). All of such books of account, together with a
copy of the Articles and any amendments thereto, will at all times be maintained
at the principal office of the Company, and will be open to inspection,
examination and duplication at reasonable times by the Stockholders or their
agents.
The Advisor will submit to each Stockholder audited annual reports of the
Company within 120 days following the close of each fiscal year. The annual
reports will contain the following: (i) audited financial statements; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) the aggregate amount of advisory fees and the aggregate amount of fees
paid to the Advisor and any Affiliate of the Advisor by the Company and
including fees or charges paid to the Advisor and to any Affiliate of the
Advisor by third parties doing business with the Company; (iv) the Total
Operating Expenses of the Company, stated as a percentage of the Average
Invested Assets and as a percentage of Net Income; (v) a report from the
Independent Directors that the policies being followed by the Company are in the
best interests of its Stockholders and the basis for such determination; and
(vi) separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving the Company, the
Directors, the Advisor and any Affiliate thereof occurring in the year for which
the Annual Report is made. Independent Directors shall be specifically charged
with the duty to examine and comment in the report on the fairness of such
transactions.
In addition, unaudited quarterly reports containing the information required
by Form 10-Q will be submitted to each Stockholder within 60 days after the end
of the first three fiscal quarters of each fiscal year.
Concurrently with any Distribution, the Company shall provide Stockholders
with a statement disclosing the source of the funds distributed. If such
information is not available concurrently with the making of a Distribution, a
statement setting forth the reasons why such information is not available shall
be provided concurrently. In no event shall such information be provided to
Stockholders more than 60 days after making such Distribution.
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Within 60 days following the end of any calendar quarter during the period
of the Offering in which the Company has closed an acquisition of a Property, a
report will be submitted to each Stockholder containing: (i) the location and a
description of the general character of the Property acquired during the
quarter; (ii) the present or proposed use of such Property and its suitability
and adequacy for such use; (iii) the terms of any material leases affecting the
Property; (iv) the proposed method of financing, if any, including estimated
down payment, leverage ratio, prepaid interest, balloon payment(s), prepayment
penalties, "due-on-sale" or encumbrance clauses and possible adverse effects
thereof and similar details of the proposed financing plan; and (v) a statement
that title insurance has been or will be obtained on the Property acquired. In
addition, a report will be sent to each Stockholder and submitted to prospective
investors at such time as the Advisor believes a reasonable probability exists
that a Property will be acquired: (i) on specified terms (i.e., upon completion
of due diligence which includes review of the title insurance commitment,
appraisal and environmental analysis); and (ii) involving the use of 10% or
more, on a cumulative basis, of the Net Proceeds of the Offering.
After the completion of the last acquisition, the Advisor shall, upon
request, send to the Commissioner of Corporations of the State of California a
schedule, verified under the penalty of perjury, reflecting: (i) each
acquisition made; (ii) the purchase price paid for the Property; (iii) the
aggregate of all Acquisition Expenses paid on each transaction; and (iv) a
computation showing compliance with the Articles. The Company shall, upon
request, submit to the Commissioner of Corporations of the State of California
or to any of the various state securities administrators any report or statement
required to be distributed to Stockholders pursuant to the Articles or any
applicable law or regulation.
The Company's federal tax return (and any applicable state income tax
returns) will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the Stockholders within 30 days
following the end of each fiscal year of the Company. A specific reconciliation
between GAAP and income tax information will not be provided to the
Stockholders; however, such reconciling information will be available in the
office of the Company for inspection and review by any interested Stockholder.
Concurrent with the dissemination of appropriate tax information to
Stockholders, the Company will annually provide each Stockholder with an
individualized report on his or her investment, including the purchase date(s),
purchase price and number of Shares owned, as well as the dates of distribution
and amounts of Distributions received during the prior fiscal year. The
individualized statement to Stockholders will include any purchases of Shares
under the DRP. Stockholders requiring individualized reports on a more frequent
basis may request such reports. The Company will make every reasonable effort to
supply more frequent reports, as requested, but the Company, at its sole
discretion, may require payment of an administrative charge to be paid: (i)
directly by the Stockholder; or (ii) through pre-authorized deductions from
Distributions payable to the Stockholder making the request.
LEGAL MATTERS
Legal matters in connection with the Company's status as a REIT for federal
income tax purposes have been passed upon, on behalf of the Company, by Wildman,
Harrold, Allen & Dixon, Chicago, Illinois (legal counsel to the Company).
Wildman, Harrold, Allen & Dixon does not purport to represent Stockholders or
potential investors who should consult their own legal counsel. See "Conflicts
of Interest--The Company and the Advisor have the Same Legal Counsel." The
legality of the Shares offered hereby will be passed upon for the Company by
Brown & Wood LLP, Washington, D.C.
The statements in the Section of the Prospectus titled "Federal Income Tax
Considerations" and elsewhere as they relate to federal income tax matters and
the statements in the section of the Prospectus titled "ERISA Considerations"
have been reviewed by Wildman, Harrold, Allen & Dixon.
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EXPERTS
The balance sheet of Inland Retail Real Estate Trust, Inc. as of September
18, 1998, the Historical Summary of Gross Income and Direct Operating Expenses
of Lake Walden Square for the year ended December 31, 1997, the Historical
Summary of Gross Income and Direct Operating Expenses of Lake Olympia Square for
the year ended December 31, 1997, and the Historical Summary of Gross Income and
Direct Operating Expenses of The Landings for the year ended December 31, 1997
have been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Act, with respect to the Shares offered hereby (the "Registration
Statement"). This Prospectus, which is part of the Registration Statement, does
not contain all the information set forth in the Registration Statement and the
exhibits and financial statements thereto. For further information with respect
to the Company and the Shares, reference is made to the Registration Statement
and such exhibits filed therewith. Any statements contained herein concerning
the provisions of any contract or other document are not necessarily complete,
and in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference and the exhibits and schedules thereto.
For further information with respect to the Company and the Shares,
reference is made to the Registration Statement and such exhibits and schedules,
copies of which may be examined without charge at, or copies obtained upon
payment of prescribed fees from, the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and which will also be
available for inspection and copying at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission also maintains a web site on the World Wide Web that
contains reports, proxy and information statements and other information
regarding registrants that file documents electronically with the Commission,
including the Company, and the address is http:// www.sec.gov.
Following the closing of the Offering, the Company will be subject to the
informational requirements of the Exchange Act, and will, therefore, be required
to file reports, proxy and information statements and other information with the
Commission pursuant to the reporting requirements of Section 13(a) of the
Exchange Act, in addition to any other legal requirements. Such reports,
statements and information can also be inspected and copied at the Commission's
offices and web site referred to above.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"ACT" means the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder.
"ACQUISITION EXPENSES" means expenses related to the Company's selection,
evaluation and acquisition of, and investment in, Properties, whether or not
acquired or made, including but not limited to legal fees and expenses, travel
and communications expenses, cost of appraisals and surveys, non-refundable
option payments on Property not acquired, accounting fees and expenses, computer
use related expenses, architectural and engineering reports, environmental and
asbestos audits, title insurance and escrow fees, loan fees or points or any fee
of a similar nature, however designated, and personnel and miscellaneous
expenses related to the selection and acquisition of Properties. Acquisition
Expenses will accrue and be paid on Properties purchased with the Gross Offering
Proceeds, proceeds of Shares sold via the Company's Distribution Reinvestment
Program and proceeds received from the issuance and exercise of the Soliciting
Dealer Warrants issued by the Company in connection with the Offering, as well
as on the entire purchase price of all Properties including any acquisition
financing related thereto.
"ADA" means the Americans with Disabilities Act of 1990, as amended, and the
Regulations promulgated under the authority conferred thereby.
"ADVISOR" means the Person(s) responsible for directing or performing the
day-to-day business affairs of the Company, including a Person to which an
Advisor subcontracts substantially all such functions. The Advisor is Inland
Retail Real Estate Advisory Services, Inc. or anyone which succeeds it in such
capacity.
"ADVISOR ASSET MANAGEMENT FEE" means an amount equal to 1% of the Average
Invested Assets, as provided in the Advisory Agreement.
"ADVISOR'S COMPANY CONTRIBUTION" means the $200,000 the Advisor paid to the
Company for the purchase of 20,000 Shares in connection with the organization of
the Company for a purchase price of $10 per Share.
"ADVISOR'S PARTNERSHIP CONTRIBUTION" means the $2,000 contributed to the
Operating Partnership by the Advisor for 200 LP Common Units in the Operating
Partnership valued at $2,000.
"ADVISORY AGREEMENT" means the agreement between the Company and the Advisor
pursuant to which the Advisor will perform certain specified services to the
Company.
"AFFILIATE" means, with respect to any other Person: (i) any Person directly
or indirectly owning, controlling or holding, with the power to vote 10% or more
of the outstanding voting securities of such other Person; (ii) any Person 10%
or more of whose outstanding voting securities are directly or indirectly owned,
controlled or held, with the power to vote, by such other Person; (iii) any
Person directly or indirectly controlling, controlled by or under common control
with such other Person; (iv) any executive officer, director, trustee or general
partner of such other Person; and (v) any legal entity for which such Person
acts as an executive officer, director, trustee or general partner.
"AFFILIATED DIRECTORS" means those Directors of the Company who are
affiliated with the Company or its Affiliates.
"AFFILIATES' ACQUISITION COST" means the cost of the Initial Properties to
the Initial Property Sellers including the purchase prices paid, plus any
Acquisition Expenses, including any financing costs (excluding interest on any
loans) paid by the Initial Property Sellers to either Affiliates of TIGI or to
third parties.
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"AFFILIATES' ACQUISITION DEBT" means the amount borrowed by the Initial
Property Sellers from an Affiliate of TIGI to pay the difference between the
Affiliates' Acquisition Cost and the Initial Mortgage Debt for the Initial
Properties.
"ANCHOR TENANT" means tenants generally occupying approximately 30% or more
of the GLA of a Retail Property, or the tenant of any single-user property.
"ANNUALIZED BASE RENTAL REVENUE" is the annualized contractual base rent for
all leases in effect as of January 1, 1998, which is determined by multiplying
by 12 the monthly contractual base rents as of January 1, 1998 under existing
leases. Base rent excludes: (a) percentage rents; (b) additional charges paid
for by tenants including common maintenance, real estate taxes and other expense
reimbursements; and (c) future contractual rent escalations.
"ANNUALIZED NET RENT" means with respect to a lease, the monthly net rent
due under the lease as determined in accordance with GAAP, annualized for all
leases in effect as of January 1, 1998.
"ARTICLES" means the Company's Articles of Incorporation, as amended.
"ASSET TESTS" means the 75% Asset Test and the 25% Asset Test.
"AVERAGE INVESTED ASSETS" means, for any period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"BOARD" means the Board of Directors of the Company.
"BUSINESS COMBINATION" means a merger, consolidation or other combination
with or into another person or sale of all or substantially all of its assets,
or any reclassification, recapitalization or change of outstanding Shares.
"BYLAWS" means the Bylaws of the Company, as amended.
"CASH FLOW" means, with respect to any period: (i) all cash receipts derived
from investments made by the Company; plus (ii) cash receipts from operations
(including any interest from temporary investments of the Company) without
deduction for depreciation or amortization; less (iii) cash receipts used to pay
operating expenses (including the Advisor Asset Management Fee).
"CMSAS" means consolidated metropolitan statistical areas as defined by the
United States Office of Management and Budget.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
Regulations promulgated thereunder (sometimes referred to as the "Treasury
Regulations") or corresponding provisions of subsequent revenue laws.
"COMMISSION" or "SEC" means the United States Securities and Exchange
Commission.
"COMMON UNITS" means the LP Common Units and the GP Common Units of the
Operating Partnership collectively.
"COMMUNITY CENTER" means any Shopping Center leased primarily to one or more
retail tenants providing for the sale of soft lines (wearing apparel for men,
women and children) and hard lines (hardware and appliances) in addition to the
convenience goods and personal services provided by a Neighborhood Center, with
GLA ranging from 100,000 to 300,000 or more square feet. A Community Center
makes a greater variety of merchandise available--in sizes, styles, colors and
prices--than a Neighborhood Center. Many are built around a junior department
store, variety store or discount department store as the major tenant, in
addition to a supermarket. Others are built around multiple
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Anchor Tenants such as large superstores and off-price stores. A Community
Center does not have a full line department store, though it may have a strong
specialty store or stores.
"COMPANY" means Inland Retail Real Estate Trust, Inc., a Maryland
corporation.
"COMPANY'S PRIMARY PROPERTY INVESTMENTS" means collectively, the Retail
Centers in the Primary Geographical Area of Investment and the Triple-Net
Single-User Properties Outside the Primary Geographical Area of Investment.
"COMPETITIVE REAL ESTATE COMMISSION" means the real estate or brokerage
commission paid for the purchase or sale of a Property which is reasonable,
customary and competitive in light of the size, type and location of such
Property.
"CONSTRUCTIVELY OWN" shall mean ownership of Equity Stock or options to
acquire Equity Stock by a Person who would be treated as the owner of such
Equity Stock either directly or indirectly through the application of Section
318 of the Code, as modified by Section 856(d)(5) of the Code.
"CONTRACT PRICE FOR THE PROPERTY" means the amount actually paid or
allocated to the purchase, development, construction or improvement of a
Property exclusive of Acquisition Expenses.
"CONTROL SHARES" means voting shares of stock of a Maryland corporation
which, if aggregated with all other such shares of stock previously acquired by
the acquiror, or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by revocable proxy) would entitle
the acquiror to exercise voting power in electing Directors within one of the
following ranges of voting power: (i) 1/5 or more but less than 1/3; (ii) 1/3 or
more but less than a majority; or (iii) a majority of all voting power. Control
Shares do not include Shares the acquiror is then entitled to vote as a result
of having previously obtained Stockholder approval.
"CONTROL SHARE ACQUISITION" means the acquisition of Control Shares, subject
to certain exceptions.
"COUNSEL" means the Chicago, Illinois law firm of Wildman, Harrold, Allen &
Dixon.
"CPI" means the Consumer Price Index, the economic index issued by the
United States Department of Labor indicating price increases or decreases for
the United States economy.
"CREDITWORTHY TENANT" means a tenant with a minimum net worth of $10 million
or ten times one year's rental payments required under the lease or whose lease
payments have been guaranteed by an Affiliate of such tenant (a "Guarantor")
with a minimum net worth of $10 million.
"CUMULATIVE RETURN" means a cumulative, non-compounded return, equal to 7%
per annum on Invested Capital commencing upon acceptance of the investor's
subscription.
"CURRENT RETURN" means a non-cumulative, non-compounded return, equal to 7%
per annum on Invested Capital.
"DEALER MANAGER" means Inland Securities Corporation, one of the TIGI
Affiliated Companies.
"DEALER PROPERTY" means stock in trade of a taxpayer or other property of a
kind which would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of his trade or business,
as described in Section 1221(1) of the Code.
"DIRECTORS" means the members of the Board of Directors of the Company
(including the Independent Directors).
"DISTRIBUTIONS" means any cash distributed to Stockholders arising from
their interest in the Company.
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"DISTRIBUTION TEST" means the REIT Requirement that a REIT distribute
annually to its Stockholders an amount at least equal to (i) the sum of (A) 95%
of its REIT Taxable Income for the year (determined without regard to the
dividends paid deduction and by excluding any net capital gain) and (B) 95% of
the excess of its net income from Foreclosure Property over the taxes imposed on
such income; minus (ii) certain excess non-cash items.
"DOL" means the United States Department of Labor.
"DOL REGULATIONS" means final, temporary and proposed regulations
promulgated by the DOL.
"DOMESTICALLY CONTROLLED REIT" means, generally, a REIT in which at all
times during a specific testing period less than 50% in value of its shares are
held directly or indirectly by Foreign Stockholders.
"DRP" means the Company's Distribution Reinvestment Plan.
"DUE DILIGENCE EXPENSE ALLOWANCE" means an amount up to 0.5% of the Gross
Offering Proceeds from the sale of 50,000,000 Shares offered on a "best efforts"
basis (except for certain Special Sales) paid to the Dealer Manager, a portion
of which may, at the discretion of the Dealer Manager, be reallowed to
Soliciting Dealers, to reimburse the Dealer Manager or Soliciting Dealers for
BONA FIDE due diligence expenses.
"EQUITY STOCK" means stock that is either Shares and/or Preferred Stock of
the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means LaSalle National Bank, N.A., pursuant to that certain
Escrow Agreement between the Company, the Escrow Agent and the Dealer Manager.
"EXCESS SHARES" means Shares or Preferred Stock of the Company which are
automatically converted into an equal number of Excess Shares and transferred
automatically to the Share Trust upon a purported transfer of such Shares or
Preferred Stock which is violative of the applicable restrictions on transfer.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations promulgated thereunder.
"EXERCISE PERIOD" means the period commencing one year after the first
issuance of any of the Soliciting Dealer Warrants and ending five years after
such first issuance, during which period the Soliciting Dealer Warrants may be
exercised.
"FASIT" means a financial asset securitization investment trust.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FIVE OR FEWER REQUIREMENT" means the REIT Requirement that, at all times
during the second half of each taxable year (other than its first taxable year),
no more than 50% in value of the shares of a REIT may be owned, directly,
indirectly, or by attribution, by five or fewer individuals.
"FORECLOSURE PROPERTY" means any real property or Interests in Real
Property, and any personal property incident to such property, acquired by a
REIT as a result of the REIT having bid on such property at foreclosure, or
having otherwise reduced such property to ownership or possession by agreement
or process of law, after there was a default or default was imminent, on a lease
of such property or on an indebtedness which such property secured. "Foreclosure
Property" does not include property acquired by a REIT as the result of
indebtedness arising from the sale or other disposition of Dealer Property of
the REIT which was not originally acquired as Foreclosure Property.
"FOREIGN STOCKHOLDERS" means non-resident alien individuals, foreign
corporations, foreign partnerships, and foreign trusts and estates, as such
terms are defined in the Code.
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"FORMATION TRANSACTIONS" means those transactions relating to the
organization and formation of the Company and the Operating Partnership,
including (i) the formation of the Company and the Operating Partnership, (ii)
the Advisor making the Advisor's Company Contribution and the Advisor's
Partnership Contribution, (iii) the commencement of the Offering, (iv) the
contribution of the proceeds from the Advisor's Company Contribution and the
proceeds of the Offering by the Company to the Operating Partnership, (v) the
issuance of the GP Common Units to the Company in exchange for its contribution
of the proceeds from the Advisor's Company Contribution and the proceeds of the
Offering, (vi) the acquisition of the Initial Properties, provided that the Net
Proceeds of the Offering are sufficient to make such acquisitions, (vii) the
retirement in full of the Affiliates' Acquisition Debt, the reduction of the
Initial Mortgage Debt by $300,000 and the payment of other debt incurred in
connection with organization of the Company, the payment of the expenses of the
Offering and the reservation of funds for general working capital purposes and,
to the extent that there are additional Net Proceeds of the Offering available,
the acquisition of additional Properties or further reduction of the Initial
Mortgage Debt on the Initial Properties, and (viii) the qualification of the
Company as a REIT for federal income tax purposes for the taxable year ending
December 31, 1998, all as described under "Structure and Formation of the
Company--Formation Transactions."
"FUNDS FROM OPERATIONS" means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of Property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
"GAAP" means generally accepted accounting principles in the United States.
"GENERAL PARTNER" means the Company as the General Partner of the Operating
Partnership.
"GLA" means gross leasable area, which is that area in Shopping Centers for
which tenants pay rent, and is the total floor area designed for tenants'
occupancy and exclusive use, expressed in square feet.
"GNMA" means Government National Mortgage Association.
"GP COMMON UNITS" means Common Units representing the general partnership
interest in the common equity of the Operating Partnership held by the Company.
"GROSS INCOME TESTS" means the 95% Gross Income Test and the 75% Gross
Income Test.
"GROSS OFFERING PROCEEDS" means the total proceeds from the sale of the
50,000,000 Shares in the Best Efforts Offering during the public offering period
before deductions for Organization and Offering Expenses. For purposes of
calculating Gross Offering Proceeds, the purchase price for all Shares,
including those for which volume discounts apply and other Special Sales, shall
be deemed to be $10.00 per Share. Unless specifically included, Gross Offering
Proceeds does not include any proceeds from the sale of up to 4,000,000 Shares
under the DRP during the public offering period, the purchase price for which
shall be $9.50 per Share, nor any proceeds from the issuance and exercise of the
Soliciting Dealer Warrants.
"GUARANTOR" means a Person with a minimum net worth of $10 million which has
guaranteed the lease payments of a tenant which is an Affiliate.
"INCENTIVE ADVISORY FEE" means an amount equal to 15% of the net proceeds
from the sale of a Property after the Stockholders have first received: (i)
their Cumulative Return; and (ii) a return of their Invested Capital.
"INDEPENDENT DIRECTORS" means the Directors who: (i) are not affiliated,
directly or indirectly, with the Company or the Advisor, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or as an officer or director of the Company, the Advisor or
any of their Affiliates; (ii) do not serve as a director or trustee for more
than two other REITs organized by the
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Company or the Advisor or advised by the Advisor; and (iii) perform no other
services for the Company, except as Directors. For this purpose, an indirect
relationship shall include circumstances in which a member of the immediate
family of a Director has one of the foregoing relationships with the Company or
the Advisor or any of their Affiliates. For purposes of determining whether or
not the business or professional relationship is material, the aggregate gross
revenue derived by the prospective Independent Director from the Company, the
Sponsor and the Advisor and their Affiliates shall be deemed material PER SE if
it exceeds 5% of the prospective Independent Directors: (i) annual gross
revenue, derived from all sources, during either of the last two years; or (ii)
net worth, on a fair market value basis.
"INDEPENDENT DIRECTOR STOCK OPTION PLAN" means the Company's stock option
plan for the benefit of its Independent Directors.
"INDEPENDENT EXPERT" means a Person with no material current or prior
business or personal relationship with the Advisor or the Directors and who is
engaged, to a substantial extent, in the business of rendering opinions
regarding the value of assets of the type held by the Company.
"INITIAL MORTGAGE DEBT" means the aggregate mortgage debt to which the
Initial Properties will be subject as of the Company's acquisition thereof.
"INITIAL PROPERTIES" means the four Retail Centers that the Company has
rights to and intends to acquire, provided that the Net Proceeds of the Offering
are sufficient to make such acquisitions.
"INITIAL PROPERTY SELLERS" means the Affiliates of TIGI which will sell
their ownership interests in the Initial Properties to the Operating Partnership
in the Formation Transactions.
"INLAND" or "TIGI" means The Inland Group, Inc., a Delaware corporation.
"INLAND AFFILIATED COMPANIES" or the "INLAND ORGANIZATION" or "TIGI
AFFILIATED COMPANIES" means Inland and its subsidiaries and its and their
Affiliates.
"INTERESTED STOCKHOLDER" means any Person (other than the Company or any
subsidiary of the Company) that (a) is the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding Equity Stock
of the Company after the date on which the Company has 100 or more beneficial
owners of its Equity Stock, or (b) is an Affiliate or associate of the Company
and was the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding Equity Stock of the Company at any time
within the two-year period immediately prior to the date in question and after
the date on which the Company had 100 or more beneficial owners of its Equity
Stock.
"INTERESTS" means equity interests in Property Partnerships, which might be
issued to Persons for equity interests in Properties.
"INTERESTS IN REAL PROPERTY" means and includes fee ownership and
co-ownership of undivided interests in land or improvements thereon, leaseholds
of land or improvements thereon, options to acquire land or improvements
thereon, and options to acquire leaseholds of land or improvements thereon, but
does not include mineral, oil, or gas royalty interests
"INVESTED CAPITAL" means the original issue price paid for the Shares
reduced by prior Distributions from the sale or financing of the Company's
Properties.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"IRA" means an individual retirement account established pursuant to Section
408 of the Code.
"IREA" means Inland Real Estate Acquisitions, Inc., one of the TIGI
Affiliated Companies.
"IREAS" means Inland Real Estate Advisory Services, Inc., the advisor to
IREC, one of the TIGI Affiliated Companies.
"IREC" means Inland Real Estate Corporation, an IREIC-sponsored REIT.
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"IREIC" means Inland Real Estate Investment Corporation, Sponsor of the
Company, and one of the TIGI Affiliated Companies.
"LIMITED PARTNER" means a limited partner of the Operating Partnership.
"LP COMMON UNITS" means common units representing limited partnership
interests in the common equity of the Operating Partnership.
"LP PREFERRED UNITS" means preferred units representing limited partnership
interests in the common equity of the Operating Partnership.
"LP UNITS" means LP Common Units and LP Preferred Units of the Operating
Partnership collectively.
"MANAGEMENT AGENT" means an entity which provides Property rental, leasing,
operation and management services to the Company pursuant to the Management
Agreement. The Management Agent is Inland Southeast Property Management Corp.,
which is owned principally by individuals who are Affiliates of Inland, or
anyone which succeeds it in such capacity.
"MANAGEMENT AGREEMENT" means the agreement between the Company and the
Management Agent for the rental, leasing, operation and management of the
Company's Properties.
"MARKETING CONTRIBUTION" means the amount of 2% of the Gross Offering
Proceeds from the sale of the 50,000,000 Shares offered on a "best efforts"
basis (except for certain Special Sales) paid to the Dealer Manager, in lieu of
reimbursement of specific expenses associated with marketing, a portion of which
may, at the discretion of the Dealer Manager, be reallowed to Soliciting
Dealers.
"MARKET PRICE" means on any date the average of the Closing Price (as
defined below) per Share for the five consecutive Trading Days (as defined
below) ending on such date. The "Closing Price" on any date means the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the Shares
are not listed or admitted to trading on any national securities exchange, the
last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by The Nasdaq Stock
Market, Inc. ("Nasdaq"), or, if Nasdaq is no longer in use, the principal
automated quotation system that may then be in use or, if the Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Shares
selected by the Board, or if there is no professional market maker making a
market in the Shares, the average of the last ten (10) sales pursuant to the
Offering if the Offering has not concluded, or if the Offering has concluded,
the average of the last ten (10) purchases by the Company pursuant to its Share
Repurchase Program (the "SRP"), and if there are fewer than ten (10) of such
purchases under the SRP, then the average of such lesser number of purchases,
or, if the SRP is not then in existence, the price at which the Company is then
offering Shares to the public if the Company is then engaged in a public
offering of Shares, or if the Company is not then offering Shares to the public,
the price at which a Stockholder may purchase Shares pursuant to the Company's
Distribution Reinvestment Program (the "DRP") if such DRP is then in existence,
or if the DRP is not then in existence, the fair market value of the Shares as
determined by the Company, in its sole discretion. "Trading Day" shall mean a
day on which the principal national securities exchange or national automated
quotation system on which the Shares are listed or admitted to trading is open
for the transaction of business or, if the Shares are not listed or admitted to
trading on any national securities exchange or national automated quotation
system, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of Illinois are authorized or obligated by law
or executive order to close.
"MARYLAND GENERAL CORPORATION LAW" or "MGCL" means the General Corporation
Law of Maryland, as amended from time to time.
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"MAXIMUM OFFERING" means 50,000,000 Shares offered for sale on a "best
efforts" basis (plus, where applicable and specified, 4,000,000 Shares available
for sale under the DRP pursuant to this Prospectus, and plus only where
applicable and specified, the 1,250,000 Soliciting Dealer Warrants and 1,250,000
Shares which may be issued upon the exercise of the Soliciting Dealer Warrants
which may be issued and sold to the Dealer Manager, and which may, at the
discretion of the Dealer Manager, be reallowed to Soliciting Dealers).
"MINIMUM INITIAL PURCHASE" means the minimum amount which must be purchased
by a Person who is not a Stockholder at the time of purchase.
"NAREIT" means the National Association of Real Estate Investment Trusts,
Inc.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"NEIGHBORHOOD CENTER" means any Shopping Center which is leased primarily to
one or more retail tenants providing for the sale of convenience goods (foods,
drugs and sundries) and personal services (laundry, dry cleaning, barbering,
shoe repair, etc.) for the day-to-day living needs of the immediate
neighborhood, with GLA ranging from 10,000 to 100,000 square feet.
"NET ASSETS" or "NET ASSET VALUE" means the total assets of the Company
(other than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities of the Company, calculated at least quarterly on
a basis consistently applied.
"NET BUILT-IN GAIN" means (i) the excess of the fair market value of an
asset acquired by a REIT from a C corporation in a transaction in which the
basis of such asset in the REIT's hands is determined by reference to the basis
of the asset (or any other property) in the hand of the transferor corporation,
over the basis of such asset; (ii) the excess of the fair market value of the
assets of a REIT on the first day it first qualifies as a REIT over the adjusted
basis of such assets; (iii) the excess of the fair market value of the assets of
an acquired QRS over the adjusted basis of such assets on the date of
acquisition.
"NET EQUITY VALUE" of a Property as of the date of contribution of the
Property to the Operating Partnership, generally, will be the purchase price of
the Property to the Operating Partnership (I.E., its fair market value), less
the amount, as of the date of such contribution, of any liabilities (E.G.,
mortgages or other monetary encumbrances) to which the Property is subject or
which are assumed by the Operating Partnership in connection with such
contribution.
"NET INCOME" means, for any period, total revenues applicable to such
period, less the expenses applicable to such period other than additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall not include
the gain from the sale of the Company's assets.
"NET PROCEEDS OF THE OFFERING" means the proceeds received by the Company
with respect to the sale of Shares less Organization and Offering Expenses.
"95% GROSS INCOME TEST" means the REIT Requirement that at least 95% of a
REIT's gross income, excluding gross income from prohibited transactions, be
derived from:
(A) dividends;
(B) interest;
(C) Rents from Real Property;
(D) gain from the sale or other disposition of stock, securities, and real
property (including interests in real property and interests in mortgages
on real property) which is not Dealer Property;
(E) abatements and refunds of taxes on real property;
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(F) income and gain derived from Foreclosure Property;
(G) amounts (other than amounts the determination of which depends in whole
or in part on the income or profits of any person) received or accrued as
consideration for entering into agreements (i) to make loans secured by
mortgages on real property or on Interests in Real Property or (ii) to
purchase or lease real property (including Interests in Real Property and
interests in mortgages on real property); and
(H) gain from the sale or other disposition of a real estate asset which is
not a prohibited transaction solely by reason of section 857(b)(6) of the
Code.
"NON-ERISA PLAN" means a Plan which is not subject to Title I of ERISA
because it is a governmental or church plan or because it does not cover common
law employees.
"NON-U.S. STOCKHOLDER" means a holder of Shares who is a nonresident alien
individual, foreign corporation, foreign partnership, foreign trust or estate or
other foreign stockholder.
"NULL TRANSFER" means a purported transfer of Shares or Preferred Stock
which is violative of the applicable restrictions on transfer and which results
in the Shares or Preferred Stock becoming Excess Shares.
"OFFERING" means the offering of 50,000,000 Shares of the Company offered
for sale on a "best efforts" basis and, unless the context requires otherwise,
plus 4,000,000 Shares offered for sale under the DRP pursuant to this
Prospectus, and unless the context requires otherwise, plus the 1,250,000
Soliciting Dealer Warrants and 1,250,000 Shares which may be issued upon the
exercise of the Soliciting Dealer Warrants which may be granted to the Dealer
Manager and, at its discretion, reallowed to the Soliciting Dealers.
"OPERATING PARTNERSHIP" means Inland Retail Real Estate Limited Partnership,
an Illinois limited partnership.
"OPERATING PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership
of Inland Retail Real Estate Limited Partnership.
"ORGANIZATION AND OFFERING EXPENSES" means all those expenses incurred by
and to be paid from the assets of the Company in connection with and in
preparing the Company for registration and subsequently offering and
distributing Shares to the public, including, but not limited to, total
underwriting and brokerage discounts and commissions (including fees and
expenses of underwriters and their accountants and attorneys paid by the
Company), expenses for printing, engraving, mailing, salaries of the Company's
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositaries, experts, expenses of
qualification of the sale of the securities under federal and state laws,
including taxes and fees, and accountants' and attorneys' fees and expenses.
"ORGANIZATION DOCUMENTS" means the Articles and Bylaws of the Company.
"OTHER OPERATING EXPENSES" means Total Operating Expenses less the Advisor
Asset Management Fee.
"OWNERSHIP LIMIT" means the prohibition on beneficial ownership of no more
than 9.8%, in number of shares or value, of outstanding Equity Stock of the
Company.
"PARTICIPANT" means a Stockholder who elects to participate in the DRP.
"PARTNERSHIPS" or "PROGRAMS" means the prior public or private real estate
equity or private placement mortgage and note limited partnerships which were
sponsored by one of the TIGI Affiliated Companies.
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"PENSION-HELD REIT" means any REIT in which either (i) at least one
Qualified Plan holds more than 25% (by value) of the outstanding capital stock
of the REIT; or (ii) one or more Qualified Plans (each of which owns more than
10% (by value) of the outstanding capital stock of the REIT) hold an aggregate
of more than 50% (by value) of outstanding capital stock of the REIT.
"PERSON" means any individual, corporation, business trust, estate, trust,
partnership, limited liability company, association, two or more persons having
a joint or common interest, or any other legal or commercial entity.
"PLAN" means pension, profit-sharing, retirement, IRA or other employee
benefit Plan.
"PREFERRED UNITS" means Units of the Operating Partnership on which a
preferred return is paid or which provides for some other preference over Common
Units of the Operating Partnership.
"PRIMARY GEOGRAPHICAL AREA OF INVESTMENT" means the states east of the
Mississippi River in the United States.
"PROHIBITED OWNER" means any purported owner of Shares who would otherwise
violate the Ownership Limit or such other limit as provided in the Articles of
Incorporation.
"PROHIBITED TRANSACTION" means a sale or other disposition of Dealer
Property which is not Foreclosure Property.
"PROPERTY ACQUISITION SERVICE AGREEMENT" means that certain agreement among
the Company, the Advisor, IREC, IREAS and IREA which resolves, among the
Company, IREC and any other real estate investment program sponsored by IREIC,
conflicting investment opportunities in connection with the acquisition of
Properties.
"PROPERTY" or "PROPERTIES" means any, or all, respectively, of the real
property and improvements thereon owned or to be owned by the Company, directly
or indirectly.
"PROPERTY DISPOSITION FEE" means a real estate disposition fee, payable
(under certain conditions) to the Advisor and its Affiliates upon the sale of
the Company's Property in an amount equal to the lesser of: (i) 3% of the
contracted for sales price of the Property; or (ii) 50% of the commission paid
to third parties which is reasonable, customary and competitive in light of the
size, type and location of such Property.
"PROPERTY MANAGEMENT FEE" means any fee paid to an Affiliate or third party
as compensation for management of the Company's Properties. The Property
Management Fee shall be a percentage of the aggregate gross revenues from the
Properties, and if paid to an Affiliate of the Advisor shall be equal to not
more than 90% of the fee which would be payable to an unrelated party providing
such services. Initially, such fee shall be 4.5% of the gross revenues from the
Properties.
"PROPERTY PARTNERSHIPS" means those entities (other than the Operating
Partnership) such as limited liability companies, general and limited
partnerships and trusts that own one or more of the Properties.
"PROSPECTUS" means the final prospectus of the Company dated ,
1998 as it may be supplemented in connection with the registration of the Shares
offered hereby.
"QRS" means a "Qualified REIT Subsidiary" within the meaning of the Code.
"QUALIFIED PLAN" means a Plan which satisfies the requirements for
qualification under Section 401 of the Code.
"QUALIFIED REIT SUBSIDIARY" means any corporation 100% of the stock of which
is owned by a REIT.
"REAL ESTATE ASSETS" means Interests in Real Property (including undivided
interests in real property, leaseholds of land and improvements thereon, and
options to acquire land and leaseholds of land and improvements thereon),
interests in mortgages on real property (including interests in mortgages on
leaseholds or improvements thereon), shares in other qualifying REITs and
property attributable to certain
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temporary investments of new capital for a one-year period beginning on the date
the REIT received the new capital. Property will qualify as attributable to the
temporary investment of new capital if the property is stock or a debt
instrument and the money used to purchase such stock or debt instrument is
received by the REIT in exchange for stock in the REIT (other than amounts
received pursuant to a dividend reinvestment plan) or in a public offering of
debt obligations which have a maturity of at least five years. In addition,
regular and residual interests in a real estate mortgage investment conduit
("REMIC") and regular interests in financial asset securitization investment
trusts ("FASIT") are considered "Real Estate Assets." However, if less than 95%
of a REMIC's assets are Real Estate Assets, a REIT is treated as if it held its
proportionate share of the assets and income of the REMIC directly.
"RECOGNITION PERIOD" means the ten-year period beginning on the date that a
REIT (i) first qualifies as a REIT; (ii) acquires any asset from a C corporation
in a transaction in which the basis of such asset in the REIT's hands is
determined by reference to the basis of the asset (or any other property) in the
hand of the transferor corporation; or (iii) acquires the stock of an existing
corporation which becomes a QRS.
"REGIONAL CENTER" means any Shopping Center that provides for general
merchandise, apparel, furniture and home furnishings in depth and variety, as
well as a range of services and recreational facilities. It is built around one
or two full-line department stores of generally not less than 75,000 square feet
each. A Regional Center may have GLA ranging from 250,000 to more than 900,000
square feet, and provides services typical of a business district yet not as
extensive as those of a Super Regional Center.
"REGISTRATION RIGHTS" means the "demand" and "piggyback" registration rights
that the Company may grant to the Limited Partners of the Operating Partnership
and/or Property Partnerships with respect to the Shares acquired by them upon
conversion of their LP Units issued for their equity interests in Properties, or
that the Company may grant with respect to Shares issued directly for equity
interests in Properties.
"REGISTRATION STATEMENT" means the registration statement on Form S-11 and
related exhibits, as amended, filed by the Company with the Commission in
connection with the Offering, of which this Prospectus is a part thereof.
"REIMBURSABLE EXPENSES" means those certain expenses of the Advisor and its
Affiliates which will be reimbursed by the Company.
"REIT" means a real estate investment trust as defined by the Code and the
applicable Treasury Regulations.
"REIT REQUIREMENTS" means the requirements for qualifying as a REIT as
contained in Sections 856 through 860 of the Code and the Regulations
promulgated thereunder.
"REIT TAXABLE INCOME" means the taxable income as computed for a corporation
which is not a REIT: (i) without the deductions allowed by Sections 241 through
247, 249 and 250 of the Code (relating generally to the deduction for dividends
received); (ii) excluding amounts equal to: (a) the net income from Foreclosure
Property; and (b) the net income derived from Prohibited Transactions; (iii)
deducting amounts equal to: (x) any net loss derived from Prohibited
Transactions; and (y) the tax imposed by Section 857(b)(5) of the Code upon a
failure to meet the 95% Gross Income Test and/or the 75% Gross Income Test; and
(iv) disregarding the dividends paid, computed without regard to the amount of
the net income from Foreclosure Property which is excluded from REIT Taxable
Income.
"REMIC" means a real estate mortgage investment conduit.
"RENTS FROM REAL PROPERTY" means, generally, (i) rents from Interests in
Real Property, (ii) charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not such charges are
separately stated, and (iii) rent attributable to personal property which is
leased under, or in connection with, a lease of real property, but only if the
rent attributable to such personal property for the taxable year does not exceed
15 percent of the total rent for the taxable year attributable to both the
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real and personal property leased under, or in connection with, such lease.
Rents from Real Property generally does not include (i) any amount received or
accrued, directly or indirectly, with respect to any real or personal property,
if the determination of such amount depends in whole or in part on the income or
profits derived by any person from such property (except that any amount so
received or accrued shall not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales); (ii) any amount received or accrued directly or
indirectly from any person if the REIT owns, directly or indirectly (A) in the
case of any person which is a corporation, stock of such person possessing 10
percent or more of the total combined voting power of all classes of stock
entitled to vote, or 10 percent or more of the total number of shares of all
classes of stock of such person; or (B) in the case of any person which is not a
corporation, an interest of 10 percent or more in the assets or net profits of
such person; and (iii) any amount received or accrued, directly or indirectly,
with respect to any real or personal property if the REIT furnishes or renders
services to the tenants of such property, or manages or operates such property,
other than through an independent contractor from whom the trust itself does not
derive or receive any income.
"RETAIL CENTER" means real estate primarily improved for use as retail
establishments, principally a multi-tenant Neighborhood Center or Community
Center (but also including a Regional Center or single-user retail facilities)
or improved with other commercial facilities which provide goods or services.
"ROLL-UP" means a transaction involving the acquisition, merger, conversion
or consolidation either directly or indirectly of the Company and a Roll-Up
Entity and the issuance of securities of a Roll-Up Entity to the Stockholders of
the Company. Such term does not include:
(i) a transaction involving securities of the Company that have been for at
least 12 months listed on a national securities exchange or traded
through the National Market System of Nasdaq; or
(ii) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(a) Stockholders' voting rights;
(b) the term and existence of the Company;
(c) Sponsor or Advisor compensation; or
(d) the Company's investment objectives.
"ROLL-UP ENTITY" means a partnership, REIT, corporation, trust or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up transaction.
"RULE 144" means Rule 144 promulgated under the Act.
"SEC" or "COMMISSION" means the United States Securities and Exchange
Commission.
"SELLING COMMISSION" means the amount of 7% of the Gross Offering Proceeds
from the sale of 50,000,000 Shares on a "best efforts" basis (except for Special
Sales) pursuant to this Prospectus, payable to the Dealer Manager which may, at
the discretion of the Dealer Manager, be retained or reallowed to Soliciting
Dealers for each Share sold.
"SERVICE" means the Internal Revenue Service of the United States of
America.
"75% ASSET TEST" means the REIT Requirement that, at the close of each
quarter, at least 75 percent of the value of the total assets of the REIT is
represented by Real Estate Assets, cash and cash items (including receivables),
and Government securities.
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"75% GROSS INCOME TEST" means the REIT Requirement that a REIT derive at
least 75% of its gross income, excluding gross income from Prohibited
Transactions, from:
(A) Rents from Real Property;
(B) interest on obligations secured by mortgages on real property or on
Interests in Real Property;
(C) gain from the sale or other disposition of real property (including
interests in real property and interests in mortgages on real property)
which is not Dealer Property;
(D) dividends or other distributions on, and gain (other than gain from
Prohibited Transactions) from the sale or other disposition of,
transferable shares (or transferable certificates of beneficial interest)
in other real estate investment trusts;
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from Foreclosure Property;
(G) amounts (other than amounts the determination of which depends in whole
or in part on the income or profits of any person) received or accrued as
consideration for entering into agreements (i) to make loans secured by
mortgages on real property or on interests in real property or (ii) to
purchase or lease real property (including interests in real property and
interests in mortgages on real property);
(H) gain from the sale or other disposition of a real estate asset which is
not a Prohibited Transaction solely by reason of section 857(b)(6) of the
Code; and
(I) qualified temporary investment income;
"SHARES" means the shares of common stock, par value $.01 per share, of the
Company, and "SHARE" means one of those Shares.
"SHARE TRUST" means a trust which holds Shares or Preferred Stock of the
Company which have been designated as Excess Shares.
"SHARE DIRECTOR" means the trustee of the Share Trust.
"SHOPPING CENTER" means a group of commercial establishments planned,
developed, owned and managed as a unit related in location, size and type of
shops to the trade area the unit serves. It provides on-site parking in definite
relationship to the types and sizes of stores.
"SOLICITING DEALER WARRANTS" means the warrants issuable by the Company to
the Dealer Manager, one warrant to purchase one Share during the Exercise Period
for $12.00 per Share for every 40 Shares sold by the Dealer Manager up to a
maximum of 1,250,000 warrants to purchase an equivalent number of Shares. If, at
the time of any exercise of the Soliciting Dealer Warrant, the then offering
price of Shares pursuant to this Prospectus for this Offering has been
increased, then the exercise price of each unexercised warrant issued in
connection with this Offering shall be adjusted to be equal to 120% of the then
current offering price per Share of the Shares offered or sold pursuant to this
Prospectus.
"SOLICITING DEALERS" means the dealer members of the NASD, designated by the
Dealer Manager.
"SPECIAL SALES" means: (A)(i) the sales of Shares to employees and
associates of the Company and its Affiliates, the Advisor, Affiliates of the
Advisor, the Dealer Manager or the Soliciting Dealers, (ii) the sales of Shares
pursuant to the Company's DRP, and (iii) the issuance of the Soliciting Dealer
Warrants or the Shares underlying the Soliciting Dealer Warrants issuable upon
the exercise thereof, with respect to which no selling commissions or Marketing
Contribution or Due Diligence Expense Allowance will be paid; and (B) the sales
of Shares which are entitled to volume discounts, with respect to which reduced
selling commissions will be paid.
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"SPONSOR" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company, or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of any
such Person. Not included is any Person whose only relationship with the Company
is as that of an independent property manager of the Company's assets, and whose
only compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
i. taking the initiative, directly or indirectly, in founding or organizing
the business or enterprise of the Company, either alone or in conjunction
with one or more other Persons;
ii. receiving a material participation in the Company in connection with
the founding or organizing of the business of the Company, in
consideration of services or property, or both services and property;
iii. having a substantial number of relationships and contacts with the
Company;
iv. possessing significant rights to control Company Properties;
v. receiving fees for providing services to the Company which are paid on a
basis that is not customary in the industry; or
vi. providing goods or services to the Company on a basis which was not
negotiated at arm's-length with the Company.
"SRP" means the Share Repurchase Program of the Company.
"STOCKHOLDERS" means the holders of Shares.
"SUPER REGIONAL CENTER" means any Shopping Center that provides for
extensive variety in general merchandise, apparel, furniture and home
furnishings, as well as a variety of services and recreational facilities. It is
built around three or more full-line department stores of generally not less
than 100,000 square feet each. A Super Regional Center may have GLA ranging from
600,000 to more than 1,500,000 square feet.
"TAX-EXEMPT ENTITIES" means any investor that is exempt from federal income
taxation, including without limitation a Qualified Plan, an endowment fund or a
charitable, religious, scientific or education organization.
"TERMINATION DATE" means , 2000.
"TIGI" or "INLAND" means The Inland Group, Inc., a Delaware corporation.
"TIGI AFFILIATED COMPANIES" or "INLAND AFFILIATED COMPANIES" or the "INLAND
ORGANIZATION" means TIGI and its subsidiaries and its and their Affiliates.
"TOTAL OPERATING EXPENSES" means the aggregate expenses of every character
paid or incurred by the Company as determined under generally accepted
accounting principles, including Advisor Asset Management Fees, but excluding:
a. the expenses of raising capital such as Organization and Offering
Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration and other fees, printing and other such expenses, and taxes
incurred in connection with the issuance, distribution, transfer,
registration and stock exchange listing of the Shares;
b. interest payments;
c. taxes;
d. non-cash expenditures such as depreciation, amortization and bad debt
reserves;
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e. incentive fees payable to the Advisor; and
f. Acquisition Expenses, real estate commissions on resale of real property
and other expenses connected with the acquisition, disposition and
ownership of real estate interests, mortgage loans or other property
(such as the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of real property).
"TREASURY REGULATIONS" means the Regulations promulgated by the United
States Department of the Treasury under the Code.
"TRIPLE-NET LEASE BASIS" means a lease pursuant to which a Creditworthy
Tenant is responsible for the base rent in addition to the costs and expenses in
connection with and related to property taxes, insurance, repairs and
maintenance applicable to the leased space.
"TRIPLE-NET SINGLE-USER RETAIL PROPERTIES OUTSIDE THE PRIMARY GEOGRAPHICAL
AREA OF INVESTMENT" means all Single-User Retail Properties leased on a
Triple-Net Lease Basis to a Creditworthy Tenant that are not located in the
Company's Primary Geographical Area of Investment.
"25% ASSET TEST" means the REIT Requirement that, at the end of each
quarter, not more than 25 percent of the value of a REIT's total assets is
represented by securities (other than securities qualifying under the 75% Asset
Test). In addition, the value of the securities of any one issuer held by a REIT
may not exceed 5 percent of the value of the total assets of the REIT and the
REIT may not own more than 10 percent of the outstanding voting securities of
such issuer.
"UBTI" means Unrelated Business Taxable Income as described in the Code.
"UMBRELLA PARTNERSHIP REAL ESTATE INVESTMENT TRUST" means a REIT that owns
and operates its properties, directly or indirectly, through an operating
partnership.
"UNITS" means all the units of partnership interests representing the equity
in the Operating Partnership, being the LP Units and the GP Common Units
collectively.
"UNRELATED BUSINESS TAXABLE INCOME" or "UBTI" as defined in Section 512 of
the Code, means generally the gross income derived by any organization from any
unrelated trade or business regularly carried on by it, less certain permitted
deductions which are directly connected with the carrying on of such trade or
business, both computed with certain modifications set forth in the Code.
Generally, Section 513 of the Code defines an unrelated trade or business as any
trade or business the conduct of which is not substantially related (apart from
the need to generate income or funds) to the exercise or performance of an
organization's exempt purpose or function.
"UPREIT" means an Umbrella Partnership Real Estate Investment Trust.
"USRPI" means a United States real property interest described in Section
897 of the Code. Generally, such an interest would be a direct interest in real
property located in the United States or an interest in a domestic corporation
which owns other USRPIs with a fair market value equal to at least 50% of the
sum of the fair market value of its USRPIs, foreign real property and assets
used in a trade or business.
"U.S." means the United States of America.
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APPENDIX A
INLAND RETAIL REAL ESTATE TRUST, INC.
PRIOR PERFORMANCE TABLES
<PAGE>
APPENDIX A
PRIOR PERFORMANCE TABLES
The following prior performance tables contain information concerning public
real estate limited partnerships sponsored by Affiliates of the Advisor
(collectively, the "Partnerships" or the "Programs", and individually, the
"Partnership" or the "Program"). This information has been summarized, in part,
in narrative form in this Prospectus under "Prior Performance of the Company's
Affiliates." The purpose of the tables is to provide information on the
performance of those Partnerships to assist in evaluating the experience of the
Affiliates of the Advisor as sponsors of such Programs. However, the inclusion
of these tables does not imply that the Company will make investments comparable
to those reflected in the tables or that investors in the Company will
experience returns comparable to those experienced in the Programs referred to
in these tables. Persons who purchase Shares in the Company will not thereby
acquire any ownership in any of the Partnerships to which these tables relate.
The tables consist of:
<TABLE>
<S> <C>
Table I Experience in Raising and Investing Funds
Table II Compensation to IREIC and Affiliates
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs*
</TABLE>
* Prospective investors in the Company may obtain copies of Table VI by
contacting the Advisor.
Except with respect to Inland Land Appreciation Fund, L.P., Inland Land
Appreciation Fund II, L.P., and Inland Capital Fund, L.P., the Partnerships
presented in the tables are public real estate limited partnerships formed
primarily to acquire, operate and sell existing residential and commercial real
properties. Generally, the investment objectives of those Partnerships were as
follows:
(1) Capital appreciation; and
(2) Cash distributions for limited partners.
The Company's investment objectives are to: (i) provide regular
Distributions to Stockholders in amounts which may exceed the Company's taxable
income due to the non-cash nature of depreciation expense and, to such extent,
will constitute a tax-deferred return of capital, but in no event less than 95%
of the Company's taxable income, pursuant to the REIT Requirements; (ii) provide
a hedge against inflation by entering into leases which contain clauses for
scheduled rent escalations or participation in the growth of tenant sales,
permitting the Company to increase Distributions and provide capital
appreciation; and (iii) preserve Stockholders' capital.
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I is intended to present information on a dollar and percentage basis
showing the experience of Inland Real Estate Investment Corporation ("IREIC"),
of which the Advisor is a wholly owned subsidiary, in raising and investing
funds in prior Partnerships where the offering closed in the three years prior
to December 31, 1997. The Table is intended to particularly focus upon the
dollar amount available for investment in properties expressed as a percentage
of total dollars raised. However, since the offerings of the Partnerships closed
prior to the three years ended December 31, 1997, Table I is not included.
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TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
Table II summarizes the amount and type of compensation paid to IREIC and
its Affiliates in connection with the Programs.
Some of the Partnerships acquired their properties from Affiliates of the
Advisor which had purchased such properties from unaffiliated third parties.
TABLE II
COMPENSATION TO IREIC AND AFFILIATES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
PUBLIC
PROGRAMS
---------------
<S> <C>
6 PROGRAMS
---------------
Date offering commenced.......................................................................... --
Dollar amount raised............................................................................. $ 172,241
---------------
---------------
Amounts paid or payable to general partner of the Partnerships or affiliates from proceeds of
offerings:
Selling commissions and underwriting fees (B).................................................. $ 5,885
Other offering expenses (C).................................................................... 2,310
Acquisition cost and expense (D)............................................................... 10,088
Dollar amount of cash available (deficiency) from operations before deducting (adding) payments
to (from) general partner of the Partnerships or affiliates (E)................................ $ 16,025
---------------
---------------
Amounts paid to (received from) general partner of the Partnerships or affiliates related to
operations:
Property management fees (F)................................................................... $ 845
Partnership subsidies received............................................................... 0
Accounting services.......................................................................... 228
Data processing service...................................................................... 158
Legal services............................................................................... 239
Other administrative services................................................................ 855
Property upgrades............................................................................ 848
Property operating expenses.................................................................. 0
Dollar amount of property sales and refinancings before payments to general partner of the
Partnerships and affiliates (G):
Cash......................................................................................... $ 15,529
Equity in notes and undistributed sales proceeds............................................. 5,960
Dollar amounts paid or payable to general partner of the Partnerships or affiliates from sales
and refinancings (H):
Sales commissions............................................................................ $ 267
Property upgrade............................................................................. 8
Mortgage brokerage fee....................................................................... 0
Participation in cash distributions.......................................................... 0
</TABLE>
A-2
<PAGE>
TABLE II (CONTINUED)
COMPENSATION TO IREIC AND AFFILIATES
(000'S OMITTED)
NOTES TO TABLE II
(A) The figures in this Table II relating to proceeds of the offerings are
cumulative and are as of December 31, 1997 and the figures relating to cash
available from operations are for the three years ending December 31, 1997.
The dollar amount raised represents the cash proceeds collected by the
Partnerships. Amounts paid or payable to IREIC or affiliates from proceeds
of the offerings represent payments made or to be made to IREIC and
affiliates from investor capital contributions.
(B) The total amount of selling commissions paid to an affiliate of the general
partner of the Partnerships include $2,711,791, which was in turn paid to
third party soliciting dealers.
(C) Consists of legal, accounting, printing and other offering expenses,
including amounts to be paid to Inland Securities Corporation to be used as
incentive compensation to its regional marketing representatives and amounts
for reimbursement of the general partner of the Partnerships for marketing,
salaries and direct expenses of its employees while directly engaged in
registering and marketing the units in the Partnerships and other marketing
and organization expenses.
(D) Represents initial cash down payments and future principal payments and
prepaid items and fees paid to IREIC and its affiliates in connection with
the acquisition of properties less amounts paid to unaffiliated third
parties to acquire such properties. Cash down payments include amounts
received at closing.
<TABLE>
<CAPTION>
PUBLIC
PROGRAMS
---------------
<S> <C>
6 PROGRAMS
---------------
Acquisition fees................................................................................. $ 9,975
Reimbursement (at cost) for upgrades and acquisition due diligence............................... 113
Partnership down payments........................................................................ 38,745
Inland down payments............................................................................. (38,745)
---------------
Acquisition cost and expense..................................................................... $ 10,088
---------------
---------------
</TABLE>
(E) See Note (B) to Table III.
(F) An Affiliate of the Advisor provides property management services for all
properties acquired by the Partnerships. Management fees have not exceeded
6% of the gross receipts from the properties managed. With respect to Inland
Capital Fund, L.P., Inland Land Appreciation Fund II, L.P. and Inland Land
Appreciation Fund, L.P., IREIC receives an annual asset management fee equal
to one-quarter of 1% of the original cost to the Partnership of undeveloped
land, limited to a cumulative total over the life of the Partnership of 2%
of the land's original cost to the Partnership.
(G) See Table V and Notes thereto regarding sales and disposals of properties.
(H) Real estate sales commissions and participations in cash distributions are
paid or payable to IREIC and/or its affiliates in connection with the sales
of properties. Payments of all amounts shown are subordinated to the receipt
by the limited partners of the Partnerships of their original capital
investment. See Table V and Notes thereto.
A-3
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents operating results for the only one of the Partnerships
whose offering closed during each of the five years ended prior to December 31,
1997. The operating results consist of:
- The components of taxable income (loss);
- Taxable income or loss from operations and property sales;
- Cash available and source, before and after cash distributions to
investors; and
- Tax and distribution data per $1,000 invested.
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED)
<TABLE>
<CAPTION>
INLAND CAPITAL
FUND, L.P.
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gross revenues................................................. $ 388 411 457 744 564
Profit on sale of properties................................... 1,003 0 229 0 0
Less:
Operating expenses........................................... 150 145 146 64 4
Interest expense............................................. 0 0 0 0 0
Partnership expenses......................................... 174 170 167 175 86
Depreciation & amortization.................................. 0 2 5 4 3
--------- --- --- --- ---
Net income (loss)-GAAP basis................................... $ 1,067 94 368 501 471
--------- --- --- --- ---
--------- --- --- --- ---
Taxable income (loss) (A):
Allocated to investors from operations....................... 62 93 137 495 466
Allocated to general partner from operations................. 1 1 1 5 5
--------- --- --- --- ---
Total from operations.......................................... 63 94 138 500 471
From gain on sale:
Capital (alloc. to investors)................................ 1,004 0 231 0 0
Capital (alloc. to general partner).......................... 0 0 0 0 0
Ordinary (recapture)......................................... 0 0 0 0 0
--------- --- --- --- ---
$ 1,067 94 369 500 471
--------- --- --- --- ---
--------- --- --- --- ---
Cash available (deficiency) from operations (B)................ (408) 130 172 633 397
Cash available from sales (C).................................. 1,328 0 646 0 0
Cash (deficiency) from refinancings............................ 0 0 0 0 0
--------- --- --- --- ---
Total cash available before distributions and special items.... 920 130 818 633 397
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Gross revenues................................................. 104 0
Profit on sale of properties................................... 0 0
Less:
Operating expenses........................................... 1 0
Interest expense............................................. 0 0
Partnership expenses......................................... 1 0
Depreciation & amortization.................................. 3 1
--- ---
Net income (loss)-GAAP basis................................... 99 (1)
--- ---
--- ---
Taxable income (loss) (A):
Allocated to investors from operations....................... 100 (1)
Allocated to general partner from operations................. 1 0
--- ---
Total from operations.......................................... 101 (1)
From gain on sale:
Capital (alloc. to investors)................................ 0 0
Capital (alloc. to general partner).......................... 0 0
Ordinary (recapture)......................................... 0 0
--- ---
101 (1)
--- ---
--- ---
Cash available (deficiency) from operations (B)................ 94 0
Cash available from sales (C).................................. 0 0
Cash (deficiency) from refinancings............................ 0 0
--- ---
Total cash available before distributions and special items.... 94 0
</TABLE>
A-4
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) (CONTINUED)
<TABLE>
<CAPTION>
INLAND CAPITAL
FUND, L.P.
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Less distributions to investors:
From operations.............................................. 0 0 0 0 0
From sales and refinancings.................................. 1,000 0 646 0 0
From return of capital....................................... 0 0 0 0 0
From supplemental capital contribution (return on capital)... 0 0 0 0 0
Less distributions to general partner:
From operations.............................................. 0 0 0 0 0
From sales and refinancings.................................. 0 0 0 0 0
--------- --- --- --- ---
Cash available after distributions before special items........ (80) 130 172 633 397
Special items:
Fixed asset additions (D).................................... 0 0 0 0 0
Advances (repayments) from (to) general partner or
affiliates................................................. 4 (20) 23 2 1
Repurchase of units (E)...................................... (24) (20) 0 (2) 0
Use of partnership reserves.................................. 0 0 0 2 0
Use of cash available for offering purposes.................. 0 0 0 0 0
Cash available after distributions and special items........... $ (100) 90 195 635 398
--------- --- --- --- ---
--------- --- --- --- ---
Tax and distribution data per $1,000 invested (F):
Federal income tax results:
Ordinary income (loss):
From operations............................................ 2 0 4 15 14
From recapture............................................. 0 0 0 0 0
Capital gain............................................... 31 0 7 0 0
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Less distributions to investors:
From operations.............................................. 0 0
From sales and refinancings.................................. 0 0
From return of capital....................................... 0 0
From supplemental capital contribution (return on capital)... 0 0
Less distributions to general partner:
From operations.............................................. 0 0
From sales and refinancings.................................. 0 0
--- ---
Cash available after distributions before special items........ 94 0
Special items:
Fixed asset additions (D).................................... 0 0
Advances (repayments) from (to) general partner or
affiliates................................................. (85) 85
Repurchase of units (E)...................................... 0 0
Use of partnership reserves.................................. 0 0
Use of cash available for offering purposes.................. 0 0
Cash available after distributions and special items........... 9 85
--- ---
--- ---
Tax and distribution data per $1,000 invested (F):
Federal income tax results:
Ordinary income (loss):
From operations............................................ 3 0
From recapture............................................. 0 0
Capital gain............................................... 0 0
</TABLE>
A-5
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) (CONTINUED)
<TABLE>
<CAPTION>
INLAND CAPITAL
FUND, L.P.
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cash distributions to investors:
Source (on GAAP basis):
Investment income.......................................... 0 0 0 0 0
Return of capital.......................................... 31 0 20 0 0
Supplemental capital contributions (return on capital)..... 0 0 0 0 0
Source (on cash basis):
Sales...................................................... 31 0 20 0 0
Refinancings............................................... 0 0 0 0 0
Operations................................................. 0 0 0 0 0
Return of capital.......................................... 0 0 0 0 0
Supplemental capital contributions (return on capital)..... 0 0 0 0 0
Percent of properties remaining unsold (G)..................... 97.81%
---------
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Cash distributions to investors:
Source (on GAAP basis):
Investment income.......................................... 0 0
Return of capital.......................................... 0 0
Supplemental capital contributions (return on capital)..... 0 0
Source (on cash basis):
Sales...................................................... 0 0
Refinancings............................................... 0 0
Operations................................................. 0 0
Return of capital.......................................... 0 0
Supplemental capital contributions (return on capital)..... 0 0
Percent of properties remaining unsold (G).....................
</TABLE>
NOTES TO TABLE III
(A) "Taxable income (loss)" represents the aggregate amounts shown on the
Partnership's tax returns for such years. One of the principal differences
between the tax basis of reporting and generally accepted accounting
principles (GAAP) is that depreciation is based upon the rates established
by the Accelerated Cost Recovery System (ACRS) for property placed in
service after January 1, 1981. Use of ACRS usually results in a higher
charge against operations than would be the result if the depreciation rate
was based upon the economic useful life as required by GAAP. Further, under
GAAP, to the extent that interest rates on notes received in connection with
the sale of a property are deemed to be below market interest rates at the
date of sale, such notes would be required to be discounted based upon
market interest rates.
(B) "Cash Available (Deficiency) from Operations," represents all cash revenues
and funds received by the Partnerships, including but not limited to
operating income less operating expenses, and interest income. These amounts
do not include payments made by the Partnerships from offering proceeds nor
do they include proceeds from sales or refinancings. These amounts also
exclude advances from or repayments to IREIC and affiliates which are
disclosed elsewhere in the table and include principal payments on long-term
debt. For example:
<TABLE>
<CAPTION>
INLAND CAPITAL
FUND, L.P.
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities per the
Form 10-K annual report or 10-Q quarterly report.............. $ (404) 110 195 635 398
Payments to (from) general partner and affiliates.............. (4) 20 (23) (2) (1)
Principal payments on long-term debt........................... 0 0 0 0 0
Payments for deferred loan fees................................ 0 0 0 0 0
--------- --- --- --- ---
$ (408) 130 172 633 397
--------- --- --- --- ---
--------- --- --- --- ---
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Net cash provided by operating activities per the
Form 10-K annual report or 10-Q quarterly report.............. 9 85
Payments to (from) general partner and affiliates.............. 85 (85)
Principal payments on long-term debt........................... 0 0
Payments for deferred loan fees................................ 0 0
--- ---
94 0
--- ---
--- ---
</TABLE>
A-6
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(000'S OMITTED, EXCEPT FOR AMOUNTS PRESENTED PER $1,000 INVESTED) (CONTINUED)
(C) See Table V and Notes thereto regarding sales and disposals of properties.
NOTES TO TABLE III
(D) Fixed asset additions represent betterments and improvements to properties
which have been paid for from the operations of the respective properties.
(E) Each Partnership established a unit repurchase program which provides
limited liquidity to eligible investors who have suffered severe adverse
financial conditions or who have died or become legally incapacitated. These
funds were utilized by the Partnerships to repurchase units, on a limited
basis, for pre-determined amounts pursuant to the terms of the prospectus
for such Partnership.
(F) Tax data per $1,000 is based on the income (loss) allocated to investors for
federal income tax purposes. Tax and distribution data per $1,000 invested
is based on total capital raised.
(G) Percent of properties remaining unsold represents original total acquisition
costs of properties retained divided by original total acquisition cost of
all properties in the program, plus the total of uninvested offering
proceeds (if any).
TABLE IV
RESULTS OF COMPLETED PROGRAMS
Table IV is a summary of operating and disposition results of the
Partnerships sponsored by Affiliates of the Advisor, which during the five years
ended prior to December 31, 1997 have sold their properties and either hold
notes with respect to such sales or have liquidated. None of the Partnerships
disposed of all its properties during the five years ended prior to December 31,
1997.
TABLE V
SALES OR DISPOSALS OF PROPERTIES
Table V presents information on the results of the sales or disposals of the
properties of the Partnerships during the three years ended prior to December
31, 1997. Since January 1, 1995, Partnerships sponsored by Affiliates of the
Advisor had 21 sales transactions. The table provides certain information to
evaluate property performance over the holding period such as:
- Sales proceeds received by the Partnerships in the form of cash down
payments at the time of sale after expenses of sale and secured notes
received at sale;
- Cash invested in properties;
- Cash flow (deficiency) generated by the property;
- Taxable gain (ordinary and total); and
- Terms of notes received at sale.
A-7
<PAGE>
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS
----------------------------------------------------------
CASH
RECEIVED, SECURED
NET OF SELLING COMMISSIONS MORTGAGE AT NOTES
DATE DATE OF CLOSING PAID OR PAYABLE TO TIME OF RECEIVED AT
ACQUIRED SALE COSTS (B) INLAND SALE SALE (C)
----------- --------- ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Land I 3.44 Acres of Parcel #23.......... 05/08/90 Var 95 139 0 0 0
Monthly Income Fund I - Schaumburg
Terrace, 16 Buildings.................. 06/24/88 Var 95 409 0 0 3,790(F)
Land II 60 Acres of Parcel #23........... 10/30/92 Var 95 4,196 0 0 0
Land II Parcel #25....................... 01/28/93 10/31/95 3,292 0 0 0
Capital Fund 7.039 Ac. of Parcel #10..... 09/16/94 04/21/95 286 0 0 0
Capital Fund 17.742 Ac. of Parcel #2..... 11/09/93 08/02/95 361 0 0 0
Land I 27.575 Acres of Parcel #4......... 04/18/89 08/25/95 542 0 9 0
Land II 5.538 Acres of Parcel #22........ 10/30/92 01/05/96 154 0 0 0
Land I 4.629 Acres of Parcel #24......... 05/23/90 04/01/96 53 0 0 0
Land II .87 Acres of Parcel #8........... 06/14/91 04/03/96 10 0 0 0
Land I 3.52 Acres of Parcel #1........... 01/19/89 12/24/96 501 0 0 0
Land I 10.53 Acres of Parcel #15......... 01/03/90 Var 96 533 0 0 0
Land II 8.25 Acres of Parcel #23......... 10/30/92 Var 96 1,527 0 0 0
Monthly Income Fund I - Yorkville Living
Center, Lot #11........................ 01/29/88 09/12/97 40 0 0 0
Land I 2.081 Acres of Parcel #13......... 11/07/89 09/18/97 26 0 0 0
(3,580)
Land I 81.216 Acres of Parcel #1......... 01/19/89 Var 97 31 0 (G) 2,170(H)
Land I 5.468 Acres of Parcel #15......... 01/03/90 Var 97 491 0 0 0
Land II 12.6506 Acres of Parcel #7....... 04/22/91 Var 97 1,133 0 0 0
Land II 2.61 Acres of Parcel #23......... 10/30/92 Var 97 477 0 0 0
Capital Fund 8.6806 Ac. of Parcel #2..... 11/09/93 Var 97 686 0 0 0
Capital Fund 2.305 Ac. of Parcel #4...... 03/30/94 Var 97 642 0 0 0
<CAPTION>
COST OF PROPERTIES INCLUDING CLOSING COSTS
AND OTHER CASH EXPENDITURES
-------------------------------------------
ORIGINAL PARTNERSHIP
NET SELLING MORTGAGE CAPITAL
PRICE FINANCING INVESTED (D) TOTAL
----------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Land I 3.44 Acres of Parcel #23.......... 139 0 98 98
Monthly Income Fund I - Schaumburg
Terrace, 16 Buildings.................. 4,199 0 3,683 3,683
Land II 60 Acres of Parcel #23........... 4,196 0 2,900 2.900
Land II Parcel #25....................... 3,292 0 1,730 1,730
Capital Fund 7.039 Ac. of Parcel #10..... 286 0 221 221
Capital Fund 17.742 Ac. of Parcel #2..... 361 0 196 196
Land I 27.575 Acres of Parcel #4......... 542 0 231 231
Land II 5.538 Acres of Parcel #22........ 154 0 60 60
Land I 4.629 Acres of Parcel #24......... 53 0 23 23
Land II .87 Acres of Parcel #8........... 10 0 10 10
Land I 3.52 Acres of Parcel #1........... 501 0 281 281
Land I 10.53 Acres of Parcel #15......... 533 0 265 265
Land II 8.25 Acres of Parcel #23......... 1,527 0 1,104 1,104
Monthly Income Fund I - Yorkville Living
Center, Lot #11........................ 40 0 25 25
Land I 2.081 Acres of Parcel #13......... 26 0 6 6
Land I 81.216 Acres of Parcel #1......... 5,781 0 5,668 5,668
Land I 5.468 Acres of Parcel #15......... 491 0 173 173
Land II 12.6506 Acres of Parcel #7....... 1,027 0 746 746
Land II 2.61 Acres of Parcel #23......... 477 0 352 352
Capital Fund 8.6806 Ac. of Parcel #2..... 686 0 255 255
Capital Fund 2.305 Ac. of Parcel #4...... 642 0 70 70
</TABLE>
A-8
<PAGE>
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
EXCESS (DEFICIENCY) OF
PROPERTY OPERATING CASH AMOUNT OF SUBSIDIES
RECEIPTS OVER CASH INCLUDED IN OPERATING TOTAL TAXABLE
EXPENDITURES (E) CASH RECEIPTS GAIN FROM SALE
----------------------- ------------------------- -----------------
<S> <C> <C> <C>
Land I 3.44 Acres of Parcel #23............................. 0 0 33
Monthly Income Fund I - Schaumburg Terrace, 16 Buildings.... 1,152 0 1,398
Land II 60 Acres of Parcel #23.............................. (80) 0 1,100
Land II Parcel #25.......................................... 60 0 1,562
Capital Fund 7.039 Ac. of Parcel #10........................ (9) 0 67
Capital Fund 17.742 Ac. of Parcel #2........................ 1 0 164
Land I 27.575 Acres of Parcel #4............................ 14 0 311
Land II 5.538 Acres of Parcel #22........................... 0 0 94
Land I 4.629 Acres of Parcel #24............................ 0 0 30
Land II .87 Acres of Parcel #8.............................. 0 0 0
Land I 3.52 Acres of Parcel #1.............................. 0 0 220
Land I 10.53 Acres of Parcel #15............................ 0 0 268
Land II 8.25 Acres of Parcel #23............................ 0 0 423
Monthly Income Fund I - Yorkville Living Center, Lot #11.... (23) 0 15
Land I 2.081 Acres of Parcel #13............................ 0 0 20
Land I 81.216 Acres of Parcel #1............................ 0 0 (193)
Land I 5.468 Acres of Parcel #15............................ 0 0 309
Land II 12.6506 Acres of Parcel #7.......................... 0 0 387
Land II 2.61 Acres of Parcel #23............................ 0 0 125
Capital Fund 8.6806 Ac. of Parcel #2........................ 0 0 431
Capital Fund 2.305 Ac. of Parcel #4......................... 0 0 572
<CAPTION>
ORDINARY INCOME
FROM SALE CAPITAL GAIN
------------------- ---------------
<S> <C> <C>
Land I 3.44 Acres of Parcel #23............................. 33 0
Monthly Income Fund I - Schaumburg Terrace, 16 Buildings.... 0 1,398
Land II 60 Acres of Parcel #23.............................. 1,100 0
Land II Parcel #25.......................................... 0 1,562
Capital Fund 7.039 Ac. of Parcel #10........................ 67 0
Capital Fund 17.742 Ac. of Parcel #2........................ 0 1 164
Land I 27.575 Acres of Parcel #4............................ 0 311
Land II 5.538 Acres of Parcel #22........................... 0 94
Land I 4.629 Acres of Parcel #24............................ 0 30
Land II .87 Acres of Parcel #8.............................. 0 0
Land I 3.52 Acres of Parcel #1.............................. 0 220
Land I 10.53 Acres of Parcel #15............................ 0 268
Land II 8.25 Acres of Parcel #23............................ 0 423
Monthly Income Fund I - Yorkville Living Center, Lot #11.... 0 15
Land I 2.081 Acres of Parcel #13............................ 0 20
Land I 81.216 Acres of Parcel #1............................ 0 (193)
Land I 5.468 Acres of Parcel #15............................ 0 309
Land II 12.6506 Acres of Parcel #7.......................... 0 387
Land II 2.61 Acres of Parcel #23............................ 0 125
Capital Fund 8.6806 Ac. of Parcel #2........................ 0 431
Capital Fund 2.305 Ac. of Parcel #4......................... 0 572
</TABLE>
A-9
<PAGE>
TABLE V - (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES
(000'S OMITTED)
NOTES TO TABLE V
(A) The table includes all sales of properties by the Partnerships during the
three years ended December 31, 1997. All sales were made to parties
unaffiliated with the Partnerships.
(B) Consists of cash payments received from the buyers and the assumption of
certain liabilities by the buyers at the date of sale, less expenses of
sale.
(C) The stated principal amount of the notes is shown in the table under
"Secured Notes Received at Sale." All sales with notes received at sale are
being reported for tax purposes on the installment basis.
(D) Amounts represent the dollar amount raised from the offerings of limited
partnership units, less sales commissions and other offering expenses.
(E) Represents "Cash Available (Deficiency) from Operations (including
subsidies)" as adjusted for applicable "Fixed Asset Additions" through the
year of sale.
(F) As of December 31, 1995, this Partnership sold the remaining 16 six-unit
condominium buildings comprising the Schaumburg Terrace condominium complex
to unaffiliated third parties. The principal balances of these loans range
from approximately $211,000 to $256,000. These loans require monthly
principal and interest payments totaling $67,763 with an interest rate of
8.625% per annum for 10 years (based on a 30 year amortization) and payment
of all remaining principal at the end of that period.
(G) As a result of the sale of the remaining approximately 81 acres of Parcel 1
on December 29, 1997, the buyer assumed the current mortgage note held by
this Partnership which had a balance of $3,325,515 at that time.
(H) As a result of the sale of the remaining approximately 81 acres of Parcel 1
on December 29, 1997, this Partnership received mortgage loans receivable
totaling $2,170,089, of which $575,000 accrues interest at 9% per annum and
has a maturity date of July 1, 1998. The remaining $1,595,089 accrues
interest at 9% per annum and has a maturity date of December 30, 2000.
A-10
<PAGE>
A-11
TABLE V (CONTINUED)
SALES OR DISPOSALS OF PROPERTIES (A)
(000'S OMITTED)
<TABLE>
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS
CASH
RECEIVED,
NET OF SELLING COMMISSIONS MORTGAGE AT SECURED NOTES
DATE DATE OF CLOSING PAID OR PAYABLE TO TIME OF RECEIVED AT
ACQUIRED SALE COSTS (B) INLAND SALE SALE (C)
----------- --------- ----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Land I 3.44 Acres of Parcel #23........... 05/08/90 Var 95 139 0 0 0
Monthly Income Fund I - Schaumburg
Terrace, 16 Buildings................... 06/24/88 Var 95 409 0 0 3,790(F)
Land II 60 Acres of Parcel #23............ 10/30/92 Var 95 4,196 0 0 0
Land II Parcel #25........................ 01/28/93 10/31/95 3,292 0 0 0
Capital Fund 7.039 Ac. of Parcel #10...... 09/16/94 04/21/95 286 0 0 0
Capital Fund 17.742 Ac. of Parcel #2...... 11/09/93 08/02/95 361 0 0 0
Land I 27.575 Acres of Parcel #4.......... 04/18/89 08/25/95 542 0 9 0
Land II 5.538 Acres of Parcel #22......... 10/30/92 01/05/96 154 0 0 0
Land I 4.629 Acres of Parcel #24.......... 05/23/90 04/01/96 53 0 0 0
Land II .87 Acres of Parcel #8............ 06/14/91 04/03/96 10 0 0 0
Land I 3.52 Acres of Parcel #1............ 01/19/89 12/24/96 501 0 0 0
Land I 10.53 Acres of Parcel #15.......... 01/03/90 Var 96 533 0 0 0
Land II 8.25 Acres of Parcel #23.......... 10/30/92 Var 96 1,527 0 0 0
Monthly Income Fund I - Yorkville Living
Center, Lot #11......................... 01/29/88 09/12/97 40 0 0 0
Land I 2.081 Acres of Parcel #13.......... 11/07/89 09/18/97 26 0 0 0
Land I 81.216 Acres of Parcel #1.......... 01/19/89 Var 97 31 0 (3,580)(G) 2,170(H)
Land I 5.468 Acres of Parcel #15.......... 01/03/90 Var 97 491 0 0 0
Land II 12.6506 Acres of Parcel #7........ 04/22/91 Var 97 1,133 0 0 0
Land II 2.61 Acres of Parcel #23.......... 10/30/92 Var 97 477 0 0 0
Capital Fund 8.6806 Ac. of Parcel #2...... 11/09/93 Var 97 686 0 0 0
Capital Fund 2.305 Ac. of Parcel #4....... 03/30/94 Var 97 642 0 0 0
<CAPTION>
COST OF PROPERTIES INCLUDING CLOSING COSTS
AND OTHER CASH EXPENDITURES
-------------------------------------------
ORIGINAL PARTNERSHIP
NET SELLING MORTGAGE CAPITAL
PRICE FINANCING INVESTED (D) TOTAL
----------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Land I 3.44 Acres of Parcel #23........... 139 0 98 98
Monthly Income Fund I - Schaumburg
Terrace, 16 Buildings................... 4,199 0 3,683 3,683
Land II 60 Acres of Parcel #23............ 4,196 0 2,900 2.900
Land II Parcel #25........................ 3,292 0 1,730 1,730
Capital Fund 7.039 Ac. of Parcel #10...... 286 0 221 221
Capital Fund 17.742 Ac. of Parcel #2...... 361 0 196 196
Land I 27.575 Acres of Parcel #4.......... 542 0 231 231
Land II 5.538 Acres of Parcel #22......... 154 0 60 60
Land I 4.629 Acres of Parcel #24.......... 53 0 23 23
Land II .87 Acres of Parcel #8............ 10 0 10 10
Land I 3.52 Acres of Parcel #1............ 501 0 281 281
Land I 10.53 Acres of Parcel #15.......... 533 0 265 265
Land II 8.25 Acres of Parcel #23.......... 1,527 0 1,104 1,104
Monthly Income Fund I - Yorkville Living
Center, Lot #11......................... 40 0 25 25
Land I 2.081 Acres of Parcel #13.......... 26 0 6 6
Land I 81.216 Acres of Parcel #1.......... 5,781 0 5,668 5,668
Land I 5.468 Acres of Parcel #15.......... 491 0 173 173
Land II 12.6506 Acres of Parcel #7........ 1,027 0 746 746
Land II 2.61 Acres of Parcel #23.......... 477 0 352 352
Capital Fund 8.6806 Ac. of Parcel #2...... 686 0 255 255
Capital Fund 2.305 Ac. of Parcel #4....... 642 0 70 70
</TABLE>
<PAGE>
A-12
<TABLE>
<CAPTION>
EXCESS (DEFICIENCY) OF
PROPERTY OPERATING CASH AMOUNT OF SUBSIDIES
RECEIPTS OVER CASH INCLUDED IN OPERATING TOTAL TAXABLE
EXPENDITURES (E) CASH RECEIPTS GAIN FROM SALE
----------------------- ----------------------- -----------------
<S> <C> <C> <C>
Land I 3.44 Acres of Parcel #23 0 0 33
Monthly Income Fund I - Schaumburg Terrace, 16 Buildings.... 1,152 0 1,398
Land II 60 Acres of Parcel #23.............................. (80) 0 1,100
Land II Parcel #25.......................................... 60 0 1,562
Capital Fund 7.039 Ac. of Parcel #10........................ (9) 0 67
Capital Fund 17.742 Ac. of Parcel #2........................ 1 0 164
Land I 27.575 Acres of Parcel #4............................ 14 0 311
Land II 5.538 Acres of Parcel #22........................... 0 0 94
Land I 4.629 Acres of Parcel #24............................ 0 0 30
Land II .87 Acres of Parcel #8.............................. 0 0 0
Land I 3.52 Acres of Parcel #10 0 0 220
Land I 10.53 Acres of Parcel #15............................
0........................................................... 0 268 0
Land II 8.25 Acres of Parcel #23............................ 0 0 423
Monthly Income Fund I - Yorkville Living Center, Lot #11.... (23) 0 15
Land I 2.081 Acres of Parcel #13............................ 0 0 20
Land I 81.216 Acres of Parcel #1............................ 0 0 (193)
Land I 5.468 Acres of Parcel #15............................ 0 0 309
Land II 12.6506 Acres of Parcel #7.......................... 0 0 387
Land II 2.61 Acres of Parcel #23............................ 0 0 125
Capital Fund 8.6806 Ac. of Parcel #2........................ 0 0 431
Capital Fund 2.305 Ac. of Parcel #4......................... 0 0 572
<CAPTION>
ORDINARY INCOME
FROM SALE WRIST
BRACELET CAPITAL GAIN
----------------- -------------
<S> <C> <C>
Land I 3.44 Acres of Parcel #23 33 0
Monthly Income Fund I - Schaumburg Terrace, 16 Buildings.... 0 1,398
Land II 60 Acres of Parcel #23.............................. 1,100 0
Land II Parcel #25.......................................... 0 1,562
Capital Fund 7.039 Ac. of Parcel #10........................ 67 0
Capital Fund 17.742 Ac. of Parcel #2........................ 0 1 64
Land I 27.575 Acres of Parcel #4............................ 0 311
Land II 5.538 Acres of Parcel #22........................... 0 94
Land I 4.629 Acres of Parcel #24............................ 0 30
Land II .87 Acres of Parcel #8.............................. 0 0
Land I 3.52 Acres of Parcel #10 0 220
Land I 10.53 Acres of Parcel #15............................
0........................................................... 268
Land II 8.25 Acres of Parcel #23............................ 0 423
Monthly Income Fund I - Yorkville Living Center, Lot #11.... 0 15
Land I 2.081 Acres of Parcel #13............................ 0 20
Land I 81.216 Acres of Parcel #1............................ 0 (193)
Land I 5.468 Acres of Parcel #15............................ 0 309
Land II 12.6506 Acres of Parcel #7.......................... 0 387
Land II 2.61 Acres of Parcel #23............................ 0 125
Capital Fund 8.6806 Ac. of Parcel #2........................ 0 431
Capital Fund 2.305 Ac. of Parcel #4......................... 0 572
</TABLE>
<PAGE>
APPENDIX B
INLAND RETAIL REAL ESTATE TRUST, INC.
DISTRIBUTION REINVESTMENT PROGRAM
<PAGE>
APPENDIX B
INLAND RETAIL REAL ESTATE TRUST, INC.
DISTRIBUTION REINVESTMENT PROGRAM
Inland Retail Real Estate Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation (the "Articles") has
adopted a Distribution Reinvestment Program (the "DRP"), the terms and
conditions of which are set forth below. Capitalized terms shall have the same
meaning as set forth in the Company's Prospectus dated , 1998 (as the
same may be supplemented or modified from time to time) unless otherwise defined
herein.
i. As agent for the Stockholders who purchase Shares from the Company
pursuant to the prospectus dated , 1998 (the "Offering") and
elect to participate in the DRP (the "Participants"), the Company will apply
all distributions, paid with respect to the Shares held by each Participant
(the "Distributions"), including Distributions paid with respect to any full
or fractional Shares acquired under the DRP, to the purchase of the Shares
for said Participants directly, if permitted under state securities laws
and, if not, through the Dealer Manager or Soliciting Dealers registered in
the Participant's state of residence. Neither the Company nor its Affiliates
will receive a fee for selling Shares under the DRP.
ii. PROCEDURE FOR PARTICIPATION. Any Stockholder who purchases Shares
pursuant to the Company's Offering may elect to become a Participant by
completing and executing the Subscription Agreement or other appropriate
authorization form as may be available from the Company, the Dealer Manager
or the Soliciting Dealer. Participation in the DRP will begin with the next
Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for
the Distribution used to purchase the Shares. Distributions for Shares
acquired under the DRP are currently paid monthly and are calculated with a
daily record and Distribution declaration date. Each Participant agrees that
if, at any time prior to listing of the Shares on a national stock exchange
or inclusion of the Shares for quotation on a national market system, he or
she fails to meet the suitability requirements for making an investment in
the Company or cannot make the other representations or warranties set forth
in the Subscription Agreement, he or she will promptly so notify the Company
in writing.
iii. PURCHASE OF SHARES. Participants will acquire Shares from the
Company at a fixed price of $9.50 per Share until the termination of the
Offering. Participants in the DRP may also purchase fractional Shares so
that 100% of the Distributions will be used to acquire Shares. However, a
Participant will not be able to acquire Shares under the DRP to the extent
such purchase would cause it to exceed the Ownership Limit.
It is possible that a secondary market will develop for the Shares, and that
the Shares may be bought and sold on the secondary market at prices lower or
higher than the $9.50 per Share price which will be paid under the DRP.
The Company shall endeavor to acquire Shares on behalf of Participants at
the lowest price then available. However, the Company does not guarantee or
warrant that the Participant will be acquiring Shares at the lowest possible
price.
If the Company's Shares are listed on a national stock exchange or included
for quotation on a national market system, Shares purchased by the Company for
the DRP will be purchased on such exchange or market, at the prevailing market
price, and will be sold to Stockholders at such price. Also, in the event of
such listing or inclusion, the reservation of any Shares from the Offering for
issuance under the DRP, which have not been issued as of the date of such
listing or inclusion, will be canceled, and such Shares will continue to have
the status of authorized but unissued Shares. Those unissued Shares will not be
issued unless they are first registered with the Securities and Exchange
Commission (the "Commission") under the Act and under appropriate state
securities laws or are otherwise issued in compliance with such laws.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
<PAGE>
iv. SHARE CERTIFICATES. Within 90 days after the end of the Company's
fiscal year, the Company will issue certificates evidencing ownership of
Shares purchased through the DRP during the prior fiscal year. The ownership
of the Shares will be in book-entry form prior to the issuance of such
certificates.
v. REPORTS. Within 90 days after the end of the Company's fiscal year,
the Company will provide each Participant with an individualized report on
his or her investment, including the purchase date(s), purchase price and
number of Shares owned, as well as the dates of distribution and amounts of
Distributions received during the prior fiscal year. The individualized
statement to Stockholders will include receipts and purchases relating to
each Participant's participation in the DRP including the tax consequences
relative thereto.
vi. TERMINATION BY PARTICIPANT. A Participant may terminate
participation in the DRP at any time, without penalty, by delivering to the
Company a written notice. Prior to listing of the Shares on a national stock
exchange or inclusion of the Shares for quotation on a national market
system, any transfer of Shares by a Participant to a non-Participant will
terminate participation in the DRP with respect to the transferred Shares.
If a Participant terminates DRP participation, the Company will provide the
terminating Participant with a certificate evidencing the whole shares in
his or her account and a check for the cash value of any fractional share in
such account. Upon termination of DRP participation, Distributions will be
distributed to the Stockholder in cash.
vii. AMENDMENT OR TERMINATION OF DRP BY THE COMPANY. The Directors of
the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 30 days' written
notice to the Participants.
viii. LIABILITY OF THE COMPANY. The Company shall not be liable for any
act done in good faith, or for any good faith omission to act, including,
without limitation, any claims or liability: (a) arising out of failure to
terminate a Participant's account upon such Participant's death prior to
receipt of notice in writing of such death; and (b) with respect to the time
and the prices at which Shares are purchased or sold for a Participant's
account. To the extent that indemnification may apply to liabilities arising
under the Act or the securities laws of a state, the Company has been
advised that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and,
therefore, unenforceable.
ix. GOVERNING LAW. This DRP shall be governed by the laws of the State
of Maryland.
<PAGE>
APPENDIX C
INLAND RETAIL REAL ESTATE TRUST, INC.
SUBSCRIPTION AGREEMENT
<PAGE>
[LOGO]
SPECIMEN
PLEASE MAIL THE PINK COPY, THE WHITE COPY, AND YOUR CHECK MADE PAYABLE TO
"LNB/ESCROW AGENT FOR IRRET" TO: Inland Securities Corporation, 2901 Butterfield
Road, Oak Brook, Illinois 60523, Attn: Investor Services. Please use ballpoint
pen or type the information.
- --------------------------------------------------------------------------------
INLAND RETAIL REAL ESTATE TRUST, INC., INSTRUCTIONS TO PURCHASERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTRUCTIONS Any Person desiring to subscribe for Shares should
carefully read and review the Prospectus and, if
he/she desires to subscribe for Shares, complete the
Subscription Agreement/ Signature Page which follows
these instructions. Follow the appropriate
instruction listed below for the items indicated.
Please print in ink or type the information.
- -------------------------------------------------------------------------------------------
INVESTMENT Item 1--Enter the number of Shares to be purchased
A and the dollars and cents amount of the purchase.
Minimum purchase 300 Shares ($3,000). Qualified Plans
100 Shares ($1,000). (Iowa requires 300 Shares
($3,000) for IRA accounts; Minnesota requires 200
Shares ($2,000) for IRA and qualified accounts).
- -------------------------------------------------------------------------------------------
<S> <C>
B Item 2--Check if you desire to participate in
Distribution Reinvestment Program.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
REGISTRATION INFORMATION Item 3--Enter the exact name in which the Shares are
C to be held. For co-owners enter the names of all
owners. For investments by qualified plans, include
the exact name of the plan. For investments by
qualified plans, enter the name of the custodian or
trustee on the first line and FBO the name of the
investor on the second line. IF THIS IS AN ADDITIONAL
PURCHASE BY A QUALIFIED PLAN, PLEASE USE THE SAME
EXACT PLAN NAME AS PREVIOUSLY USED.
Item 4--Enter mailing address, state of residence and
telephone number of owner. For qualified investments
please enter mailing address of custodian or trustee.
Item 5--Enter birth date(s) or date of incorporation.
Item 6--Check the appropriate box. If the owner is a
non-resident alien, he must apply to the United
States Internal Revenue Service for an identification
number via Form SS-4 for an individual or SS-5 for a
corporation, and supply the number to the Company as
soon as it is available.
Item 7--Check this box if the owner is an employee of
Inland or an individual who has been continuously
affiliated with Inland as an independent contractor.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
Item 8--Enter the Social Security number or Taxpayer
I.D. number. The owner is certifying that this number
is correct. For qualified investments please enter
both the investor's social security number (for
identification purposes) and the custodian or
trustee's Taxpayer I.D. number (for tax purposes).
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
D Item 9--The residence address if different. For
qualified investments, please enter the residence
address of the investor.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
E Item 10--Check the appropriate box to indicate the
type of entity which is subscribing. If additional
purchase, this should be exactly the same as previous
investment.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
SIGNATURE Item 11--The Subscription Agreement/Signature Page
F MUST BE EXECUTED by the owner(s), and if applicable,
the trustee or custodian.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
ALTERNATE ADDRESS FOR Item 12--If owners desire direct deposit of
DISTRIBUTIONS (OPTIONAL) his/her/their cash distributions to an account or
G address other than as set forth in the Subscription
Agreement/Signature Page, please complete. PLEASE
MAKE SURE ACCOUNT HAS BEEN OPENED AND ACCOUNT NUMBER
IS PROVIDED, AS WELL AS INFORMING RECIPIENT THAT
DISTRIBUTION WILL BE FORTHCOMING AND IS AN ASSET
TRANSFER.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
BROKER/DEALER REGISTERED Item 13--Enter the name of the Broker/Dealer and the
REPRESENTATIVE name of the Registered Representative, along with the
H street address, city, state, zip code, telephone
number, fax and email of the Registered
Representative. By executing the Subscription
Agreement/Signature Page, the Registered Representa-
tive substantiates compliance with the conduct rules
of the NASD, by certifying that the Registered
Representative has reasonable grounds to believe,
based on information obtained from the investor
concerning his, her or its investment objectives,
other investments, financial situation and needs and
any other information known by such Registered
Representative, that investment in the Company is
suitable for such investor in light of his, her or
its financial position, net worth and other
suitability characteristics and that the Registered
Representative has informed the investor of all
pertinent facts relating to the liability, liquidity
and marketability of an investment in the Company
during its term. The Registered Representative
(authorized signature) should sign and date.
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
SUBMISSION OF SUBSCRIPTION The properly completed and executed Pink and White
copies of the Subscription Agreement/Signature Page
together with a CHECK MADE PAYABLE TO "LNB/ESCROW
AGENT FOR IRRET" should be returned to the owner's
Registered Representative or the offices of Inland
Securities Corporation, 2901 Butterfield Road, Oak
Brook, Illinois 60523.
</TABLE>
C-2
<PAGE>
NOTE: If a Person other than the Person in whose name the Shares will be held
is reporting the income received from the Company, you must notify the Company
in writing of that Person's name, address and Social Security number.
ALL INVESTORS AND THEIR REGISTERED REPRESENTATIVES MUST SIGN THE SUBSCRIPTION
AGREEMENT/SIGNATURE PAGE PRIOR TO TENDERING ANY FUNDS FOR INVESTMENT IN SHARES.
CALIFORNIA INVESTORS:
All Certificates representing Shares which are sold in the State of California
will bear the following legend conditions: IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
C-3
<PAGE>
[SPECIMEN/FORM OF SUBSCRIPTION AGREEMENT]
C-4
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
SPECIMEN
(REVERSE SIDE OF)
SUBSCRIPTION AGREEMENT/SIGNATURE PAGE
Certain states have imposed special financial suitability standards for
investors who purchase Shares.
If the investor is a resident of Maine, the investor must have either: (i) a
minimum net worth (excluding home, home furnishings and automobiles) of
$200,000; or (ii) a minimum annual gross income of $50,000 and a minimum net
worth (exclusive of home, home furnishings and automobiles) of $50,000.
If the investor is a resident of California, Massachusetts or Tennessee, the
investor must have either: (i) a minimum net worth (excluding home, home
furnishings and automobiles) of $225,000; or (ii) a minimum annual gross income
of $60,000 and a minimum net worth (exclusive of home, home furnishings and
automobiles) of $60,000.
The Company intends to assert the foregoing representations as a defense in
any subsequent litigation where such assertion would be relevant. The Company
shall have the right to accept or reject this Subscription in whole or in part,
so long as such partial acceptance or rejection does not result in an investment
of less than the minimum amount specified in the Prospectus. As used above, the
singular includes the plural in all respects if Shares are being acquired by
more than one Person. As used in this Agreement, "Inland" refers to The Inland
Group, Inc. and its Affiliates. This Agreement and all rights hereunder shall be
governed by, and interpreted in accordance with, the laws of the State of
Illinois.
[FORM OF SUBSCRIPTION AGREEMENT]
C-5
<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENTS
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-1
Consolidated Balance Sheet at September 18, 1998........................................................... F-2
Notes to Consolidated Balance Sheet........................................................................ F-3
Independent Auditors' Report............................................................................... F-5
Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 1997 of
Lake Olympia Square...................................................................................... F-6
Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31,
1997 of Lake Olympia Square.............................................................................. F-7
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months ended June
30, 1998 of Lake Olympia Square.......................................................................... F-9
Notes to Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months
ended June 30, 1998 of Lake Olympia Square............................................................... F-10
Independent Auditors' Report............................................................................... F-11
Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 1997 of
The Landings of Sarasota................................................................................. F-12
Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31,
1997 of The Landings of Sarasota......................................................................... F-13
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months ended June
30, 1998 of The Landings of Sarasota..................................................................... F-15
Notes to Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months
ended June 30, 1998 of The Landings of Sarasota.......................................................... F-16
Independent Auditors' Report............................................................................... F-17
Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31, 1997 of
Lake Walden Square....................................................................................... F-18
Notes to Historical Summary of Gross Income and Direct Operating Expenses for the year ended December 31,
1997 of Lake Walden Square............................................................................... F-19
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months ended June
30, 1998 of Lake Walden Square........................................................................... F-21
Notes to Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months
ended June 30, 1998 of Lake Walden Square................................................................ F-22
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months ended June
30, 1998 of Countryside.................................................................................. F-23
Notes to Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the six months
ended June 30, 1998 of Countryside....................................................................... F-24
Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 1998.......................................... F-25
Notes to Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 1998................................. F-27
Pro Forma Statement of Operations (unaudited) for the six months ended June 30, 1998....................... F-29
Notes to Pro Forma Statement of Operations (unaudited) for the six months ended
June 30, 1998............................................................................................ F-31
Pro Forma Statement of Operations (unaudited) for the year ended December 31, 1997......................... F-34
Notes to Pro Forma Statement of Operations (unaudited) for the year ended December 31, 1997................ F-36
</TABLE>
The financial statements of Countryside Shopping Center for the period from
April 1, 1997 through December 31, 1997 are not presented in the Prospectus
since the records are currently not available from the unaffiliated seller of
the property. The Company is aggressively pursuing receipt of these records. It
is the Company's intention to file audited financial statements of Countryside
Shopping Center for the period indicated as soon as possible.
F-i
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Inland Retail Real Estate Trust, Inc.
We have audited the accompanying consolidated balance sheet of Inland Retail
Real Estate Trust, Inc. (the "Company") as of September 18, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Inland Retail Real
Estate Trust, Inc. as of September 18, 1998, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
September 18, 1998
F-1
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 18, 1998
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $ 202,000
---------
$ 202,000
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Minority interest in partnership................................................ $ 2,000
Stockholder's Equity:
Preferred Stock, $.01 par value, 10,000,000 authorized, none outstanding........ --
Common stock, $.01 par value, 100,000,000 shares authorized, 20,000 shares
issued and outstanding........................................................ 200
Additional Paid-in Capital...................................................... 199,800
---------
$ 202,000
---------
---------
</TABLE>
See accompanying notes to consolidated balance sheet.
F-2
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
NOTES TO CONSOLIDATED BALANCE SHEET
SEPTEMBER 18, 1998
(1) ORGANIZATION
Inland Retail Real Estate Trust, Inc. (the "Company") was formed on
September 3, 1998 to acquire and manage a diversified portfolio of real estate,
primarily multi-tenant shopping centers and has not commenced operations. The
Advisory Agreement (the "Agreement") provides for Inland Retail Real Estate
Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, to be the
Advisor to the Company. The Company contemplates the sale of up to 50,000,000
shares of common stock at $10 each in an initial public offering (the
"Offering") to be registered with the Securities and Exchange Commission (the
"Registration Statement") and the issuance of 4,000,000 shares at $9.05 each
which may be distributed pursuant to the Company's distribution reinvestment
program. The Company will be the general partner of Inland Retail Real Estate
Limited Partnership (the "Operating Partnership"). See "Investment Objectives
and Policies," "Plan of Distribution" and "Investment, Reinvestment and Share
Repurchase Programs" elsewhere in this Prospectus.
The Company intends to qualify as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended, for federal income tax
purposes commencing with the tax year ending December 31, 1998. If the Company
qualifies for taxation as a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes its REIT taxable income to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate tax rates. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and federal income and excise taxes on its undistributed income.
(2) BASIS OF PRESENTATION
The accompanying Consolidated Balance Sheet includes the accounts of the
Company, as well as the accounts of the Operating Partnership, in which the
Company has a controlling general partner interest. The effect of all
significant intercompany transactions have been eliminated.
(3) TRANSACTIONS WITH AFFILIATES
The Advisor contributed $200,000 to the capital of the Company for which it
received 20,000 shares.
In the event that the Offering is not successful, an Affiliate of the
Advisor will bear the related costs of the Offering.
Certain compensation and fees payable to the Advisor for services to be
provided to the Company are limited to maximum amounts. See "Compensation Table"
elsewhere in this Prospectus for a description of such compensation and fees.
F-3
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
(A MARYLAND CORPORATION)
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 18, 1998
(4) COMMITMENTS
The Company plans to adopt an Independent Director Stock Option Plan which
will provide 3,000 shares to the Independent Directors of the Company at $9.05
per share. See "Management--Independent Director Stock Option Plan" described
elsewhere in this Prospectus.
The Company anticipates that the aggregate borrowings related to all of the
Company's properties will be limited to certain maximum amounts. See "Investment
Objectives and Policies" elsewhere in this Prospectus for a description of such
maximum borrowing amounts.
The Company is currently negotiating the purchase of four investment
properties from an Affiliate.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of Lake Olympia Square for the
year ended December 31, 1997. This Historical Summary is the responsibility of
the management of Inland Retail Real Estate Trust, Inc. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Retail Real Estate Trust, Inc., as described in note 2. The presentation
is not intended to be a complete presentation of Lake Olympia Square's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Lake Olympia Square for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 30, 1998
F-5
<PAGE>
LAKE OLYMPIA SQUARE
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Gross income:
Base rental income............................................ $ 848,197
Operating expense and real estate tax recoveries.............. 163,446
---------
Total Gross Income............................................ 1,011,643
---------
Direct operating expenses:
Real estate taxes............................................. 81,106
Operating expenses............................................ 74,124
Management fees............................................... 47,171
Insurance..................................................... 22,255
Utilities..................................................... 17,558
Interest expense.............................................. 343,788
---------
Total Direct Operating Expenses............................... 586,002
---------
Excess of Gross Income over Direct Operating Expenses........... $ 425,641
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-6
<PAGE>
LAKE OLYMPIA SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
(1) BUSINESS
Lake Olympia Square (Lake Olympia) is located in Ocoee, Florida. It consists
of approximately 85,800 square feet of gross leasable area and was 99% leased
and occupied at December 31, 1997. Approximately 51% of Lake Olympia is leased
to one tenant representing approximately 35% of base rental income. An Affiliate
of Inland Retail Real Estate Trust, Inc. purchased Lake Olympia from an
unaffiliated third party on behalf of Inland Retail Real Estate Trust, Inc.
Inland Retail Real Estate Trust, Inc. will acquire Lake Olympia from this
Affiliate at their cost upon receipt of proceeds from an equity offering.
(2) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Retail Real Estate Trust,
Inc. and is not intended to be a complete presentation of Lake Olympia's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of Lake Olympia to make estimates
and assumptions that affect the reported amounts of the revenues and expenses
during the reporting period. Actual results may differ from those estimates.
(3) GROSS INCOME
Lake Olympia leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which Lake Olympia is reimbursed for common area, real estate,
and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents during
the lease term, the income is recognized based on effective rental rates.
Related adjustments increased base rental income by $61,371 for the year ended
December 31, 1997.
F-7
<PAGE>
LAKE OLYMPIA SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
(3) GROSS INCOME (CONTINUED)
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 870,375
1999............................................................................ 876,597
2000............................................................................ 840,419
2001............................................................................ 758,460
2002............................................................................ 650,739
Thereafter...................................................................... 4,989,716
------------
$ 8,986,306
------------
------------
</TABLE>
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable
to the proposed future operations of Lake Olympia. Costs such as depreciation,
amortization and professional fees are excluded from the Historical Summary.
Lake Olympia is managed pursuant to the terms of a verbal management
agreement for an annual fee of 5% of gross revenue (as defined). Subsequent to
the sale of Lake Olympia (note 1), the current management agreement will cease.
Any new management agreement may cause future management fees to differ from the
amounts reflected in the Historical Summary.
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage debt
related to Lake Olympia Square of approximately $6,078,000 in connection with
the acquisition. The assumed debt, which originated March 26, 1997, has an
annual interest rate of 8.25% and requires monthly interest payments.
(5) PRO FORMA ADJUSTMENTS (UNAUDITED)
The interest expense associated with the assumed debt discussed in note 4,
would have approximated $501,435 if the related debt had been in existence since
January 1, 1997.
F-8
<PAGE>
LAKE OLYMPIA SQUARE
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Gross income:
Base rental income.............................................. $ 431,325
Operating expense and real estate tax recoveries................ 109,884
---------
Total Gross Income.............................................. 541,209
---------
Direct operating expenses:
Real estate taxes............................................... 38,285
Operating expenses.............................................. 89,711
Insurance....................................................... 9,777
Utilities....................................................... 11,189
Interest expense................................................ 250,704
---------
Total Direct Operating Expenses................................. 399,666
---------
Excess of Gross Income over Direct Operating Expenses............. $ 141,543
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-9
<PAGE>
LAKE OLYMPIA SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses for the
period ended June 30, 1998 has been prepared from operating statements provided
by the owners of the property during that period and requires management of Lake
Olympia to make estimates and assumptions that affect the amounts of the
revenues and expenses during that period. Actual results may differ from those
estimates.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of results for the unaudited interim period presented have
been reflected. Certain information in footnote disclosures included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of The Landings of Sarasota for
the year ended December 31, 1997. This Historical Summary is the responsibility
of the management of Inland Retail Real Estate Trust, Inc. Our responsibility is
to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Retail Real Estate Trust, Inc., as described in note 2. The presentation
is not intended to be a complete presentation of The Landings of Sarasota's
revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
June 29, 1998
F-11
<PAGE>
THE LANDINGS OF SARASOTA
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Gross income:
Base rental income.............................................................. $ 604,671
Operating expense and real estate tax recoveries................................ 237,738
Percentage rent................................................................. 40,365
Other income.................................................................... 14,712
---------
Total Gross Income.............................................................. 897,486
---------
Direct operating expenses:
Real estate taxes............................................................... 108,165
Operating expenses.............................................................. 176,861
Management fees................................................................. 40,419
Utilities....................................................................... 15,641
Insurance....................................................................... 14,523
---------
Total Direct Operating Expenses................................................. 355,609
---------
Excess of Gross Income over
Direct Operating Expenses....................................................... $ 541,877
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-12
<PAGE>
THE LANDINGS OF SARASOTA
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
(1) BUSINESS
The Landings of Sarasota (The Landings) is a multi-tenant strip center
located in Sarasota, Florida. It consists of approximately 94,000 square feet of
gross leasable area and was 90% leased and occupied at December 31, 1997.
Approximately 22% of The Landings is leased to one tenant representing
approximately 17% of total revenues. An Affiliate of Inland Retail Real Estate
Trust, Inc. purchased The Landings from an unaffiliated third party on behalf of
Inland Retail Real Estate Trust, Inc. Inland Retail Real Estate Trust, Inc. will
acquire The Landings from this Affiliate at their cost upon receipt of proceeds
from an equity offering.
(2) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Retail Real Estate Trust,
Inc. and is not intended to be a complete presentation of The Landings' revenues
and expenses. The Historical Summary has been prepared on the accrual basis of
accounting and requires management of The Landings to make estimates and
assumptions that affect the reported amounts of the revenues and expenses during
the reporting period. Actual results may differ from those estimates.
(3) GROSS INCOME
The Landings leases retail space under various lease agreements with its
tenants. All leases are accounted for as operating leases. The leases include
provisions under which The Landings is reimbursed for common area, real estate,
and insurance costs. Certain of the leases contain renewal options for various
periods at various rental rates. Certain of the leases provide for payment of
contingent rentals based on a percentage applied to the amount by which tenants'
sales exceed predetermined levels.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents during
the lease term, the income is recognized based on effective rental rates.
Related adjustments decreased base rental income by $14,591 for the year ended
December 31, 1997.
F-13
<PAGE>
THE LANDINGS OF SARASOTA
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
(3) GROSS INCOME (CONTINUED)
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 715,857
1999............................................................................ 594,129
2000............................................................................ 500,929
2001............................................................................ 479,723
Thereafter...................................................................... 417,221
------------
$ 2,707,859
------------
------------
</TABLE>
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable
to the proposed future operations of The Landings. Costs such as mortgage
interest, depreciation, amortization and professional fees are excluded from the
Historical Summary.
The Landings is managed by an affiliate of the Seller pursuant to the terms
of a management agreement for an annual fee of 4% of rental income (as defined).
Subsequent to the sale of The Landings (note 1), the current management
agreement will cease. Any new management agreement may cause future management
fees to differ from the amounts reflected in the Historical Summary.
F-14
<PAGE>
THE LANDINGS OF SARASOTA
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Gross income:
Base rental income.............................................................. $ 437,333
Operating expense and real estate tax recoveries................................ 147,679
---------
Total Gross Income.............................................................. 585,012
---------
Direct operating expenses:
Real estate taxes............................................................... 51,891
Operating expenses.............................................................. 88,834
Utilities....................................................................... 17,582
Insurance....................................................................... 7,625
---------
Total Direct Operating Expenses................................................. 165,932
---------
Excess of Gross Income over
Direct Operating Expenses....................................................... $ 419,080
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-15
<PAGE>
THE LANDINGS OF SARASOTA
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses for the
period ended June 30, 1998 has been prepared from operating statements provided
by the owners of the property during that period and requires management of The
Landings to make estimates and assumptions that affect the amounts of the
revenues and expenses during that period. Actual results may differ from those
estimates.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of results for the unaudited interim period presented have
been reflected. Certain information in footnote disclosures included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (Historical Summary) of Lake Walden Square for the
year ended December 31, 1997. This Historical Summary is the responsibility of
the management of Inland Retail Real Estate Trust, Inc. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the Registration Statement on Form S-11 of
Inland Retail Real Estate Trust, Inc., as described in note 2. The presentation
is not intended to be a complete presentation of Lake Walden Square's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in note 2 of Lake Walden Square for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
April 30, 1998
F-17
<PAGE>
LAKE WALDEN SQUARE
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Gross income:
Base rental income............................................ $1,537,855
Operating expense and real estate tax recoveries.............. 267,044
Other income.................................................. 149,736
---------
Total Gross Income............................................ 1,954,635
---------
Direct operating expenses:
Operating expenses............................................ 224,048
Real estate taxes............................................. 159,637
Utilities..................................................... 23,425
Insurance..................................................... 28,594
Interest expense.............................................. 136,816
---------
Total Direct Operating Expenses............................... 572,520
---------
Excess of Gross Income over Direct Operating Expenses........... $1,382,115
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-18
<PAGE>
LAKE WALDEN SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
(1) BUSINESS
Lake Walden Square is located in Plant City, Florida. It consists of
approximately 263,000 square feet of gross leasable area and was 83% leased and
occupied at December 31, 1997. Approximately 62% of Lake Walden Square is leased
to three tenants representing approximately 40% of base rental income. An
Affiliate of Inland Retail Real Estate Trust, Inc. purchased Lake Walden Square
from an unaffiliated third party on behalf of Inland Retail Real Estate Trust,
Inc. Inland Retail Real Estate Trust, Inc. will acquire Lake Walden Square from
this Affiliate at their cost upon receipt of proceeds from an equity offering.
(2) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses
(Historical Summary) has been prepared for the purpose of complying with Rule
3-14 of the Securities and Exchange Commission Regulation S-X and for inclusion
in the Registration Statement on Form S-11 of Inland Retail Real Estate Trust,
Inc. and is not intended to be a complete presentation of Lake Walden Square's
revenues and expenses. The Historical Summary has been prepared on the accrual
basis of accounting and requires management of Lake Walden Square to make
estimates and assumptions that affect the reported amounts of the revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
(3) GROSS INCOME
Lake Walden Square leases retail space under various lease agreements with
its tenants. All leases are accounted for as operating leases. The leases
include provisions under which Lake Walden Square is reimbursed for common area,
real estate, and insurance costs.
Base rentals are reported as income over the lease term as they become
receivable under the lease provisions. However, when rentals vary from a
straight-line basis due to short-term rent abatements or escalating rents during
the lease term, the income is recognized based on effective rental rates.
Related adjustments increased base rental income by $34,613 for the year ended
December 31, 1997.
F-19
<PAGE>
LAKE WALDEN SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(3) GROSS INCOME (CONTINUED)
Minimum rents to be received from tenants under operating leases in effect
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... $ 1,599,767
1999........................................................................... 1,579,403
2000........................................................................... 1,533,075
2001........................................................................... 1,411,984
2002........................................................................... 1,202,908
Thereafter..................................................................... 10,945,790
-------------
$ 18,272,927
-------------
-------------
</TABLE>
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs expected to be comparable
to the proposed future operations of Lake Walden Square. Costs such as
depreciation, amortization and professional fees are excluded from the
Historical Summary.
Real estate tax expense is based upon bills for 1997.
Lake Walden Square is managed pursuant to the terms of a management
agreement for an annual fee of 4% of rental revenue and tenant expense
reimbursements. Any new management agreement may cause future management fees to
differ from the amounts reflected in the Historical Summary.
Inland Retail Real Estate Trust, Inc. assumed the outstanding mortgage debt
related to Lake Walden Square of approximately $10,205,000 in connection with
the acquisition. The assumed debt, which originated October 30, 1997, has an
annual interest rate of 7.63% and requires monthly interest payments.
(5) PRO FORMA ADJUSTMENTS (UNAUDITED)
The interest expense associated with the assumed debt discussed in note 4,
would have approximated $778,642 if the related debt had been in existence since
January 1, 1997.
F-20
<PAGE>
LAKE WALDEN SQUARE
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Gross income:
Base rental income.............................................. $ 768,927
Operating expense and real estate tax recoveries................ 135,619
---------
Total Gross Income.............................................. 904,546
---------
Direct operating expenses:
Operating expenses.............................................. 86,137
Real estate taxes............................................... 88,845
Utilities....................................................... 11,208
Insurance....................................................... 15,011
Interest expense................................................ 389,314
---------
Total Direct Operating Expenses................................. 590,515
---------
Excess of Gross Income over Direct Operating Expenses............. $ 314,031
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-21
<PAGE>
LAKE WALDEN SQUARE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses for the
period ended June 30, 1998 has been prepared from operating statements provided
by the owners of the property during that period and requires management of Lake
Walden to make estimates and assumptions that affect the amounts of the revenues
and expenses during that period. Actual results may differ from those estimates.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of results for the unaudited interim period presented have
been reflected. Certain information in footnote disclosures included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
F-22
<PAGE>
COUNTRYSIDE
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Gross income:
<S> <C>
Base rental income.............................................................. $ 375,322
Operating expense and real estate tax recoveries................................ 88,092
---------
Total Gross Income............................................................ 463,414
---------
Direct operating expenses:
Operating expenses.............................................................. 33,263
Real estate taxes............................................................... 36,993
Utilities....................................................................... 51,543
Insurance....................................................................... 3,445
---------
Total Direct Operating Expenses............................................... 125,244
---------
Excess of Gross Income over
Direct Operating Expenses....................................................... $ 338,170
---------
---------
</TABLE>
See accompanying notes to historical summary of gross income and direct
operating expenses.
F-23
<PAGE>
COUNTRYSIDE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The Historical Summary of Gross Income and Direct Operating Expenses for the
period ended June 30, 1998 has been prepared from operating statements provided
by the owners of the property during that period and requires management of
Countryside to make estimates and assumptions that affect the amounts of the
revenues and expenses during that period. Actual results may differ from those
estimates.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of results for the unaudited interim period presented have
been reflected. Certain information in footnote disclosures included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
F-24
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
The following unaudited Pro Forma Consolidated Balance Sheet is presented as
if the formation of the Company and the acquisition of the properties indicated
in Note B had occurred on June 30, 1998.
This unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at June 30,
1998, nor does it purport to represent the future financial position of the
Company. Unless otherwise defined, capitalized terms used herein shall have the
same meaning as in the Prospectus.
F-25
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------
(A) (B)
FORMATION ACQUISITIONS PRO FORMA
---------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Net investment in properties.............................................. $ -- 42,689,882 42,689,882
Cash (C).................................................................. 202,000 138,000 340,000
Accounts and rents receivable............................................. -- 237,633 237,633
Other assets.............................................................. -- 231,086 231,086
---------- ------------ ------------
Total assets.............................................................. $ 202,000 43,296,601 43,498,601
---------- ------------ ------------
---------- ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued real estate taxes................................................. -- 250,351 250,351
Security deposits......................................................... -- 128,850 128,850
Mortgages payable (D)..................................................... -- 30,947,508 30,947,508
---------- ------------ ------------
Total liabilities......................................................... -- 31,326,709 31,326,709
---------- ------------ ------------
Minority interest in partnership (F)...................................... 2,000 -- 2,000
Common Stock.............................................................. 200 13,920 14,120
Additional paid in capital (net of Offering costs) (E).................... 199,800 11,955,972 12,155,772
---------- ------------ ------------
Total Stockholder's equity................................................ 200,000 11,969,892 12,169,892
---------- ------------ ------------
Total liabilities and Stockholder's equity................................ $ 202,000 43,296,601 43,498,601
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See accompanying notes to pro forma consolidated balance sheet.
F-26
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(A) The Company was formed on September 3, 1998 at which time the Advisor
contributed $200,000 in exchange for 20,000 shares of stock.
(B) The following pro forma adjustment relates to the acquisition of the subject
properties as though they were acquired on June 30, 1998. The terms are
described in the notes that follow.
Each of the properties to be acquired was purchased by an Affiliate of the
Advisor, to be held until sufficient offering proceeds are raised by the
Company to acquire the property. In connection with the acquisition of the
initial properties, the Affiliate borrowed approximately $11,700,000 from
another Affiliate to pay the difference between the Affiliate's Acquisition
Cost and the Initial Mortgage Debt. The maximum amount of aggregate
borrowings as allowed by the offering may not exceed 300% of Net Assets. The
Company is expected to retire this Affiliated debt in full with the net
proceeds of the offering in order to bring the aggregate borrowings within
the allowed limits.
<TABLE>
<CAPTION>
ACQUISITIONS
------------------------------------------------
LAKE
OLYMPIA THE LAKE WALDEN TOTAL
COUNTRYSIDE SQUARE LANDINGS SQUARE ACQUISITIONS
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in properties..................... $8,567,584 9,723,516 9,870,025 14,528,757 42,689,882
Cash (C)......................................... 25,000 42,000 19,000 52,000 138,000
Accounts and rents receivable.................... 65,475 41,271 48,260 82,627 237,633
Other assets..................................... -- 17,418 65,894 147,774 231,086
----------- --------- ----------- ----------- -----------
Total assets..................................... $8,658,059 9,824,205 10,003,179 14,811,158 43,296,601
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued real estate taxes........................ $ 44,283 65,330 51,892 88,846 250,351
Security deposits................................ 6,300 29,066 55,378 38,106 128,850
Mortgages payable (D)............................ 6,420,000 6,077,688 8,245,000 10,204,820 30,947,508
----------- --------- ----------- ----------- -----------
Total liabilities................................ 6,493,800 6,148,867 8,352,270 10,331,772 31,326,709
----------- --------- ----------- ----------- -----------
Common Stock..................................... 2,517 4,274 1,920 5,209 13,920
Additional paid in capital (net of Offering
costs) (E)..................................... 2,161,742 3,671,064 1,648,989 4,474,177 11,955,972
----------- --------- ----------- ----------- -----------
Total Stockholder's equity....................... 2,164,259 3,675,338 1,650,909 4,479,386 11,969,892
----------- --------- ----------- ----------- -----------
Total liabilities and Stockholder's equity....... $8,658,059 9,824,205 10,003,179 14,811,158 43,296,601
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
</TABLE>
F-27
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
(C) Represents approximately 1% working capital reserve established from
offering proceeds raised.
(D) Represents remaining mortgages payable to non-affiliates after payoff of
Affiliate debt at acquisition and $300,000 paydown on non-affiliate debt
relating to Countryside.
(E) The Offering proceeds of $13,920,000, net of Offering costs of $1,950,108,
are reflected as received simultaneous to the acquisition of the properties.
Offering costs estimated to be 14% of Offering proceeds are based on the
Company's internal analysis of the total costs incurred on prior offerings.
(F) The Pro Forma Consolidated Balance Sheet includes the accounts of the
Operating Partnership in which the Company has a controlling general partner
interest. The minority interest in partnership represents the ownership of
the Operating Partnership that is not owned by the Company.
F-28
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the properties indicated in Note B of
the Notes to the Pro Forma Statement of Operations as though they occurred on
January 1, 1997.
This unaudited Pro Forma Statement of Operations is not necessarily
indicative of what the actual results of operations would have been for the six
months ended June 30, 1998, nor does it purport to represent the future
financial position of the Company. Unless otherwise defined, capitalized terms
used herein shall have the same meaning as in the Prospectus.
F-29
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
HISTORICAL ACQUISITIONS
(A) (B) PRO FORMA
----------- ----------- ------------
<S> <C> <C> <C>
Rental income.............................................................. $ -- 2,012,907 2,012,907
Operating expense and real estate tax recoveries........................... -- 481,274 481,274
----------- ----------- ------------
Total income............................................................... -- 2,494,181 2,494,181
----------- ----------- ------------
Advisor asset management fee (E)........................................... -- 214,282 214,282
Property operating expenses................................................ -- 641,339 641,339
Interest expense........................................................... -- 1,217,985 1,217,985
Depreciation (C)........................................................... -- 610,662 610,662
----------- ----------- ------------
Total expenses............................................................. -- 2,684,268 2,684,268
------------
Net income (loss) applicable to common shareholders (F).................... $ (190,087)
------------
------------
Weighted average common stock shares outstanding (D)....................... 1,392,000
------------
------------
Basic and diluted net income (loss) per weighted average common stock
outstanding (D).......................................................... $ (.14)
------------
------------
</TABLE>
See accompanying notes to pro forma statement of operations.
F-30
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(A) Historical information is not applicable as the Company was not formed as of
June 30, 1998.
(B) Pro forma adjustments for the six months ended June 30, 1998 are as though
the acquisitions of the following properties occurred on January 1, 1997.
Each of the properties to be acquired was purchased by an Affiliate of the
Advisor, to be held until sufficient offering proceeds are raised by the
Company to acquire the property. In connection with the acquisition of the
initial properties, the Affiliate borrowed approximately $11,700,000 from
another Affiliate to pay the difference between the Affiliate's Acquisition
Cost and the Initial Mortgage Debt. The maximum amount of aggregate
borrowings as allowed by the offering may not exceed 300% of Net Assets. The
Company is expected to retire this Affiliate debt in full with the net
proceeds of the offering in order to bring the aggregate borrowings within
the allowed limits. As part of the Acquisition, the Company will assume the
existing third party debt. Historical and pro forma adjustments for interest
expense on these properties are based on the following terms.
COUNTRYSIDE
As part of the purchase of Countryside Shopping Center, the Company will
assume the existing first mortgage loan originated by the Affiliate of
approximately $6,420,000. The first mortgage loan has an interest rate of
7.41% per annum.
LAKE OLYMPIA SQUARE
As part of the purchase of Lake Olympia Square Shopping Center, the Company
will assume the existing first mortgage loan of approximately $6,078,000.
The first mortgage loan has an interest rate of 8.25% per annum.
THE LANDING
As part of the purchase of The Landings Shopping Center, the Company will
assume the existing first mortgage loan originated by the Affiliate of
approximately $8,245,000. The first mortgage loan has an interest rate of
8.25% per annum.
LAKE WALDEN SQUARE
As part of the purchase of Lake Walden Square Shopping Center, the Company
will assume the existing first mortgage loan of approximately $10,205,000.
The first mortgage loan has an interest rate of 7.63% per annum.
F-31
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Total pro forma adjustments for the following probable 1998 acquisitions are
as though they were acquired on January 1, 1997, or the date operations
commenced.
<TABLE>
<CAPTION>
LAKE LAKE TOTAL 1998
OLYMPIA THE WALDEN ACQUISITIONS
COUNTRYSIDE SQUARE LANDINGS SQUARE PRO FORMA
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Rental income.......................................... $ 375,322 431,325 437,333 768,927 2,012,907
Operating expense and real estate tax recoveries....... 88,092 109,884 147,679 135,619 481,274
----------- ----------- ----------- --------- -----------
Total income........................................... 463,414 541,209 585,012 904,546 2,494,181
----------- ----------- ----------- --------- -----------
Advisor asset management fee........................... 42,838 49,450 49,350 72,644 214,282
Property operating expenses............................ 125,244 148,962 165,932 201,201 641,339
Interest expense....................................... 237,861 250,704 340,106 389,314 1,217,985
Depreciation........................................... 142,242 144,522 128,844 195,054 610,662
----------- ----------- ----------- --------- -----------
Total expenses......................................... 548,185 593,638 684,232 858,213 2,684,268
----------- ----------- ----------- --------- -----------
Net income (loss)...................................... $ (84,771) (52,429) (99,220) 46,333 (190,087)
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
</TABLE>
F-32
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(C) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years for buildings and fifteen years for
improvements.
(D) The pro forma weighted average common stock shares for the six months ended
June 30, 1998 was calculated by estimating the shares sold to purchase each
of the Company's properties on a weighted average basis.
(E) Advisor Asset Management Fees are calculated as 1% of the Average Invested
Assets (as defined).
(F) The net income (loss) allocable to the minority interest is immaterial, and
therefore, has been not included.
F-33
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The following unaudited Pro Forma Statement of Operations of the Company is
presented to effect the acquisitions of the properties indicated in Note B of
the Notes to the Pro Forma Statement of Operations as though they occurred on
January 1, 1997, or the date operations commenced (April 1, 1997 for
Countryside).
This unaudited Pro Forma Statement of Operations is not necessarily
indicative of what the actual results of operations would have been for the year
ended December 31, 1997, nor does it purport to represent the future financial
position of the Company. Unless otherwise defined, capitalized terms used herein
shall have the same meaning as in the Prospectus.
F-34
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
HISTORICAL ACQUISITIONS
(A) (B) PRO FORMA
----------- ----------- ------------
<S> <C> <C> <C>
Rental income.............................................................. $ -- 3,352,357 3,352,357
Operating expense and real estate tax recoveries........................... -- 930,168 930,168
----- ----------- ------------
Total income............................................................... -- 4,282,525 4,282,525
----- ----------- ------------
Advisor asset management fee (E)........................................... -- 405,479 405,479
Property operating expenses................................................ -- 1,138,132 1,138,132
Interest expense........................................................... -- 2,317,082 2,317,082
Depreciation (C)........................................................... -- 1,150,206 1,150,206
----- ----------- ------------
Total expenses............................................................. -- 5,010,899 5,010,899
------------
Net income (loss) applicable to common shareholders (F).................... $ (728,374)
------------
------------
Weighted average common stock shares outstanding (D)....................... 1,392,000
------------
------------
Basic and diluted net income (loss) per weighted average common stock
outstanding (D)........................................................... $ (.52)
------------
------------
</TABLE>
See accompanying notes to pro forma statement of operations.
F-35
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(A) Historical information is not applicable as the Company was not formed as of
December 31, 1997.
(B) Pro forma adjustments for the year ended December 31, 1997 are as though the
acquisitions of the following properties occurred on January 1, 1997, or the
date operations commenced (April 1, 1997 for Countryside). Each of the
properties to be acquired was purchased by an Affiliate of the Advisor, to
be held until sufficient offering proceeds are raised by the Company to
acquire the property. In connection with the acquisition of the initial
properties, the Affiliate borrowed approximately $11,700,000 from another
Affiliate to pay the difference between the Affiliate's Acquisition Cost and
the Initial Mortgage Debt. The maximum amount of aggregate borrowings as
allowed by the offering may not exceed 300% of Net Assets. The Company is
expected to retire this Affiliate debt in full with the net proceeds of the
offering in order to bring the aggregate borrowings within the allowed
limits. As part of the Acquisition, the Company will assume the existing
third party debt. Historical and pro forma adjustments for interest expense
on these properties are based on the following terms.
COUNTRYSIDE
As part of the purchase of Countryside Shopping Center, the Company will
assume the existing first mortgage loan of approximately $6,420,000. The
first mortgage loan has an interest rate of 7.41% per annum.
LAKE OLYMPIA SQUARE
As part of the purchase of Lake Olympia Square Shopping Center, the Company
will assume the existing first mortgage loan of approximately $6,078,000.
The first mortgage loan has an interest rate of 8.25% per annum.
THE LANDINGS
As part of the purchase of The Landings Shopping Center, the Company will
assume the existing first mortgage loan of approximately $8,245,000. The
first mortgage loan has an interest rate of 8.25% per annum.
LAKE WALDEN SQUARE
As part of the purchase of Lake Walden Square Shopping Center, the Company
will assume the existing first mortgage loan of approximately $10,205,000.
The first mortgage loan has an interest rate of 7.63% per annum.
F-36
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
Total pro forma adjustments for the following probable 1998 acquisitions are
as though they were acquired on January 1, 1997, or the date operations
commenced.
<TABLE>
<CAPTION>
LAKE LAKE TOTAL 1998
OLYMPIA THE WALDEN ACQUISITIONS
COUNTRYSIDE SQUARE LANDINGS SQUARE PRO FORMA
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Rental income................................... $ 361,634 848,197 604,671 1,537,855 3,352,357
Operating expense and real estate tax
recoveries.................................... 57,127 163,446 292,815 416,780 930,168
----------- ---------- ---------- ---------- -----------
Total income.................................... 418,761 1,011,643 897,486 1,954,635 4,282,525
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
Advisor asset management fee.................... 64,256 97,235 98,700 145,288 405,479
Property operating expenses..................... 89,238 242,214 355,609 451,071 1,138,132
Interest expense................................ 356,792 501,435 680,213 778,642 2,317,082
Depreciation.................................... 213,365 289,045 257,688 390,108 1,150,206
----------- ---------- ---------- ---------- -----------
Total expenses.................................. 723,651 1,129,929 1,392,210 1,765,109 5,010,899
----------- ---------- ---------- ---------- -----------
Net income (loss)............................... $(304,890) (118,286) (494,724) 189,526 (728,374)
----------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- -----------
</TABLE>
F-37
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
Acquisition of Countryside Shopping Center, Naples, Florida
Reconciliation of Gross income and Direct Operating Expenses for the period
from April 1, 1997 (completion of construction) to December 31, 1997 and is
based on information provided by the seller:
<TABLE>
<CAPTION>
COUNTRYSIDE
-------------------------------------
DECEMBER 31, PRO FORMA
1997 ADJUSTMENTS TOTAL
------------ ----------- ----------
<S> <C> <C> <C>
Rental income......................................... $ 361,634 -- 361,634
Operating expense and real estate tax recoveries...... 57,127 -- 57,127
------------ ----------- ----------
Total income.......................................... 418,761 -- 418,761
------------ ----------- ----------
Advisor asset management fee.......................... -- 64,256 64,256
Property operating expenses........................... 70,394 18,844 89,238
Interest expense...................................... -- 356,792 356,792
Depreciation.......................................... -- 213,365 213,365
------------ ----------- ----------
Total expenses........................................ 70,394 653,257 723,651
------------ ----------- ----------
Net income (loss)..................................... $ 348,367 (653,257) (304,890)
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
Acquisition of Lake Olympia Square, Ocoee, Florida
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1997 prepared in accordance with Rule 3.14 of Regulation S-X
(*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
LAKE OLYMPIA SQUARE
-------------------------------------
PRO FORMA
*AS REPORTED ADJUSTMENTS TOTAL
------------ ----------- ----------
<S> <C> <C> <C>
Rental income........................................ $ 848,197 -- 848,197
Operating expense and real estate tax recoveries..... 163,446 -- 163,446
------------ ----------- ----------
Total income......................................... 1,011,643 -- 1,011,643
------------ ----------- ----------
Advisor asset management fee......................... -- 97,235 97,235
Property operating expenses.......................... 242,214 -- 242,214
Interest expense..................................... 343,788 157,647 501,435
Depreciation......................................... -- 289,045 289,045
------------ ----------- ----------
Total expenses....................................... 586,002 543,927 1,129,929
------------ ----------- ----------
Net income (loss).................................... $ 425,641 (543,927) (118,286)
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
F-38
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
Acquisition of The Landings, Sarasota, Florida
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1997 prepared in accordance with Rule 3.14 of Regulation S-X
(*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
THE LANDINGS
-----------------------------------
*AS PRO FORMA
REPORTED ADJUSTMENTS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Rental income.......................................... $ 604,671 -- 604,671
Operating expense and real estate tax recoveries....... 292,815 -- 292,815
---------- ----------- ----------
Total income........................................... 897,486 -- 897,486
---------- ----------- ----------
Advisor asset management fee........................... -- 98,700 98,700
Property operating expenses............................ 355,609 -- 355,609
Interest expense....................................... -- 680,213 680,213
Depreciation........................................... -- 257,688 257,688
---------- ----------- ----------
Total expenses......................................... 355,609 1,036,601 1,392,210
Net income (loss)...................................... $ 541,877 (1,036,601) (494,724)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Acquisition of Lake Walden Square, Plant City, Florida
Reconciliation of Gross income and Direct Operating Expenses for the year
ended December 31, 1997 prepared in accordance with Rule 3.14 of Regulation S-X
(*) to the Pro Forma Adjustments:
<TABLE>
<CAPTION>
LAKE WALDEN SQUARE
-------------------------------------
PRO FORMA
*AS REPORTED ADJUSTMENTS TOTAL
------------ ----------- ----------
<S> <C> <C> <C>
Rental income........................................ $ 1,537,855 -- 1,537,855
Operating expense and real estate tax recoveries..... 416,780 -- 416,780
------------ ----------- ----------
Total income......................................... 1,954,635 -- 1,954,635
------------ ----------- ----------
Advisor asset management fee......................... -- 145,288 145,288
Property operating expenses.......................... 435,704 15,367 451,071
Interest expense..................................... 136,816 641,826 778,642
Depreciation......................................... -- 390,108 390,108
------------ ----------- ----------
Total expenses....................................... 572,520 (1,192,589) 1,765,109
------------ ----------- ----------
Net income (loss).................................... $ 1,382,115 (1,192,589) 189,526
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
F-39
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(C) Depreciation expense is computed using the straight-line method, based upon
an estimated useful life of thirty years for buildings and fifteen years for
improvements.
(D) The pro forma weighted average common stock shares for the year ended
December 31, 1997 was calculated by estimating the shares sold to purchase
each of the Company's properties on a weighted average basis.
(E) Advisor Asset Management Fees are calculated as 1% of the Average Invested
Assets (as defined).
(F) The net income (loss) allocable to the minority interest is immaterial, and
therefore, has been not included.
F-40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND SUPPLEMENTAL LITERATURE AUTHORIZED BY THE COMPANY AND REFERRED TO
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE RESPECTIVE DATES AT WHICH INFORMATION IS GIVEN
HEREIN, OR THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE IN THE AFFAIRS OF
THE COMPANY SHALL OCCUR DURING THE TIME WHEN A COPY OF THIS PROSPECTUS IS
REQUIRED TO BE DELIVERED, THE COMPANY WILL AMEND OR SUPPLEMENT THIS PROSPECTUS
TO REFLECT SUCH CHANGE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 24
Conflicts of Interest..................................................... 43
Compensation Table........................................................ 48
Prior Performance of the Company's Affiliates............................. 56
Management................................................................ 68
Principal Stockholders.................................................... 84
Certain Responsibilities of Directors and the Advisor; Indemnification.... 85
Structure and Formation of the Company.................................... 86
Selected Financial Data................................................... 92
Estimated Use of Proceeds of Offering..................................... 93
Investment Objectives and Policies........................................ 95
Real Property Investments................................................. 102
Management's Discussion and Analysis of the Financial Condition of the
Company................................................................. 119
Description of Securities................................................. 122
Shares Eligible for Future Sale........................................... 128
Summary of the Organizational Documents................................... 131
Operating Partnership Agreement........................................... 138
Federal Income Tax Considerations......................................... 144
ERISA Considerations...................................................... 161
Who May Invest............................................................ 162
Plan of Distribution...................................................... 163
How to Subscribe.......................................................... 168
Sales Literature.......................................................... 169
Distribution Reinvestment and Share Repurchase Programs................... 169
Reports to Stockholders................................................... 171
Legal Matters............................................................. 172
Experts................................................................... 173
Additional Information.................................................... 173
Glossary.................................................................. 174
APPENDICES:
Prior Performance Tables.................................................. A-1
Distribution Reinvestment Program......................................... B-1
Subscription Agreement.................................................... C-1
Index to Financial Statements and Financial Statements.................... F-i
</TABLE>
--------------------------
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER PROSPECTUSES WHEN ACTING AS SOLICITING DEALERS WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS AND SUBSCRIPTIONS.
INLAND RETAIL
REAL ESTATE TRUST, INC.
55,250,000 SHARES
---------------------
PROSPECTUS
---------------------
, 1998
INLAND SECURITIES
CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 163,135
NASD Filing Fee................................................... **
Printing and Mailing Expenses..................................... **
Blue Sky Fees and Expenses........................................ **
Legal Fees and Expenses........................................... **
Accounting Fees and Expenses...................................... **
Advertising and Sales Literature.................................. **
Due Diligence..................................................... **
Miscellaneous..................................................... **
---------
Total........................................................... $ **
---------
---------
</TABLE>
- ------------------------
* estimated
** to be included in an Amendment
ITEM 32. SALES TO SPECIAL PARTIES.
Employees and associates of the Company and its Affiliates will be permitted
to purchase Shares net of sales commissions and the Marketing Contribution and
Due Diligence Expense Allowance Fee or for $9.05 per Share.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1998, Inland Real Estate Advisory Services, Inc. (the
"Advisor") purchased from the Company 20,000 Shares for $10 per Share, for an
aggregate purchase price of $200,000, in connection with the organization of the
Company. The Advisor also made a capital contribution to Inland Retail Real
Estate Limited Partnership (the "Operating Partnership") in the amount of $2,000
in exchange for 200 LP Common Units of the Operating Partnership. The 200 LP
Common Units received by the Advisor may be exchanged, at the option of the
Advisor, for 200 Shares identical to those being offered pursuant to the
Prospectus included in this Registration Statement. No sales commission or other
consideration was paid in connection with such sales, which were consummated
without registration under the Securities Act of 1933, as amended (the "Act"),
in reliance upon the exemption from registration in Section 4(2) of the Act as
transactions not involving any public offering.
Options to purchase an aggregate of 9,000 Shares at an exercise price of
$9.05 per share will have been granted, as of the effective date this
Prospectus, to the Independent Directors pursuant to the Independent Director
Stock Option Plan (options to purchase 3,000 Shares as to each of the three
Independent Directors). None of such options have been exercised. Therefore, no
Shares have been issued in connection with such options as of the date of the
Prospectus.
II-1
<PAGE>
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XV of the Company's Articles provides as follows:
SECTION 3. INDEMNIFICATION
(a) Subject to paragraphs (b), (c) and (d) of this Section 3, the Company
shall, to the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted and, without limiting the generality of the foregoing,
in accordance with Section 2-418 of the Maryland General Corporation Law,
indemnify and pay, advance, or reimburse reasonable expenses to any Director,
officer, employee and agent of the Company and the Advisor and its Affiliates
(each an "Indemnified Party").
(b) As long as the Company qualifies as a REIT, it shall not indemnify nor
pay, advance or reimburse expenses to an Indemnified Party unless: (i) the
Indemnified Party has determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interest of the Company; (ii)
the Indemnified Party was acting on behalf of or performing services on the part
of the Company; (iii) such liability or loss was not the result of negligence or
misconduct on the part of the Indemnified Party except that in the event the
Indemnified Party is or was in Independent Director, such liability or loss
shall not have been the result of gross negligence or willful misconduct; and
(iv) such indemnification or agreement to be held harmless is recoverable only
out of the Net Assets of the Company and not from the Stockholders.
(c) As long as the Company qualifies as a REIT and notwithstanding anything
to the contrary in Section 3(b) of this Article XV, the Company shall not
indemnify a Director, officer, employee or agent of the Company or the Advisor
or its Affiliates for losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws by such party unless one
or more of the following conditions are met: (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular Indemnified Party; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular Indemnified Party; or (iii) a court of competent jurisdiction
approves a settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of any state securities
regulatory authority in which securities of the Company were offered or sold as
to indemnification for violations of securities laws.
(d) The Company may advance amounts to an Indemnified Party for legal and
other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
Maryland General Corporation Law, and, as long as the Company qualifies as a
REIT, only if all of the following conditions are satisfied: (i) the legal
action relates to acts or omissions with respect to the performance of duties or
services by the Indemnified Party for or on behalf of the Company; (ii) the
legal action is initiated by a third party who is not a Stockholder or the legal
action is initiated by a Stockholder acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; and
(iii) the Indemnified Party receiving such advances undertakes in writing to
repay the advanced funds to the Company, together with the applicable legal rate
of interest thereon, in cases in which such party is found not to be entitled to
indemnification.
(e) The Company shall have the power to purchase and maintain insurance or
provide similar protection on behalf of an Indemnified Party against any
liability asserted which was incurred in any such capacity with the Company or
arising out of such status; provided, however, that the Company shall not incur
the costs of any liability insurance which insures any person against liability
for which he, she or it could not be indemnified under these Articles. Nothing
contained herein shall constitute a waiver by any Indemnified Party of any right
which he, she or it may have against any party under federal or state securities
laws. The Company shall also have power to enter into any contract for indemnity
and advancement of expenses with an officer, employee or agent who is not a
Director to such further extent consistent with law.
II-2
<PAGE>
The Bylaws provide that neither the amendment, nor the repeal, nor the
adoption of any other provision of the Articles or the Bylaws will apply to or
affect, in any respect, the Indemnitee's right to indemnification for actions or
failures to act which occurred prior to such amendment, repeal or adoption.
To the extent that the indemnification may apply to liabilities arising
under the Act, the Company has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is contrary to public
policy and, therefore, unenforceable.
The Company intends to enter into separate indemnification agreements with
each of the Company's Directors and certain of its executive officers. The
indemnification agreements will require, among other things, that the Company
indemnify its Directors and officers to the fullest extent permitted by law, and
advance to the Directors and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred by
Directors and officers seeking to enforce their rights under the indemnification
agreements and cover Directors and officers under the Company's Directors' and
officers' liability insurance, if any. Although the form of indemnification
agreement offers substantially the same scope of coverage afforded by provisions
in the Articles and the Bylaws, as a contract, it cannot be unilaterally
modified by the Board or by the Stockholders to eliminate the rights it
provides.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Inapplicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(a) FINANCIAL STATEMENTS
Independent Auditors' Report--Relating to the Company's Consolidated Balance Sheet
Consolidated Balance Sheet at September 18, 1998 and Notes thereto
Independent Auditors' Report--Relating to Lake Olympia Square.
Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 1997 of Lake Olympia Square and Notes thereto
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the
six months ended June 30, 1998 of Lake Olympia Square and Notes thereto
Independent Auditors' Report--Relating to The Landings of Sarasota
Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 1997 of The Landings of Sarasota and Notes thereto
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the
six months ended June 30, 1998 of The Landings of Sarasota and Notes thereto
Independent Auditors' Report--Relating to Lake Walden Square
Historical Summary of Gross Income and Direct Operating Expenses for the year ended
December 31, 1997 of Lake Walden Square and Notes thereto
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the
six months ended June 30, 1998 of Lake Walden Square and Notes thereto
Historical Summary of Gross Income and Direct Operating Expenses (unaudited) for the
six months ended June 30, 1998 of Countryside and Notes thereto
Pro Forma Consolidated Balance Sheet (unaudited) at June 30, 1998 and Notes thereto
Pro Forma Statement of Operations (unaudited) for the six months ended June 30, 1998
and Notes thereto
Pro Forma Statement of Operations (unaudited) for the year ended December 31, 1997
and Notes thereto
</TABLE>
II-3
<PAGE>
The financial statements of Countryside Shopping Center for the period from
April 1, 1997 through December 31, 1997 are not presented in the Prospectus
since the records are currently not available from the unaffiliated seller of
the property. The Company is aggressively pursuing receipt of these records. It
is the Company's intention to file audited financial statements of Countryside
Shopping Center for the period indicated as soon as possible.
<TABLE>
<S> <C> <C>
(b) EXHIBITS
</TABLE>
(i) The following documents are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Dealer Manager Agreement by and between Inland Retail Real Estate Trust, Inc. and
Inland Securities Corporation.
1.2 Form of Soliciting Dealers Agreement by and between Inland Securities Corporation and the
Soliciting Dealers.
1.3 Form of Warrant Purchase Agreement by and between Inland Retail Real Estate Trust, Inc. and
Inland Securities Corporation.
3.1 Amended and Restated Charter of Inland Retail Real Estate Trust, Inc.
3.2 Bylaws of Inland Retail Real Estate Trust, Inc.
4.1 Form of Agreement of Limited Partnership of Inland Retail Real Estate Limited Partnership.
4.2 Specimen Certificate for the Shares.
5 Form of Opinion of Brown & Wood LLP as to the legality of the Shares being registered.
8 Form of Opinion of Wildman, Harrold, Allen & Dixon as to tax matters.
10.1 Form of Escrow Agreement by and among Inland Retail Real Estate Trust, Inc., Inland
Securities Corporation and LaSalle National Bank, N.A.
10.2 Form of Advisory Agreement by and between Inland Retail Real Estate Trust, Inc. and Inland
Retail Real Estate Advisory Services, Inc.
10.3 Form of Master Management Agreement, including the form of Management Agreement for each
Property by and between Inland Retail Real Estate Trust, Inc. and Inland Southeast Property
Management Corp.
10.4 Form of Property Acquisition Service Agreement by and among Inland Retail Real Estate
Trust, Inc., Inland Retail Real Estate Advisory Services, Inc., Inland Real Estate
Corporation, Inland Real Estate Advisory Services, Inc., and Inland Real Estate
Acquisitions, Inc.
10.5 Form of the Company's Independent Director Stock Option Plan.
23.1 Consent of KPMG Peat Marwick LLP dated September 24, 1998.
23.2 Consent of Brown & Wood LLP dated September 22, 1998.
23.3 Consent of Wildman, Harrold, Allen & Dixon dated September 24, 1998.
24 Power of Attorney (included on signature page to the Registration Statement).
</TABLE>
ITEM 37. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
II-4
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The Registrant undertakes to send to each Stockholder at least on an
annual basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
C. The Registrant undertakes to provide to the Stockholders the financial
statements required by Form 10-K for the first full fiscal year of operations of
the Company.
D. The Registrant hereby undertakes to send to the Stockholders, within 60
days after the close of each quarterly fiscal period, the information specified
by Form 10-Q, if such report is required to be filed with the Securities and
Exchange Commission.
E. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Act during the distribution period describing each Property not
identified in the Prospectus at such time as there arises a reasonable
probability that such Property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three months,
with the information contained in such amendment provided simultaneously to the
existing Stockholders. Each sticker supplement should also disclose all
compensation and fees received by the Advisor and its Affiliates in connection
with any such acquisition. The post-effective amendment shall include audited
financial statements meeting the requirements Rule 3-14 of Regulation S-X only
for Properties acquired during the distribution period.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment (I.E., the signing of a binding purchase agreement) made after the
end of the distribution period involving the use of 10% or more (on a cumulative
basis) of the net proceeds of the offering and to provide the information
contained in such report to the Stockholders at least once each quarter after
the distribution period of the offering has ended.
F. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Oak Brook, State of Illinois, on the 25th day of
September, 1998.
INLAND RETAIL REAL ESTATE TRUST, INC.
By: /s/_BARRY L. LAZARUS__
Title: PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHIEF OPERATING
OFFICER
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert S. Matlin and Samuel A. Orticelli
and each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all pre- and
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their, his or her substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROBERT D. PARKS
- ------------------------------ Chairman and Director September 25, 1998
Robert D. Parks
/s/ BARRY L. LAZARUS President, Chief Executive
- ------------------------------ Officer, Chief Operating September 25, 1998
Barry L. Lazarus Officer and Director
/s/ ROBERTA S. MATLIN
- ------------------------------ Vice September 25, 1998
Roberta S. Matlin President-Administration
/s/ STEVEN D. SANDERS
- ------------------------------ Vice September 25, 1998
Steven D. Sanders President-Acquisitions
/s/ SAMUEL A. ORTICELLI
- ------------------------------ Secretary September 25, 1998
Samuel A. Orticelli
/s/ KELLY TUCEK
- ------------------------------ Treasurer and Chief September 25, 1998
Kelly Tucek Financial Officer
/s/ DANIEL K. DEIGHAN
- ------------------------------ Independent Director September 25, 1998
Daniel K. Deighan
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
FORM OF DEALER MANAGER AGREEMENT
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
55,250,000
SHARES OF COMMON STOCK
$.01 PAR VALUE PER SHARE
DEALER MANAGER AGREEMENT
________ ___, 1998
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies/Gentlemen:
Inland Retail Real Estate Trust, Inc. (the "Company"), a Maryland
corporation, intends to qualify as a real estate investment trust (a "REIT")
under federal income tax laws. The Company was formed on September 3, 1998, and
is governed by the By-Laws, as amended (the "By-Laws") and the Articles of
Incorporation, as amended (the "Articles") in the form included as Exhibits to
the Registration Statement, as described in Section 1(a) hereof (such By-Laws
and Articles being hereinafter referred to as the "Organizational Documents").
The advisor to the Company is Inland Retail Real Estate Advisory Services,
Inc., an Illinois corporation (the "Advisor"). Unless otherwise defined,
capitalized terms used herein shall have the same meaning as in the Registration
Statement on Form S-11.
The Company is offering (i) on a "best efforts" basis up to 50,000,000
shares of common stock, $.0l par value per share (the "Shares") for a purchase
price of $10.00 per Share with a minimum initial investment of $3,000 ($1,000 in
the case of tax-exempt investors, except for residents of the State of Iowa
where Individual Retirement Accounts must have a minimum investment of $3,000,
and for residents of the State of Minnesota where Individual Retirement Accounts
and qualified plan accounts must have a minimum investment of $2,000),
(ii) 1,250,000 Soliciting Dealer Warrants and the 1,250,000 Shares issuable on
exercise of the Soliciting Dealer Warrants and (iii) up to 4,000,000 Shares for
a purchase price of $9.50 per Share for issuance through the Company's
Distribution Reinvestment Program, all upon the other terms and conditions set
forth in the Prospectus, as described in Section 1(a) hereof. The subscribers,
each of whom will be required to enter into a subscription agreement
substantially similar to the form of Subscription Agreement (the "Subscription
Agreement" attached as Appendix C to the Prospectus, will, upon acceptance of
their subscriptions by and in the discretion of the Company, become stockholders
of the Company (the "Stockholders").
<PAGE>
1. REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and agrees with you that:
(a) REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
(File No. ___________) on Form S-11 with respect to an aggregate of
55,250,000 Shares, plus 1,250,000 Soliciting Dealer Warrants (the
"Warrants") (which are issuable in certain circumstances in connection with
sale of the Shares), and such 55,250,000 Shares include 1,250,000 Shares
issuable on exercise of the Warrants and 4,000,000 Shares issuable pursuant
to the Company's Distribution Reinvestment Program, has been prepared by
the Company pursuant to the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission under the Act; one or more amendments to
such registration statement have been or may be so prepared and filed. As
used in this Agreement, the term "Registration Statement" means such
registration statement in the form in which it becomes effective, the term
"Effective Date" means the date upon which the Registration Statement is or
was first declared effective by the Commission and the term "Prospectus"
means the prospectus in the form constituting a part of the Registration
Statement as well as in the form first filed with the Commission pursuant
to its Rule 424 after the Registration Statement becomes effective. The
Commission has not issued any stop order suspending the effectiveness of
the Registration Statement and no proceedings for that purpose have been
instituted or are pending before or threatened by the Commission under the
Act.
(b) COMPLIANCE WITH THE ACT. From the time the Registration
Statement becomes effective and at all times subsequent thereto up to and
including the Termination Date (as defined in Section 2(c) hereof):
(i) the Registration Statement, the Prospectus and any
amendments or supplements thereto will contain all statements which
are required to be stated therein by the Act and the Rules and
Regulations and will comply in all material respects with the Act and
the Rules and Regulations; and
(ii) neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto will at any such time include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) NO SUBSEQUENT MATERIAL EVENTS. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus and prior to the Termination Date, except as contemplated in the
Prospectus or as disclosed in a supplement or amendment thereto or in the
periodic financial statements of the Company, the Company has not and will
not have:
2
<PAGE>
(i) incurred any material liabilities or obligations, direct
or contingent; or
(ii) entered into any material transaction, not in the ordinary
course of business and, except as so disclosed, there has not been and
will not be any material adverse change in the financial position or
results of operations of the Company.
(d) CORPORATION STATUS. The Company is a corporation duly formed and
validly existing under the General Corporation Law of Maryland.
(e) AUTHORIZATION OF AGREEMENT. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of the Company
and constitutes the valid and binding agreement of the Company enforceable
in accordance with its terms (except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
of the United States, any state or any political subdivision thereof which
affect creditors' rights generally or by equitable principles relating to
the availability of remedies). The performance of this Agreement, the
consummation of the transactions contemplated herein and the fulfillment of
the terms hereof, do not and will not result in a breach of any of the
terms and provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, voting trust agreement, note, lease or
other agreement or instrument to which the Company is a party or by which
the Company or its property is bound, or under any rule or regulation or
order of any court or other governmental agency or body with jurisdiction
over the Company or any of its properties; and no consent, approval,
authorization or order of any court or governmental agency or body has been
or is required for the performance of this Agreement or for the
consummation of the transactions contemplated hereby (except as have been
obtained under the Act, from the National Association of Securities
Dealers, Inc. [the "NASD"] or as may be required under state securities or
blue sky laws in connection with the offer and sale of the Shares or under
the laws of states in which the Company may own real properties in
connection with its qualification to transact business in such states or as
may be required by subsequent events which may occur).
(f) PENDING ACTIONS. There is no material action, suit or proceeding
pending or, to the knowledge of the Company, threatened, to which the
Company is a party, before or by any court or governmental agency or body
which adversely affects the offering of the Shares.
(g) REQUIRED FILINGS. There are no contracts or other documents
required to be filed by the Act or the Rules and Regulations of the
Commission thereunder as exhibits to the Registration Statement which have
not been so filed.
(h) FEDERAL INCOME TAX LAWS. The Corporation has obtained an opinion
of Wildman, Harrold, Allen & Dixon stating that, under existing federal
income tax laws and regulations, assuming the Company acts as described in
the "Federal Income Tax
3
<PAGE>
Considerations" section of the Prospectus and timely files the requisite
elections, counsel is of the opinion that the Company has been organized
in conformity with the requirements for qualification as a REIT beginning
with its taxable year ending December 31, 1998, and that its prior,
current and anticipated methods of operation (as described in the
Prospectus and represented by management) has enabled and should enable
it to satisfy the REIT Requirements (as defined in the Prospectus).
(i) INDEPENDENT PUBLIC ACCOUNTANTS. To the best of the Company's
knowledge, the accountants who have certified certain financial statements
appearing in the Prospectus are independent public accountants within the
meaning of the Act and the Rules and Regulations.
(j) ESCROW AGREEMENT. The Company has entered into an escrow
agreement (the "Escrow Agreement") with Inland Securities Corporation, Oak
Brook, Illinois (the "Dealer Manager"), and LaSalle National Bank, N.A.,
Chicago, Illinois (the "Escrow Agent"), in the form included as an exhibit
to the Registration Statement, which provides for the establishment of an
escrow account (the "Escrow Account"). During the period commencing with
the Effective Date and ending on the Termination Date, the Company will
deposit subscribers funds in the Escrow Account as described in Section 2
below.
(k) SALES LITERATURE. In addition to and apart from the Prospectus,
the Company may use certain supplemental sales material in connection with
the offering of the Shares. This material, prepared by the Advisor, would
consist of a brochure describing the Advisor and its Affiliates and the
objectives of the Company and may also contain pictures and summary
descriptions of properties similar to those to be acquired by the Company
that Affiliates of the Company have previously acquired. This material may
also include pictures and summary descriptions of properties similar to
those to be acquired by the Company, as well as a brochure, audio-visual
materials and tape presentations highlighting and explaining various
features of the Offering, properties of prior real estate programs and real
estate investments in general; and articles and publications concerning
real estate. Business reply cards, introductory letters and seminar
invitation forms may be sent to Soliciting Dealers (as hereinafter defined)
and prospective investors. These materials shall be hereinafter referred
to collectively as the "sales literature." No person has been authorized
to prepare for, or furnish to, a prospective investor, any sales literature
other than: (i) that described herein; and (ii) so-called "tombstone"
newspaper advertisements/solicitations of interest, limited to identifying
the Offering and the location of sources of further information. Use of
any sales literature is conditioned upon filing with and, if required,
clearance by appropriate regulatory agencies (including, without
limitation, the NASD and any state securities regulator or commissioner).
Such clearance (if provided), however, does not indicate that the
regulatory agency allowing the use of the materials has passed on the
merits of the Offering or the adequacy or accuracy of the sales materials.
Except as described herein, the Company has not authorized the use of other
supplemental literature or sales material in connection with this Offering.
4
<PAGE>
Although it is believed that the information contained in the sales
literature or sales material will not conflict with any of the information
set forth in the Prospectus, the sales literature will not purport to be
complete, and should not be considered as a part of the Prospectus, or as
incorporated in the Prospectus by reference, or as forming the basis of the
Offering.
(l) AUTHORIZATION OF THE SHARES. The Company has an authorized and
outstanding capitalization as set forth in the Registration Statement and
Prospectus. The sale of the Shares has been duly and validly authorized by
the Company, and when subscriptions for the Shares have been accepted by
the Company as contemplated in the Prospectus and the Shares have been
issued to the respective subscribers, the Shares will represent ownership
in the Company and will conform to the description thereof contained in the
Prospectus. Stockholders have no preemptive rights to purchase or
subscribe for securities of the Company, and the Shares are not convertible
or subject to redemption at the option of the Company. The Shares are
entitled to one vote per Share and do not have cumulative voting rights.
Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Shares, the Stockholders
are entitled to distributions in such amounts as may be declared by the
Board of Directors from time to time out of funds legally available for
such payments and, in the event of liquidation, to share ratably in any
assets of the Company remaining after payment in full of all creditors and
provisions for any liquidation preferences on any outstanding preferred
stock ranking prior to the Shares.
2. OFFERING AND SALE OF THE SHARES. On the basis of the representations,
warranties and agreements herein contained, and subject to the terms and
conditions herein set forth, the Company hereby appoints you as its exclusive
Dealer Manager to solicit and to cause other dealers (as described in Section
2 (a) hereof) to solicit subscriptions for the Shares at the subscription price
to be paid and otherwise upon the other terms and conditions set forth in the
Prospectus and in the Subscription Agreement, and you agree to use your best
efforts as such Dealer Manager to procure subscribers for the Shares, during the
period commencing with the Effective Date and ending on the Termination Date
(the "Offering Period"). The number of Shares, if any, to be reserved for sale
by each Soliciting Dealer may be decided by the mutual agreement, from time to
time, of you and the Company. In the absence of such mutual agreement, the
Company shall, subject to the provisions of Section 2(b) hereof accept
Subscription Agreements based upon a first-come, first accepted reservation or
other similar method.
(a) SOLICITING DEALERS. The Shares offered and sold through you
under this Agreement shall be offered and sold only by you and, at your
sole option, any other securities dealers whom you may retain (collectively
the "Soliciting Dealers"), each of whom are members of the NASD, executing
agreements with you substantially in the form of the Soliciting Dealers
Agreement attached hereto as Exhibit A.
(b) SUBSCRIPTION AGREEMENTS AND SUBSCRIBERS' FUNDS. Each person
desiring to purchase Shares through you or any other Soliciting Dealer will
be required to
5
<PAGE>
complete and execute the Subscription Agreement and to deliver such
document to you or such Soliciting Dealer, together with a check payable
to the order of "LNB, Escrow Agent for IRRET" in the amount of $10 per
Share.
Each Soliciting Dealer shall forward any such Subscription Agreement
and check to you not later than noon of the next business day after receipt
of such Subscription Agreement, if the Soliciting Dealer conducts its
internal supervisory procedures at the location where the Subscription
Agreement and check were initially received. When such internal
supervisory procedures are to be performed at a different location (the
"Final Review Office"), the Subscription Agreement and check must be
transmitted to the Final Review Office by the end of the next business day
following receipt of the Subscription Agreement and check by the Soliciting
Dealer. The Final Review Office will, by the next business day following
receipt of the Subscription Agreement and check, forward both the
Subscription Agreement and check to you as processing broker-dealer in
order that you may complete your review of the documentation and process
the Subscription Agreement and check. The Company will have
representatives available to review the Subscription Agreement at your
location in order to determine whether it wishes to accept the proposed
purchaser as a Stockholder, it being understood that the Company reserves
the unconditional right to reject the tender of any Subscription Agreement
and check (exclusive of the Company's Distribution Reinvestment Program).
Any check received by you directly or as processing broker-dealer from the
Soliciting Dealers will, in all cases, be forwarded to the Escrow Agent as
soon as practicable, but in any event by the end of the second business day
following receipt by you of the Subscription Agreement and check. The
Company will promptly notify you or the Soliciting Dealer, as appropriate,
of any rejection, and you shall send the check and the Subscription
Agreement to the Escrow Agent with directions to promptly return both the
Subscription Agreement and check to the rejected subscriber. All
subscription funds may be deposited directly with the Company.
Nothing contained in this Section 2 shall be construed to impose upon
the Company the responsibility of assuring that prospective purchasers meet
the suitability standards contained in the Prospectus or to relieve you or
any of the Soliciting Dealers of the responsibility of complying with the
Rules of the NASD.
(c) TERMINATION OF THE OFFERING. The Offering Period will terminate
on a date on or before one year from the date of the Prospectus (subject to
requalification in certain states, the Company may extend the Offering
Period from time to time, but in no event for longer than two years from
the date of the original Prospectus), subject in any event to the Company's
right to terminate the Offering at any time (the "Termination Date") and
the proceeds will be applied as set forth in the Prospectus.
6
<PAGE>
(d) DEALER-MANAGER COMPENSATION.
(i) The Company agrees to pay to you a sales commission of 7%
of the sales price for each Share sold (except for Special Sales) from the
50,000,000 Shares offered on a "best efforts" basis, as set forth in the
Prospectus under the caption "Plan of Distribution," subject to the
limitations described below, as well as to issue and sell to you for a
purchase price of $.0008 per Soliciting Dealer Warrant, one Soliciting
Dealer Warrant for every 40 Shares sold from the 50,000,000 Shares offered
on a "best efforts" basis, of which such compensation may be retained or
reallowed by you, subject to federal and state securities laws, to the
Soliciting Dealer who sold the Shares, as described more fully in the
Soliciting Dealers Agreement; provided, however, that Warrants will not be
issued in connection with the sale of Shares to residents of the States of
Minnesota and South Carolina and, provided further, that the Company will
not issue more than 1,250,000 Warrants in connection with the Offering of
the Shares. In lieu of reimbursement of specific expenses, you will also
receive, subject to the limitations described herein, a marketing
contribution (equal to 2%) and due diligence expense allowance (equal to
0.5%), both aggregating 2.5% of the sale price from the 50,000,000 Shares
offered on a "best efforts" basis (except for Special Sales), some portion
of which may be reallowed by you to the Soliciting Dealers.
Investors purchasing at least $200,000 worth of Shares (20,000
Shares) will be entitled to a reduction in selling commissions payable in
connection with the purchase of such Shares in accordance with the
following schedule:
<TABLE>
<CAPTION>
Amount of Maximum Commission
Purchaser's Investment Per Share
------------------------------ ------------------
From To
---------- ----------
<S> <C> <C>
$ 200,000 $ 499,999 5.5%
500,000 999,999 4.0%
1,000,000 1,999,999 2.5%
2,000,000 and over 1.0%
</TABLE>
Any reduction from the amount of selling commissions otherwise
payable to you and reallowable to a Soliciting Dealer in respect of a
purchaser's subscription will be credited to the purchaser in the form of
additional whole or fractional Shares purchased net of commissions. As to
sales of Shares which are entitled to the above described volume discounts,
the Company will pay the reduced selling commissions set forth above.
Certain subscriptions may be combined for the purpose of
crediting a purchaser or purchasers with additional Shares for the above
described volume discount and for determining commissions payable to you
and reallowable to Soliciting Dealers so long as all such combined
purchases are made through the same Soliciting Dealer and approved by the
Company. Subscriptions of spouses and of Persons holding as
7
<PAGE>
joint tenants or tenants in common may be combined for purposes of
computing amounts invested. Subscriptions from Tax-Exempt Entities may
be combined for purposes of computing amounts invested only if investment
decisions are made by the same Person for each such Tax-Exempt Entity,
except however, if the investment decisions are made by an independent
investment adviser, that investment adviser may not have any direct or
indirect beneficial interest in any of the Tax-Exempt Entities whose
subscriptions are sought to be combined. Subscriptions of Tax-Exempt
Entities may not be combined with subscriptions of any Persons other
than such other Tax-Exempt Entities. The investor must mark the
"Additional Investment" space on the Subscription Agreement Signature
Page in order for subscriptions to be combined. The Company is not
responsible for failing to combine subscriptions, where the investor
fails to mark the "Additional Investment" space.
If the Subscription Agreements for the subscriptions to be
combined are submitted at the same time, then the additional Shares to be
credited to the purchasers as a result of such combined purchases will be
credited on a pro rata basis. If the Subscription Agreements for the
subscriptions to be combined are not submitted at the same time, then any
additional Shares to be credited as a result of such combined purchases
will be credited to the last component purchase, unless the Company is
otherwise directed in writing at the time of such submission; except
however, the additional Shares to be credited to any Tax-Exempt Entities
whose subscriptions are combined for purposes of the volume discount will
be credited only on a pro rata basis based on the amount of the investment
of each Tax-Exempt Entity and their combined purchases.
In the event the dollar amount of commissions paid for such
combined purchases exceeds the maximum commissions for such combined
purchases (taking the volume discount into effect), you will be obligated
to forthwith return to the Company any excess commissions received. The
Company may adjust any future commissions due to you for any such excess
commissions that have not been returned.
Notwithstanding the foregoing, it is understood and agreed that
no commission shall be payable with respect to particular Shares if the
Company rejects a proposed subscriber's Subscription Agreement, which it
may do for any reason or for no reason, as set forth in the form of
Subscription Agreement. In addition, no selling commission, Marketing
Contribution or Due Diligence Expense Allowance shall be payable in
connection with the sale of Shares to employees and associates of the
Company and its Affiliates, the Advisor, affiliates of the Advisor, the
Dealer Manager or the Soliciting Dealers.
(ii) All sales commissions payable to you will be paid on a
weekly basis, substantially concurrently with the acceptance of a
subscriber as a Stockholder by the Company, in an amount equal to the sales
commissions payable with respect to such Shares; provided however, the
Company reserves the right, at its sole discretion, to change the frequency
of the payment of such commissions to a monthly basis.
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3. COVENANTS OF THE COMPANY. The Company covenants and agrees with you
as follows:
(a) REGISTRATION STATEMENT. The Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto to
become effective as promptly as possible and will not, at any time after
the Effective Date, file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished a copy at a reasonable time prior to the proposed
filing or to which you shall have reasonably objected or which is not, to
the best of the Company's knowledge in compliance with the Act and the
Rules and Regulations. The Company will prepare and file with the
Commission and will use its best efforts to cause to become effective as
promptly as possible:
(i) any amendments to the Registration Statement or
supplements to the Prospectus which may be required pursuant to the
undertakings in the Registration Statement; and
(ii) upon your reasonable request any amendments to the
Registration Statement or supplements to the Prospectus which, in the
opinion of you or your counsel, may be necessary or advisable in view
of the requirements of the Act and the Rules and Regulations in
connection with the offer and sale of the Shares during the Offering
Period.
(b) SEC ORDERS. As soon as the Company is advised or obtains
knowledge thereof, it will advise you of any request made by the Commission
for amending the Registration Statement, supplementing the Prospectus or
for additional information, or of the issuance by the Commission of any
stop order or of any other order preventing or suspending the use of the
Prospectus or the institution of any proceedings for that purpose, and will
use its best efforts to prevent the issuance or any such order and, if any
such order is issued, to obtain the removal thereof as promptly as
possible.
(c) BLUE SKY QUALIFICATIONS. The Company will use its best efforts
to qualify the Shares for offering and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably request and to make
such applications, file such documents and furnish such information as may
be reasonably required for that purpose. The Company will, at your
request, furnish you copies of all material documents and correspondence
sent to or received from such jurisdictions (including, but not limited to,
summaries of telephone calls and copies of telegrams) and will promptly
advise you as soon as the Company obtains knowledge thereof to the effect
that the Shares are qualified for offering and sale in each such
jurisdiction. The Company will promptly advise you of any request made by
the securities administrators of each such jurisdiction for revising the
Registration Statement or the Prospectus or for additional information or
of the issuance by such securities administrators of any stop order
preventing or suspending the use of the Prospectus or of the institution of
any proceedings for that purpose, and will use its best efforts to prevent
the issuance of any
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<PAGE>
such order and if any such order is issued, to obtain the removal thereof
as promptly as possible. The Company will furnish you with a Blue Sky
Survey dated as of the Effective Date, which will be supplemented to
reflect changes or additions to the information disclosed in such survey.
(d) AMENDMENTS AND SUPPLEMENTS. If at any time when a Prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred to the knowledge of the Company as a result of which
the Prospectus as then amended or supplemented would include any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements therein not misleading in light of the circumstances
existing at the time it is so required to be delivered to a subscriber, or
if it is necessary at any time to amend the Registration Statement or
supplement the Prospectus relating to the Shares to comply with the Act,
the Company will promptly notify you thereof and will prepare and file with
the Commission an amendment or supplement which will correct such statement
or effect such compliance.
(e) COPIES OF REGISTRATION STATEMENT. The Company will furnish you
copies of the Registration Statement (only one of which need be signed and
need include all exhibits), the Prospectus and all amendments and
supplements thereto, including any amendment or supplement prepared after
the Effective Date, and such other information with respect to the Company
as you may from time to time reasonably request, in each case as soon as
available and in such quantities as you may reasonably request.
(f) QUALIFICATION TO TRANSACT BUSINESS. The Company will take all
steps necessary to ensure that at all times the Company will be validly
existing as a Maryland corporation and will be qualified to do business in
all jurisdictions in which the conduct of its business requires such
qualification and where such qualification is required under local law.
(g) AUTHORITY TO PERFORM AGREEMENTS. The Company undertakes to
obtain all consents, approvals, authorizations or orders of any court or
governmental agency or body which are required for the performance of this
Agreement and under the Organizational Documents or the consummation of the
transactions contemplated hereby and thereby, respectively, or the
conducting by the Company of the business described in the Prospectus.
(h) COPIES OF REPORTS. The Company will use its best efforts to
furnish to you as promptly as shall be practicable the following:
(i) a copy of each report or general communication (whether
financial or otherwise) sent to the Stockholders;
(ii) a copy of each report (whether financial or otherwise)
filed with the Commission; and
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<PAGE>
(iii) such other information as you may from time to time
reasonably request regarding the financial condition and operations of
the Company including, but not limited to, copies of operating
statements of properties acquired by the Company.
(i) USE OF PROCEEDS. The Company will apply the proceeds from the
sale of the Shares as stated in the Prospectus or, if for any reason
whatsoever all or a portion of the proceeds of the Offering are not applied
or committed for use as stated within 12 months of the Termination Date,
the Company shall promptly return those proceeds from the sale of the
Shares not so applied or committed as stated in the Prospectus, with
interest, to the subscribers, each subscriber sharing in the return in the
ratio that the number of the Shares owned by such subscriber bears to the
total number of the Shares owned by all subscribers.
(j) ORGANIZATION AND OFFERING EXPENSES. In no event shall the total
of the organizational expenses and expenses of the Offering to be paid
directly by the Company exceed 15% of the gross proceeds of the Offering.
4. COVENANTS OF THE DEALER MANAGER. You covenant and agree with the
Company on your behalf and on behalf of the Soliciting Dealers as follows:
(a) COMPLIANCE WITH LAWS. With respect to your participation and the
participation by each Soliciting Dealer in the offer and sale of the Shares
(including, without limitation any resales and transfers of Shares), you
agree, and each Soliciting Dealer agrees, to comply and shall comply with
any applicable requirements of the Act, the Securities Exchange Act of
1934, as amended, and the published rules and regulations of the Commission
thereunder, and the applicable state securities or blue sky laws, and the
Rules of the NASD, specifically including, but not in any way limited to,
Rules 2440, 2730, 2740, and 2750 therein. In particular, you agree not to
deliver the sales literature (as defined above) to any person prior to the
Effective Date and, after the Effective Date, not to deliver the sales
literature to any person unless the sales literature is accompanied or
preceded by the Prospectus. In addition, you shall, in accordance with
applicable law or as prescribed by any state securities administrator,
provide or cause Soliciting Dealers to provide to any prospective investor
copies of any prescribed document which is part of the Registration
Statement.
With respect to your and each Soliciting Dealer's participation in any
resales or transfers of the Shares, you agree, and each Soliciting Dealer
agrees, to comply and shall comply with any applicable requirements as set
forth above. In addition, you and each Soliciting Dealer agree that should
you or they assist with the resale or transfer of the Shares, you and each
Soliciting Dealer will fulfill the obligations pursuant to Sections 3(b)
and 4(d) of Rule 2810 of the Rules of the NASD.
(b) NO ADDITIONAL INFORMATION. In offering the Shares for sale, you
and each Soliciting Dealer shall not give or provide any information or
make any representation
11
<PAGE>
other than those contained in the Prospectus, the sales literature or any
other document provided to you for such purpose by the Company.
(c) SALES OF SHARES. You and each Soliciting Dealer shall solicit
purchases of the Shares only in the jurisdictions in which you and such
Soliciting Dealer are legally qualified to so act and in which you and each
Soliciting Dealer have been advised by the Company that such solicitations
can be made.
(d) SUBSCRIPTION AGREEMENT. Subscriptions will be submitted by you
and each Soliciting Dealer to the Company only on the form which is
included as Appendix C to the Prospectus. You and each Soliciting Dealer
understand and acknowledge that the Subscription Agreement must be executed
and initialed by the subscriber.
(e) SUITABILITY. In offering the Shares to any person, you and each
Soliciting Dealer shall have reasonable grounds to believe (based on such
information as the investment objectives, other investments, financial
situation and needs of the person or any other information known by you
after due inquiry) that: (i) such person has the capability of
understanding the fundamental aspects of the Company, which capacity may be
evidenced by the following: (A) the nature of employment experience;
(B) educational level achieved; (C) access to advice from qualified
sources, such as attorneys, accountants and tax advisors; and (D) prior
experience with investments of a similar nature; (ii) such person has
apparent understanding of: (A) the fundamental risks and possible
financial hazards of this type of investment; (B) the lack of liquidity of
this investment; (C) the Advisor's role in directing or managing the
investment; and (D) the tax consequences of the investment; and (iii) such
person has the financial capability to invest in the Company and you or
each Soliciting Dealer (as the case may be) shall maintain records
disclosing the basis upon which you and each Soliciting Dealer determined
the suitability of any persons offered Shares. Notwithstanding the
foregoing, you and each Soliciting Dealer shall have reasonable grounds to
believe that such person has either: (a) a minimum annual gross income of
$45,000 and a minimum net worth (exclusive of home, home furnishing and
automobiles) of $45,000; or (b) a minimum net worth (determined with the
foregoing exclusions) of $150,000. Suitability standards are higher in
certain states as set forth in the Subscription Agreement and the
Prospectus. You and/or the Soliciting Dealers shall maintain, for at least
six years, a record of the information obtained to determine that an
investor meets the suitability standards imposed on the offer and sale of
the Shares (both at the time of the initial subscription and at the time of
any additional subscriptions) and a representation of the investor that the
investor is investing for the investor's own account or, in lieu of such
representation, information indicating that the investor for whose account
the investment was made met the suitability standards.
(f) DUE DILIGENCE. Prior to offering the Shares for sale, you and
each Soliciting Dealer shall have conducted an inquiry such that you have
reasonable grounds to believe, based on information made available to you
by the Company
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<PAGE>
through the Prospectus or other materials, that all material facts
are adequately and accurately disclosed and provide a basis for
evaluating the purchase of the Shares. In determining the adequacy of
disclosed facts pursuant to the foregoing, you and each Soliciting Dealer
may obtain, upon request, information on material facts relating at a
minimum to the following:
(1) items of compensation;
(2) Company properties;
(3) tax aspects;
(4) conflicts and risk factors; and
(5) appraisals and other pertinent reports.
Notwithstanding the foregoing, you and each Soliciting Dealer may rely upon the
results of an inquiry conducted by another Soliciting Dealer, provided that:
(i) such Soliciting Dealer has reasonable grounds to believe
that such inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the
consent of the Soliciting Dealer conducting or directing the inquiry;
and
(iii) no Soliciting Dealer that participated in the inquiry is
an affiliate of the Company or the Advisor.
(g) OFFERING PRICE ADJUSTMENT. If, after the Effective Date, the
Company shall adjust the initial purchase price of $10.00 per Share for the
50,000,000 Shares to be offered for sale on a "best efforts" basis in the
Offering, you agree (and each Soliciting Dealer agrees) that the total of
all compensation payable to the Dealer Manager as provided in Section 2(d)
above, shall be adjusted proportionally. In no event shall the total of
all such compensation paid to you and to all Soliciting Dealers (I.E., the
aggregate of the sales commission and the marketing contribution and due
diligence expense allowance) exceed nine and one half percent (9.5%) of the
total of all subscription proceeds received by the Company.
Prior to the sale of the Shares, you and each Soliciting Dealer shall inform the
prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
5. EXPENSES. The Company agrees with you that, whether or not the
transactions contemplated in this Agreement are consummated, the Company will
pay all fees and expenses incident to the performance of its obligations under
this Agreement, including, but not limited to:
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<PAGE>
(a) the Commission's registration fee;
(b) expenses of printing the Registration Statement, the Prospectus
and any amendment or supplement thereto and the expense of furnishing to
you copies of the Registration Statement, the Prospectus and any amendment
or supplement thereto as herein provided;
(c) fees and expenses of its and your accountants and counsel in
connection with the Offering contemplated by this Agreement;
(d) fees and expenses incurred in connection with any required filing
with the NASD;
(e) all of your expenses in connection with the Offering, subject to
the limitations contained in the Prospectus, including, but not limited to,
the salaries, fringe benefits, travel expenses and similar expenses of your
employees and personnel incurred in connection with the Offering; and
(f) expenses of qualifying the Shares for offering and sale under
state blue sky and securities laws, and expenses in connection with the
preparation and printing of the Blue Sky Survey.
In no event, however, will the total of: (a) the selling commissions paid
to you (which you may reallow to the Soliciting Dealers) and (b) the marketing
contribution and due diligence expense allowance paid to you (which you may
reallow to the Soliciting Dealers) and (c) the value attributable to the
Soliciting Dealer Warrants, exceed 10.5% of the gross proceeds of the Offering.
6. CONDITIONS OF OBLIGATIONS. Your obligations hereunder shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained in Section 1 hereof, the accuracy of the statements of the
Company made pursuant to the provisions hereof, to the performance by the
Company of its covenants, agreements and obligations contained in Sections 3 and
5 hereof, and to the following additional conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:00 p.m., Chicago,
Illinois time, on the day following the date of this Agreement, or such
later time and date as you and the Company shall have agreed; no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and, to the best knowledge of the Company or you,
no proceedings for that purpose shall have been instituted, threatened or
contemplated by the Commission; and any request by the Commission for
additional information (to be included in the Registration Statement or
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of you or your counsel.
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<PAGE>
(b) ACCURACY OF REGISTRATION STATEMENT. You shall not have advised
the Company that the Registration Statement or the Prospectus, or any
amendment or any supplement thereto, in the reasonable opinion of you or
your counsel, contains any untrue statement of fact which is material, or
omits to state a fact which is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless you, each Soliciting
Dealer and each person, if any, who controls you or any Soliciting Dealer within
the meaning of the Act (collectively, the "Indemnified Parties"), against any
and all loss, liability, claim, damage and expense whatsoever caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such indemnification
shall be subject to the provisions of Sections 7(b) and (c) of this Agreement.
The Company shall not provide indemnification for any liability or loss
suffered by you, nor shall it provide that you be held harmless for any
liability suffered by the Company unless all of the following conditions are
met: (i) the party seeking indemnification has determined, in good faith, that
its course of conduct, if such course of conduct caused the loss or liability,
was in the best interests of the Company; (ii) the person seeking
indemnification was acting on behalf of or performing services on behalf of the
Company; (iii) such liability or loss was not the result of negligence or
misconduct on the part of the party seeking indemnification or the Indemnified
Party; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the assets of the Company and not from the Stockholders.
In no case shall the Company be liable under this indemnity agreement with
respect to any claim made against any of the Indemnified Parties unless the
Company shall have been notified in writing (in the manner provided in
Section 10 hereof) of the nature of the claim within a reasonable time after the
assertion thereof; but the failure to so notify the Company shall not relieve
the Company from any liability which the Company would have incurred otherwise
than on account of this indemnity agreement. The Company shall be entitled to
participate, at its own expense, in the defense of, or if it so elects within a
reasonable time after receipt of such notice, to assume the defense of any claim
or suit for which any of the Indemnified Parties seek indemnification hereunder.
If the Company elects to assume said defense, such defense shall be conducted by
counsel chosen by it and reasonably satisfactory to the Indemnified Parties.
In the event that the Company elects to assume the defense of any such suit
and retains such counsel, the Company shall not be liable under this Section 7
to the Indemnified Parties in the suit for any legal or other expenses
subsequently incurred by the Indemnified Parties, and
15
<PAGE>
the Indemnified Parties shall bear the fees and expenses of any additional
counsel retained by the Indemnified Parties unless: (A) the employment of
counsel by the Indemnified Party has been authorized by the Company; or (B)
the Company shall not in fact have employed counsel to assume the defense of
such action, in either of which events such fees and expenses shall be borne
by the Company.
The Company may advance amounts to the Indemnified Parties for legal and
other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect to the
performance of duties or services by one or more Indemnified Parties for or on
behalf of the Company; (ii) the legal action is initiated by a third party who
is not a Stockholder and a court of competent jurisdiction specifically approves
such advancement; and (iii) the Indemnified Parties receiving such advances
undertake to repay the advanced funds to the Company, together with the
applicable legal rate of interest thereon, in cases in which such Indemnified
Parties are thereafter found not to be entitled to indemnification.
Notwithstanding the foregoing provisions of this Section 7, the Company
will not be liable in any such case to the extent that any loss, liability,
claim, damage or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of you or any Soliciting Dealer for use in the preparation of the
Registration Statement (or any amendment thereof) or the Prospectus (or any
supplement thereto). The foregoing indemnity agreement is subject to the
further condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in the Prospectus but
eliminated or remedied in any amendment or supplement thereto, such indemnity
agreement shall not inure to your benefit or to any Soliciting Dealer from whom
the person asserting any loss, liability, claim, damage or expense purchased the
Shares which are the subject thereof (or to the benefit of any person who
controls you or any Soliciting Dealer), if a copy of the Prospectus as so
amended or supplemented was not sent or given to such person at or prior to the
time the subscription of such person was accepted by the Company; but only if a
copy of the Prospectus (as so amended or supplemented) had been supplied by the
Company to you or any Soliciting Dealer prior to such acceptance. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) The indemnification and agreement to hold harmless provided in
subparagraph (a) of this Section 7 is further limited to the extent that no such
indemnification by the Company of you or a Soliciting Dealer shall be permitted
under this Agreement for or arising out of an alleged violation of federal or
state securities laws unless one or more of the following conditions are met:
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations by you or any Soliciting Dealer and
a court of competent jurisdiction has approved indemnification of the litigation
costs; (ii) such claims against you or any Soliciting Dealer have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court has approved indemnification of the
litigation costs; or (iii) a court of competent jurisdiction approves a
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<PAGE>
settlement of the claims against you or any Soliciting Dealer and finds that
indemnification of the settlement and related costs should be made and the court
considering the request has been advised of the position of the Commission and
of the published positions of the Tennessee Securities Division and any other
state securities regulatory authority in which securities of the Company were
offered and sold respecting the availability and/or propriety of indemnification
for securities law violations.
(c) You and each Soliciting Dealer agree to indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the Act and any controlling person of the Company: (i) to the same
extent as in the foregoing indemnity from the Company to you and each Soliciting
Dealer, but only with reference to statements or omissions based upon the
information relating to you or any Soliciting Dealer furnished in writing by you
or such Soliciting Dealer or on your or their behalf for use in the Registration
Statement or the Prospectus, or any amendment or supplement thereto; and
(ii) for any violation by you or any Soliciting Dealer in the sale of the Shares
of any applicable state or federal law or any rule, regulation or instruction
thereunder, provided that such violation is not committed in reliance on any
violation by the Company of such law, rule, regulation or instruction.
You and each Soliciting Dealer further agree to indemnify and hold harmless
the Company and any controlling person of the Company against any losses,
liabilities, claims, damages or expenses to which the Company or any such
controlling person may become subject under the securities or blue sky laws of
any jurisdiction insofar as such losses, liabilities, claims, damages or
expenses (or actions, proceedings or investigations in respect thereof) arise by
reason of a sale of the Shares through the efforts of you (with respect to sales
effected without the assistance of a Soliciting Dealer) or a Soliciting Dealer
(with respect to sales effected by such Soliciting Dealer) which is effected
other than in accordance with the Blue Sky Survey supplied to you by the Company
(a "Non-Permitted Sale"), whether such Non-Permitted Sale is caused by a sale in
a jurisdiction other than those specified in the Blue Sky Survey, by a sale in a
jurisdiction in which you or the Soliciting Dealer is not registered to sell the
Shares or which results in a sale in a jurisdiction in excess of the number of
Shares permitted to be sold in such jurisdiction, and will reimburse the Company
or any such controlling person for any legal fees, monetary penalties or other
expenses reasonably incurred by any of them in connection with investigating,
curing or defending against any such losses, liabilities, claims, damages,
actions, proceedings or investigations. This indemnity agreement will be in
addition to any liability which you or any Soliciting Dealer may otherwise have.
(d) The notice provisions contained in Section 7(a) hereof, relating to
notice to the Company, shall be equally applicable to you and each Soliciting
Dealer if the Company or any controlling person of the Company seeks
indemnification pursuant to Section 7(c) hereof. In addition, you and each
Soliciting Dealer may participate in the defense, or assure the defense, of any
such suit so sought under Section 7(c) hereof and have the same rights and
privileges as the Company enjoys with respect to such suits under Section 7(a)
hereof.
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8. TERMINATION OF THIS AGREEMENT. This Agreement may be terminated by
you in the event that the Company shall have materially failed to comply with
any of the material provisions of this Agreement on its part to be performed at
or prior to the Effective Date or if any of the representations, warranties,
covenants or agreements of the Company herein contained shall not have been
materially complied with or satisfied within the times specified.
In any case, this Agreement shall terminate at the close of business on the
Termination Date. Termination of this Agreement pursuant to this Section 8
shall be without liability of any party to any other party other than as
provided in Sections 5 and 7 hereof, which shall survive such termination.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of you or any person who controls you, or by or on behalf of the
Company, and shall survive the Termination Date.
10. NOTICES. All communications hereunder shall be in writing and, if
sent to you, shall be mailed by registered mail or delivered, telefacsimilied or
telegraphed and confirmed in writing to Inland Securities Corporation, 2901
Butterfield Road, Oak Brook, Illinois 60523, (Attention: Ms. Brenda G. Gujral,
President) and, if sent to the Company, shall be mailed by registered mail or
delivered, telefacsimilied or telegraphed and confirmed in writing to Inland
Retail Real Estate Trust, Inc., 2901 Butterfield Road, Oak Brook, Illinois
60523, (Attention: Ms. Roberta S. Matlin, Vice President).
11. REFERENCE TO INLAND SECURITIES CORPORATION. All references herein to
Inland Securities Corporation or the Dealer Manager hereunder shall be deemed to
include all successors and assigns of Inland Securities Corporation.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon you, the Company and the successors and assigns of you and the Company.
This Agreement and the conditions and provisions hereof, are intended to be and
shall be for the sole and exclusive benefit of the parties hereto and their
respective successors and controlling persons, and for the benefit of no other
person, firm or corporation, and the term "successors and assigns," as used
herein, shall not include any purchaser of Shares as such.
13. APPLICABLE LAW. This Agreement and any disputes relative to the
interpretation or enforcement hereto shall be governed by and construed under
the internal laws, as opposed to the conflicts of laws provisions, of the State
of Illinois.
14. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective at
5:00 p.m., Chicago, Illinois time, on the Effective Date, or at such earlier
time as you and the Company agree.
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15. NOT A SEPARATE ENTITY. Nothing contained herein shall constitute you
and/or the Soliciting Dealers or any of them an association, partnership,
limited liability company, unincorporated business or other separate entity.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return it to us, whereupon this instrument will become a binding
agreement between you and the Company in accordance with its terms.
Inland Retail Real Estate Trust, Inc.,
a Maryland corporation
By:
--------------------------------
Title:
--------------------------------
Accepted as of the date
first above written:
Inland Securities Corporation
By:
-------------------------------------
Title:
------------------------------
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EXHIBIT 1.2
FORM OF SOLICITING DEALERS AGREEMENT
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
FORM OF
SOLICITING DEALERS AGREEMENT
Ladies and Gentlemen:
We have entered into an agreement (the "Dealer Manager Agreement")
which is a part hereof and attached hereto, with Inland Retail Real Estate
Trust, Inc., a Maryland corporation (the "Company"), under which we have
agreed to use our best efforts to solicit subscriptions for the shares of
Common Stock (the "Shares") in the Company. The Company is offering to the
public an aggregate maximum of up to 50,000,000 Shares at a price of $10 per
Share on a "best efforts" basis, up to 4,000,000 Shares issued pursuant to
the Distribution Reinvestment Program at a price of $9.50 per Share and
1,250,000 Soliciting Dealer Warrants (and Shares issuable on exercise of the
Soliciting Dealer Warrants) which are issuable in certain circumstances in
connection with the sale of Shares (the "Offering"). Unless otherwise
defined, capitalized terms used herein shall have the same meaning as in the
Registration Statement.
In connection with the performance of our obligations under Section 2
of the Dealer Manager Agreement, we are authorized to retain the services of
securities dealers who are members of the National Association of Securities
Dealers, Inc. (the "Soliciting Dealers") to solicit subscriptions. You are
hereby invited to become a Soliciting Dealer and, as such, to use your best
efforts to solicit subscribers for Shares, in accordance with the following
terms and conditions:
1. A registration statement (the "Registration Statement") with
respect to the 55,250,000 Shares has been filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and has become effective. The 55,250,000 Shares and the
Offering are more particularly described in the enclosed prospectus (the
"Prospectus") which is part of the Registration Statement. Additional copies
of the Prospectus will be supplied to you in reasonable quantities upon
request. We will also provide you with reasonable quantities of any
supplemental literature prepared by the Company in connection with the
offering of the Shares.
2. Solicitation and other activities by the Soliciting Dealers
hereunder shall be undertaken only in accordance with the Dealer Manager
Agreement, this Agreement, the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the applicable rules and regulations of the
Commission, the Blue Sky Survey hereinafter referred to and the Rules of the
National Association of Securities Dealers, Inc. (the "NASD"), specifically
including, but not in any way limited to, NASD Rules 2440, 2730, 2740, and
2750. In offering the sale of Shares to any person, each Soliciting Dealer
shall have reasonable grounds to believe (based on such information as the
investment objectives, other investments, financial situation and needs of
the person or any other information known by you after due inquiry) that:
(i) such person is or will be in a financial position appropriate to enable
such person to realize to a
<PAGE>
significant extent the benefits described in the Prospectus and has a net
worth sufficient to sustain the risks inherent in the program, including loss
of investment and lack of liquidity; (ii) the purchase of the Shares is
otherwise suitable for such person, and each Soliciting Dealer shall maintain
records disclosing the basis upon which each Soliciting Dealer determined the
suitability of any persons offered Shares; and (iii) such person has either:
(a) a minimum annual gross income of $45,000 and a minimum net worth
(exclusive of home, home furnishings and automobiles) of $45,000; or (b) a
minimum net worth (determined with the foregoing exclusions) of $150,000.
If the investor is a resident of California, Massachusetts or
Tennessee, the investor must have either: (i) a minimum net worth (excluding
home, home furnishings and automobiles) of $225,000; or (ii) a minimum annual
gross income of $60,000 and a minimum net worth (exclusive of home, home
furnishings and automobiles) of $60,000.
If the investor is a resident of Maine, the investor must have either:
(i) a minimum net worth (excluding home, home furnishings and automobiles) of
$200,000; or (ii) a minimum annual gross income of $50,000 and a minimum net
worth (exclusive of home, home furnishings and automobiles) of $50,000.
Each Soliciting Dealer agrees: (i) to deliver to each person who
subscribes for the Shares, a Prospectus, as then supplemented or amended,
prior to the tender of his subscription agreement (the "Subscription
Agreement"); (ii) to comply promptly with the written request of any person
for a copy of the Prospectus during the period between the effective date of
the Registration Statement and the later of the termination of the
distribution of the Shares or the expiration of 40 days after the first date
upon which the Shares were offered to the public; (iii) to deliver in
accordance with applicable law or as prescribed by any state securities
administrator to any person a copy of any prescribed document included within
the Registration Statement; and (iv) to maintain in its files for at least
six years, documents disclosing the basis upon which the determination of
suitability was reached as to each purchaser of Shares.
3. Subject to the terms and conditions set forth herein and in the
Dealer Manager Agreement, the Company shall pay to you a selling commission
of 7% of the price paid per Share for all Shares sold (except for Special
Sales) from the 50,000,000 Shares offered on a "best efforts" basis for which
you have acted as Soliciting Dealer pursuant to this Agreement. Soliciting
Dealers will also receive, subject to applicable federal and state securities
laws, one Soliciting Dealer Warrant for each 40 Shares sold by such
Soliciting Dealer during the Offering (the "Warrants"), which Warrants will
be reallowed from the Dealer Manager from the Warrants issued and sold to it
by the Company for a purchase price of $.0008 per Warrant. The Company will
not issue more than 1,250,000 of the Warrants in connection with the Offering
of the Shares. The Warrants will be issued quarterly commencing 60 days
after the date on which Shares are first sold pursuant to the Offering. In
making a request that the Company or the Dealer Manager transfer Warrants,
you hereby represent that the transfer of such Warrants to you is permissible
and proper under applicable state securities laws for sales of Shares to
residents of the appropriate state(s). The Dealer Manager will not transfer
and the Company will not issue Warrants to Soliciting Dealers registered in
Minnesota or South
2
<PAGE>
Carolina in connection with the sale of Shares to residents of the States of
Minnesota or South Carolina, respectively. All Shares sold by the Company in
the Offering, other than (i) through the Distribution Reinvestment Program or
(ii) to residents of the above-referenced states, will be included in the
computation of the number of Shares sold to determine the number of
Soliciting Dealer Warrants to be issued. The holder of a Warrant will be
entitled to purchase one Share from the Company at a price of $12 (or 120% of
the public offering price per Share, if the then current offering price of
Shares in the Offering is higher than $10 per Share) during the time period
beginning one year from the date of the first issuance of any of the
Soliciting Dealer Warrants and ending five years from the date of such first
issuance (the "Exercise Period"). If a Soliciting Dealer Warrant has not
been exercised by the end of the Exercise Period, it will terminate and the
holder thereof will have no further rights thereunder. Soliciting Dealers
should consult their tax advisors regarding the income tax aspects of
receiving and/or exercising the Soliciting Dealer Warrants.
Investors purchasing at least $200,000 worth of Shares (20,000 Shares)
during the Offering will be entitled to a reduction in selling commissions
payable in connection with the purchase of such Shares in accordance with the
following schedule:
<TABLE>
<CAPTION>
Amount of Maximum Commission Per
Purchaser's Investment Share
--------------------------------- ----------------------
From To
------------ ----------
<S> <C> <C>
$ 200,000 $ 499,999 5.5%
500,000 999,999 4.0%
1,000,000 1,999,999 2.5%
2,000,000 and over 1.0%
</TABLE>
Any reduction from the amount otherwise payable to you in respect of a
subscription will be credited to such purchaser in the form of additional
whole Shares or fractional Shares purchased net of commissions. As to sales
of Shares which are entitled to the above described volume discounts, only
the reduced selling commissions set forth above will be paid.
Certain subscriptions may be combined for the purpose of crediting a
purchaser or purchasers with additional Shares for the above described volume
discount and for determining commissions reallowable to you so long as all
such combined purchases are made through you and approved by the Company.
Subscriptions of spouses and of Persons holding as joint tenants or tenants
in common may be combined for purposes of computing amounts invested.
Subscriptions from Tax-Exempt Entities may be combined for purposes of
computing accounts invested only if investment decisions are made by the same
Person for each such Tax-Exempt Entity, except however, if the investment
decisions are made by an independent investment adviser, that investment
adviser may not have any direct or indirect beneficial interest in any of the
Tax-Exempt Entities whose subscriptions are sought to be combined. Subscriptions
of Tax-Exempt Entities may not be combined with subscriptions of any Persons
other than such other Tax-Exempt Entities. The investor must mark the
"Additional Investment" space on the Subscription Agreement Signature Page in
order for subscriptions to be combined. The
3
<PAGE>
Company is not responsible for failing to combine subscriptions, where the
investor fails to mark the "Additional Investment" space.
If the Subscription Agreements for the subscriptions to be combined
are submitted at the same time, then the additional Shares to be credited to
the purchasers as a result of such combined purchases will be credited on a
pro rata basis. If the Subscription Agreements for the subscriptions to be
combined are not submitted at the same time, then any additional Shares to be
credited as a result of such combined purchases will be credited to the last
component purchase, unless the Company is otherwise directed in writing at
the time of such submission; except however, the additional Shares to be
credited to any Tax-Exempt Entities whose subscriptions are combined for
purposes of the volume discount will be credited only on a pro rata basis
based on the amount of the investment of each Tax-Exempt Entity and their
combined purchases.
In the event the dollar amount of commissions paid for such combined
purchases exceeds the maximum commissions for such combined purchases (taking
the volume discount into effect), you will be obligated to forthwith return
to the Dealer Manager (for credit to the Company) any excess commissions
received. The Dealer Manager may adjust any future commissions due to you for
any such excess commissions that have not been returned.
You (and other Soliciting Dealers) also may receive an amount equal to
a maximum of an additional 1.5% of the price per Share for all Shares sold
(except for Special Sales) from the 50,000,000 Shares offered on a "best
efforts" basis for which you have acted as Soliciting Dealer hereunder, as a
sales credit (as described it the following paragraph) (equal to 1%) and due
diligence expense allowance (equal to 0.5%). However, except to the extent
set forth below, such amounts will only be paid to a Soliciting Dealer for
actual marketing and due diligence expenses. Furthermore, you (and other
Soliciting Dealers) will not be paid any portion of the wholesaling fees paid
in connection with the Offering. Such wholesaling fees and the sales credit
described in the following paragraph are included within the maximum
Marketing Contribution.
You (and other Soliciting Dealers) who sell more than a predetermined
number of Shares (to be determined by the Dealer Manager annually on a
calendar year basis) shall be entitled to receive a sales credit in the
amount of 1% of the price of all Shares sold by that Soliciting Dealer, which
amount(s) shall be paid quarterly, in arrears, upon first reaching the
predetermined annual threshold and each quarter thereafter during the
calendar year in which the Soliciting Dealer is credited with additional
sales. Certain marketing and due diligence expenses such as Soliciting
Dealer conferences and due diligence fees may be advanced to a Soliciting
Dealer and later deducted from that Soliciting Dealer's sales credit. Any
sales credit shall be deducted from the maximum Marketing Contribution, which
may otherwise be reallowable to the Soliciting Dealer.
You (and other Soliciting Dealers) may reallow any portion of the
above sales credit to its registered representatives as is permitted under
applicable law and regulations including, without limitation, the federal and
any applicable state securities laws, any rules and/or regulations thereunder
and the rules and regulations of the NASD.
4
<PAGE>
Employees and associates of the Company and its Affiliates, the
Advisor, Affiliates of the Advisor, the Dealer Manager and the Soliciting
Dealers will be permitted to purchase Shares net of sales commissions, the
Marketing Contribution and the Due Diligence Expense Allowance, and you shall
not be entitled to receive any compensation attributable to any such
purchase(s).
Your compensation may also be adjusted in the manner set forth in
Section 4(g) of the Dealer Manager Agreement.
Notwithstanding the foregoing, it is understood and agreed that no
commission shall be payable with respect to particular Shares if the Company
rejects a proposed subscriber's Subscription Agreement, which it may do, as
provided in the form of Subscription Agreement for any reason or for no
reason. Accordingly, you shall have no authority to issue a confirmation
(pursuant to Exchange Act Rule 10b-10) to any subscriber; such authority
residing solely in us, as the Dealer Manager and processing broker-dealer.
4. We reserve the right to notify you by telegram or by other means
of the number of Shares reserved for sale by you. Such Shares will be
reserved for sale by you until the time specified in our notification to you.
Sales of any reserved Shares after the time specified in the notification to
you or any requests for additional Shares will be subject to rejection in
whole or in part.
5. Payments for Shares shall be made by checks payable to "LNB,
Escrow Agent for IRRET" and forwarded together with a copy of the
Subscription Agreement, which is attached as Appendix C to the Prospectus,
executed by the subscriber, to Inland Securities Corporation, 2901
Butterfield Road, Oak Brook, Illinois 60523, not later than noon of the next
business day after receipt of such Subscription Agreement and check (when
your internal supervisory procedures are completed at the site at which the
Subscription Agreement and check were received by you) or, when your internal
supervisory procedures are performed at a different location (the "Final
Review Office"), you shall transmit the check and Subscription Agreement to
the Final Review Office by the end of the next business day following your
receipt of the Subscription Agreement and check. The Final Review Office
will, by the end of the next business day following its receipt of the
Subscription Agreement and check, forward both the Subscription Agreement and
check to the Dealer Manager as processing broker-dealer. If any Subscription
Agreement solicited by you is rejected by the Company, the Subscription
Agreement and check will be forwarded to the Escrow Agent for prompt return
to the rejected subscriber.
6. We will inform you as to the jurisdictions in which we have been
advised by the Company that the Shares have been qualified for sale or are
exempt under the respective securities or "blue sky" laws of such
jurisdictions; but we have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker and/or dealer with respect
to the Shares in any such jurisdiction. You agree that you will not make any
offers except in states in which we may advise you that the Offering has been
qualified or is exempt and further agree to assure that each person to whom
you sell Shares (at both the time of the
5
<PAGE>
initial purchase as well as at the time of any subsequent purchases) meets
any special suitability standards which apply to sales in a particular
jurisdiction, as described in the Blue Sky Survey and the Subscription
Agreement. Neither we nor the Company assume any obligation or
responsibility in respect of the qualification of the Shares covered by the
Prospectus under the laws of any jurisdiction or your qualification to act as
a broker and/or dealer with respect to the Shares in any jurisdiction. The
Blue Sky Survey which has been or will be furnished to you indicates the
jurisdictions in which it is believed that the offer and sale of Shares
covered by the Prospectus is exempt from, or requires action under, the
applicable blue sky or securities laws thereof, and what action, if any, has
been taken with respect thereto.
It is understood and agreed that under no circumstances will you, as a
Soliciting Dealer, engage in any activities hereunder in any jurisdiction in
which you may not lawfully so engage or in any activities in any jurisdiction
with respect to the Shares in which you may lawfully so engage unless you
have complied with the provisions hereof.
7. Neither you nor any other person is authorized by the Company or
by us to give any information or make any representations in connection with
this Agreement or the offer of Shares other than those contained in the
Prospectus, as then amended or supplemented, or any sales literature approved
by us and the Company. You agree not to publish, circulate or otherwise use
any other advertisement or solicitation material without our prior written
approval. You are not authorized to act as our agent in any respect, and you
agree not to act as such agent and not to purport to act as such agent.
8. We shall have full authority to take such action as we may deem
advisable with respect to all matters pertaining to the Offering or arising
thereunder. We shall not be under any liability (except for (i) our own lack
of good faith and (ii) for obligations expressly assumed by us hereunder) for
or in respect of the validity or value of or title to, the Shares; the form
of, or the statements contained in, or the validity of, the Registration
Statement, the Prospectus or any amendment or supplement thereto, or any
other instrument executed by Inland Retail Real Estate Advisory Services,
Inc., the Company's advisor (the "Advisor"), the Company or by others; the
form or validity of the Dealer Manager Agreement or this Agreement; the
delivery of the Shares; the performance by the Advisor, the Company or by
others of any agreement on its or their part; the qualification of the Shares
for sale under the laws of any jurisdiction; or any matter in connection with
any of the foregoing; provided, however, that nothing in this paragraph shall
be deemed to relieve the Company or the undersigned from any liability
imposed by the Act. No obligations on the part of the Company or the
undersigned shall be implied or inferred herefrom.
9. Under the Dealer Manager Agreement, the Company has agreed to
indemnify you and us and each person, if any, who controls you or us, in
certain instances and against certain liabilities, including liabilities
under the Act in certain circumstances. You agree to indemnify the Company
and each person who controls it as provided in the Dealer Manager Agreement
and to indemnify us to the extent and in the manner that you agree to
indemnify the Company in such Dealer Manager Agreement.
6
<PAGE>
10. You hereby authorize and ratify the execution and delivery of the
Dealer Manager Agreement by us as Dealer Manager for ourselves and on behalf
of the Soliciting Dealers (including you) and authorize us to agree to any
variation of its terms or provisions and to execute and deliver any
amendment, modification or supplement thereto. Each Soliciting Dealer hereby
agrees to be bound by all provisions of the Dealer Manager Agreement relating
to Soliciting Dealers. You also authorize us to exercise, in our discretion,
all the authority or discretion now or hereafter vested in us by the
provisions of the Dealer Manager Agreement and to take all such actions as we
may believe desirable in order to carry out the provisions of the Dealer
Manager Agreement and of this Agreement.
11. This Agreement, except for the provisions of Sections 8 and 9
hereof, may be terminated at any time by either party hereto by two days
prior written notice to the other party and, in all events, this Agreement
shall terminate on the termination date of the Dealer Manager Agreement,
except for the provisions of Sections 8 and 9 hereof.
12. Any communications from you should be in writing addressed to us
at Inland Securities Corporation, 2901 Butterfield Road, Oak Brook, Illinois
60523, Attention: Ms. Brenda G. Gujral, President. Any notice from us to
you shall be deemed to have been duly given if mailed, communicated by
telegraph or telefacsimile or delivered by overnight courier to you at your
address shown below.
13. Nothing herein contained shall constitute the undersigned, you,
the other Soliciting Dealers or any of them as an association, partnership,
limited liability company, unincorporated business or other separate entity.
14. Prior to offering the Shares for sale, you shall have conducted
an inquiry such that you have reasonable grounds to believe, based on
information made available to you by the Company or the Advisor through the
Prospectus or other materials, that all material facts are adequately and
accurately disclosed and provide a basis for evaluating a purchase of Shares.
In determining the adequacy of disclosed facts pursuant to the foregoing,
each Soliciting Dealer may obtain, upon request, information on material
facts relating at a minimum to the following:
(1) items of compensation;
(2) physical properties;
(3) tax aspects;
(4) financial stability and experience of the Company and the
Advisor;
(5) conflicts and risk factors; and
(6) appraisals and other pertinent reports.
Notwithstanding the foregoing, each Soliciting Dealer may rely upon the results
of an inquiry conducted by another Soliciting Dealer, provided that:
7
<PAGE>
(i) such Soliciting Dealer has reasonable grounds to believe that
such inquiry was conducted with due care;
(ii) the results of the inquiry were provided to you with the
consent of the Soliciting Dealer conducting or directing the
inquiry; and
(iii) no Soliciting Dealer that participated in the inquiry is an
affiliate of the Company.
Prior to the sale of the Shares, each Soliciting Dealer shall inform the
prospective purchaser of all pertinent facts relating to the liquidity and
marketability of the Shares during the term of the investment.
If the foregoing is in accordance with your understanding and
agreement, please sign and return the attached duplicate of this Agreement.
Your indicated acceptance thereof shall constitute a binding agreement
between you and us.
Very truly yours,
INLAND SECURITIES CORPORATION
By:
--------------------------------
Title:
--------------------------------
____________, 199__
8
<PAGE>
We confirm our agreement to act as a Soliciting Dealer pursuant to all the
terms and conditions of the above Soliciting Dealer Agreement and the attached
Dealer Manager Agreement. We hereby represent that we will comply with the
applicable requirements of the Act and the Exchange Act and the published Rules
and Regulations of the Commission thereunder, and applicable blue sky or other
state securities laws. We confirm that we are a member in good standing of the
NASD. We hereby represent that we will comply with the Rules of the NASD and
all rules and regulations promulgated by the NASD.
Dated: ____________, 199__
--------------------------------
Name of Soliciting Dealer
--------------------------------
Federal Identification Number
By:
--------------------------------
Authorized Signature
Kindly have checks representing commissions forwarded as follows (if different
than above):
(Please type or print)
Name of Firm: _______________________________________
Address: _______________________________________
Street
_______________________________________
City
_______________________________________
State and Zip Code
_______________________________________
(Area Code) Telephone No.
Attention: _______________________________________
9
<PAGE>
EXHIBIT 1.3
FORM OF
WARRANT PURCHASE AGREEMENT
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
1,250,000 SHARES OF COMMON STOCK
$.01 PAR VALUE
(FORM OF)
WARRANT PURCHASE AGREEMENT
_________________, 1998
This Warrant Purchase Agreement (the "Agreement") is made by and between
Inland Retail Real Estate Trust, Inc., a Maryland corporation (the "Company"),
and Inland Securities Corporation, an Illinois corporation (the
"Warrantholder").
The Company hereby agrees to issue and sell, and the Warrantholder agrees
to purchase, for the price of $.0008 per warrant, warrants as hereinafter
described (the "Soliciting Dealer Warrants") to purchase one share of the
Company's shares of common stock, $.01 par value per share (the "Shares") for
each 40 Shares sold by the Dealer Manager and/or Soliciting Dealers, up to a
maximum of 1,250,000 Soliciting Dealer Warrants. The price per Share at which
the Soliciting Dealer Warrants are exercisable and the number of Shares
purchasable per Soliciting Dealer Warrant are subject to adjustment pursuant to
Subsection (b) of Section 7 and Section 8 hereof. The Soliciting Dealer
Warrants are being purchased in connection with a "best efforts" offering of
50,000,000 Shares (the "Offering"), pursuant to that certain Dealer Manager
Agreement (the "Dealer Manager Agreement"), dated ________________, 1998 between
the Company and the Warrantholder as the Dealer Manager and as a representative
of the Soliciting Dealers who may receive Soliciting Dealer Warrants. Unless
otherwise defined, capitalized terms used herein shall have the same meaning as
in the Registration Statement (on Form S-11) relating to the Offering.
The issuance of the Soliciting Dealer Warrants shall occur quarterly
commencing 60 days after the date on which Shares are first sold pursuant to the
Offering and such issuances shall be subject to the terms and conditions set
forth in the Dealer Manager Agreement.
In consideration of the foregoing and for the purpose of defining the terms
and provisions of the Soliciting Dealer Warrants and the respective rights and
obligations thereunder, the Company and the Warrantholder, for value received,
hereby agree as follows:
1. FORM AND TRANSFERABILITY OF SOLICITING DEALER WARRANTS.
(a) REGISTRATION. The Soliciting Dealer Warrant(s) shall be numbered
and shall be registered on the books of the Company when issued.
<PAGE>
(b) FORM OF SOLICITING DEALER WARRANTS. The text and form of the
Soliciting Dealer Warrants and of the Election to Purchase shall be
substantially as set forth in Exhibit "A" and Exhibit "B," respectively,
attached hereto and incorporated herein. The price per Share (the "Warrant
Price") and the number of Shares issuable upon exercise of the Soliciting
Dealer Warrants are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Soliciting Dealer Warrants shall be
dated as of the date of signature thereof by the Company either upon initial
issuance or upon division, exchange, substitution or transfer.
(c) TRANSFER. The Soliciting Dealer Warrants shall be transferable
only on the books of the Company maintained at its principal office or that of
its designated transfer agent, if designated, upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Soliciting Dealer Warrant to the person entitled
thereto. Assignments or transfers shall be made pursuant to the form of
Assignment attached as Exhibit "C" hereto.
(d) LIMITATIONS ON TRANSFER OF SOLICITING DEALER WARRANT. The
Soliciting Dealer Warrants shall not be sold, transferred, assigned, exchanged
or hypothecated (collectively "Transfer") by the Warrantholder, except to:
(i) one or more persons, each of whom on the date of transfer is an officer and
director of the Warrantholder or an officer and director or partner of a
successor to the Warrantholder as provided in clause (iv) of this Subsection
(d); (ii) a partnership or partnerships, all of the partners of which are a
Warrantholder and one or more persons, each of whom on the date of transfer is a
"Principal" (as that term is defined in the next paragraph of this
Subsection (d)) of a Warrantholder or a Principal of a successor to a
Warrantholder; (iii) broker-dealer firms which have executed, and are not then
in default of, a "Soliciting Dealers Agreement" entered into with the Dealer
Manager (the "Selling Group") and one or more persons, each of whom on the date
of transfer is a Principal of a member of the Selling Group or a Principal of a
successor to a member of the Selling Group; provided that the Dealer Manager may
not Transfer Soliciting Dealer Warrants to members of the Selling Group in
connection with the sale of Shares to residents of the States of Minnesota or
South Carolina; (iv) a successor to a Warrantholder through merger or
consolidation; (v) a purchaser of all or substantially all of a Warrantholder's
assets; or by (vi) will, pursuant to the laws of descent and distribution, or
the operation of law; provided, however, that commencing one year from the date
of issuance, a Transfer may be made to a third party solely for the purpose of
immediate exercise of the Soliciting Dealer Warrant and sale of the underlying
Shares by such third party. Each Soliciting Dealer Warrant may be divided or
combined, upon written request to the Company by the Warrantholder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
As used above, the term "Principal" shall include an officer, director,
partner, member or stockholder of an entity who is also a Principal of that
entity, as the term "Principal" is defined by the Rules and By-Laws of the
National Association of Securities Dealers, Inc.
2
<PAGE>
Unless the context indicates otherwise, the term "Warrantholder" shall
include any transferee of the Soliciting Dealer Warrant, and the term "Warrant"
shall include any and all Soliciting Dealer Warrants outstanding pursuant to
this Agreement, including those evidenced by a certificate or certificates
issued upon division, exchange, substitution or transfer pursuant to this
Agreement.
(e) EXCHANGE OR ASSIGNMENT OF SOLICITING DEALER WARRANT. Any Soliciting
Dealer Warrant certificate may be assigned or exchanged without expense for
another certificate or certificates entitling the Warrantholder to purchase a
like aggregate number of Shares as the certificate or certificates surrendered
then entitled such Warrantholder to purchase. Any Warrantholder desiring to
exchange a Soliciting Dealer Warrant certificate shall make a request in
writing, delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Soliciting Dealer Warrant to be so assigned or
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Soliciting Dealer Warrant certificate as so requested.
Any Warrantholder desiring to assign a Soliciting Dealer Warrant shall make
such request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate evidencing the Soliciting Dealer Warrant to be so
assigned, with an instrument of assignment duly executed accompanied by proper
evidence of assignment, succession or authority to transfer, and funds
sufficient to pay any transfer tax, whereupon the Company shall, without charge,
execute and deliver a new Soliciting Dealer Warrant certificate in the name of
the assignee named in such instrument of assignment and the original Soliciting
Dealer Warrant certificate shall promptly be canceled.
(f) Notwithstanding any provision in this Agreement to the contrary, the
Dealer Manager will not transfer and the Company will not issue the Soliciting
Dealer Warrants to Soliciting Dealers registered in the States of Minnesota or
South Carolina, in connection with the sale of Shares to residents of the States
of Minnesota or South Carolina, respectively.
2. TERMS AND EXERCISE OF SOLICITING DEALER WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Agreement, the
Warrantholder shall have the right to purchase one Share from the Company at a
price of $12 (120% of the initial offering price per Share), subject to
modification, as provided in Subsection (b) of Section 7 and in Section 8 below,
during the time period beginning one year from the date the Soliciting Dealer
Warrants are issued to the Warrantholder and ending on the date which shall be
five years from the date of the first issuance of a Soliciting Dealer Warrant
pursuant to this Agreement (the "Exercise Period"), or if any such date is a day
on which banking institutions in Chicago, Illinois are authorized by law to
close, then on the next succeeding day which shall not be such a day, to
purchase from the Company up to the number of fully paid and nonassessable
Shares which the Warrantholder may at the time be entitled to purchase pursuant
to the Soliciting Dealer Warrant, a form of which is attached hereto as
Exhibit "A."
3
<PAGE>
(b) METHOD OF EXERCISE. The Soliciting Dealer Warrant shall be exercised
by surrender to the Company, at its principal office in Oak Brook, Illinois or
at the office of the Company's stock transfer agent, if any, or at such other
address as the Company may designate by notice in writing to the Warrantholder
at the address of the Warrantholder appearing on the books of the Company, of
the certificate evidencing the Soliciting Dealer Warrant to be exercised,
together with the form of Election to Purchase, included as Exhibit "B" hereto,
duly completed and signed, and upon payment to the Company of the Warrant Price
(as determined in accordance with the provisions of Sections 7 and 8 hereof),
for the number of Shares with respect to which such Soliciting Dealer Warrant is
then being exercised together with all taxes applicable upon such exercise.
Payment of the aggregate Warrant Price for the number of Shares with respect to
which the Soliciting Dealer Warrant is being exercised shall be made in cash or
by certified check or cashier's check, payable to the order of the Company. A
Soliciting Dealer Warrant may not be exercised if the Shares to be issued upon
the exercise of the Soliciting Dealer Warrant have not been registered (or be
exempt from registration) in the state of residence of the holder of the
Soliciting Dealer Warrant or if a Prospectus required under the laws of such
state cannot be delivered to the buyer on behalf of the Company. In addition,
holders of Soliciting Dealer Warrants may not exercise the Soliciting Dealer
Warrant to the extent such exercise will cause them to exceed the ownership
limits set forth in the Company's Articles. If any Soliciting Dealer Warrant
has not been exercised by the end of the Exercise Period, it will terminate and
the Warrantholder will have no further rights thereunder.
(c) PARTIAL EXERCISE. The Soliciting Dealer Warrants shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that the Soliciting Dealer Warrant is
exercised with respect to less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
Soliciting Dealer Warrants shall be issued by the Company.
(d) SHARE ISSUANCE UPON EXERCISE. Upon such surrender of the Soliciting
Dealer Warrant certificate and payment of such Warrant Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to the
Warrantholder in such name or names as the Warrantholder may designate in
writing, a certificate or certificates for the number of full Shares so
purchased upon the exercise of the Soliciting Dealer Warrant, together with
cash, as provided in Section 9 hereof, with respect to any fractional Shares
otherwise issuable upon such surrender. Such Shares shall bear the legend
described in Section 5 below and any other legends generally placed on
certificates for the Shares, including a legend provided for in the Articles
with regard to restrictions on transferability for the purpose of the Company's
maintenance of its status as a REIT under the Code and to prohibit exceeding the
ownership limits set forth in the Company's Articles, and the transfer and/or
sale of any Shares so issued shall be limited in the manner and to the extent
provided by such legends and ownership limits and the Articles and By-laws of
the Company. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of such Shares as of the close of business on the date of the
surrender of the Soliciting Dealer Warrant and payment of the Warrant Price, as
hereinafter defined,
4
<PAGE>
notwithstanding that the certificates representing such Shares shall not
actually have been delivered or that the stock transfer books of the Company
shall then be closed.
3. MUTILATED OR MISSING SOLICITING DEALER WARRANT.
In case the certificate or certificates evidencing the Soliciting Dealer
Warrant shall be mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and substitution for
and upon cancellation of the mutilated certificate of certificates, or in lieu
of and in substitution for the certificate or certificates lost, stolen or
destroyed, a new Soliciting Dealer Warrant certificate or certificates of like
tenor and date and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Soliciting Dealer Warrant, and of reasonable bond of
indemnity, if requested, also satisfactory to the Company in form and amount and
at the applicant's cost.
4. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep reserved
so long as the Soliciting Dealer Warrants remains outstanding, out of its
authorized Shares, such number of Shares as shall be subject to purchase under
the outstanding Soliciting Dealer Warrants.
5. LEGEND ON SHARES ISSUED UPON EXERCISE OF SOLICITING DEALER WARRANT.
Each certificate for Shares initially issued upon exercise of the
Soliciting Dealer Warrant, unless at the time of exercise such Shares are
registered with the Securities and Exchange Commission (the "Commission"), under
the Securities Act of 1933, as amended (the "Act"), shall bear the following
legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL
BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby need no longer be subject to such restrictions.
Certificates for Shares shall also bear the legend provided for in the Company's
Articles.
6. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Shares; provided, however, that the Company shall
not be required to pay any
5
<PAGE>
tax or taxes which may be payable with respect to any secondary transfer of
the Soliciting Dealer Warrants or the Shares.
7. WARRANT PRICE.
(a) The price per Share at which Shares shall be purchasable on the
exercise of the Soliciting Dealer Warrant shall be $12 (the "Warrant Price"),
subject, however, to adjustment as provided in Subsection (b) of this Section 7
and in Section 8.
(b) Notwithstanding Subsection (a) of this Section 7 if, at the time of
any exercise of the Soliciting Dealer Warrant, the Offering Price of Shares
pursuant to the Prospectus has been increased, then the Warrant Price shall be
adjusted (the "Adjusted Warrant Price") to be equal to one hundred twenty
percent (120%) of the then current Offering Price of Shares offered or sold
pursuant to the Prospectus.
8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Soliciting Dealer Warrant and the Warrant Price shall be subject to adjustment
from time to time (in addition to any adjustments in accordance with
Subsection (b) of Section 7 above) upon the happening of certain events, as
follows:
(a) In case the Company shall: (i) pay a dividend in Shares or make a
distribution in Shares; (ii) subdivide its outstanding Shares; (iii) combine its
outstanding Shares into a smaller number of Shares, or (iv) issue, by
reclassification of its Shares, other securities of the Company, then the number
and kind of securities purchasable upon the exercise of the Soliciting Dealer
Warrant immediately prior thereto shall be adjusted so that the Warrantholder
shall be entitled to receive the number and kind of securities of the Company
which it would have owned or would have been entitled to receive after the
happening of any of the events described above had the Soliciting Dealer Warrant
been exercised immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to this Subsection (a)
shall become effective on the effective date of such event retroactive to the
record date, if any, for such event.
(b) No adjustment in the number of securities purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the number of securities (calculated to the nearest
full Share thereof) then purchasable upon the exercise of the Soliciting Dealer
Warrant or, if the Soliciting Dealer Warrant is not then exercisable, the number
of securities purchasable upon the exercise of the Soliciting Dealer Warrant on
the first date thereafter that the Soliciting Dealer Warrant becomes
exercisable; provided, however, that any adjustment which by reason of this
Subsection (b) is not required to be made immediately shall be carried forward
and taken into account in any subsequent adjustment.
(c) Whenever the number of Shares purchasable upon the exercise of the
Soliciting Dealer Warrant is adjusted as herein provided, the Warrant Price
shall be adjusted by
6
<PAGE>
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Shares purchasable
upon the exercise of the Soliciting Dealer Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Shares so
purchasable immediately thereafter.
(d) For the purpose of this Section 8, the term "Shares" shall mean:
(i) the class of stock designated as the Shares of the Company at the date of
this Agreement; or (ii) any other class of stock resulting from successive
changes or reclassification of such Shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 8, the Warrantholder shall become entitled to purchase any shares of
stock of the Company other than Shares, thereafter the number of such other
shares of stock of the Company so purchasable upon the exercise of the
Soliciting Dealer Warrants and the Warrant Price shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Shares contained in this Section 8.
(e) Whenever the number of Shares and/or securities purchasable upon the
exercise of the Soliciting Dealer Warrants or the Warrant Price is adjusted as
herein provided, the Company shall cause to be promptly mailed to the
Warrantholder by first class mail, postage prepaid, notice of such adjustment
setting forth the number of Shares and/or securities purchasable upon the
exercise of the Soliciting Dealer Warrants and/or the Warrant Price after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(f) In case of any reclassification, capital reclassification, capital
reorganization or other change in the outstanding Shares of the Company (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of an issuance of Shares by way of dividend
or other distribution, or of a subdivision or combination of the Shares), or in
case of any consolidation or merger of the Company with or into another
corporation or entity (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change in the outstanding
Shares of the Company) as a result of which the holders of the Company's Shares
become holders of other shares of securities of the Company or of another
corporation or entity, or such holders receive cash or other assets, or in case
of any sale or conveyance to another corporation of the property, assets or
business of the Company as an entirety or substantially as an entirety, the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrantholder an agreement that the Warrantholder shall have
the right thereafter upon payment of the Warrant Price in effect immediately
prior to such action to purchase upon the exercise of the Soliciting Dealer
Warrant the kind and number of securities and property which it would have owned
or have been entitled to have received after the happening of such
reclassification, capital reorganization, change in the outstanding Shares of
the Company, consolidation, merger, sale or conveyance had the Soliciting Dealer
Warrants been exercised immediately prior to such action.
7
<PAGE>
The agreement referred to in this Subsection (f) shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this
Subsection (f) shall similarly apply to successive reclassification, capital
reorganizations, changes in the outstanding Shares of the Company,
consolidations, mergers, sales or conveyances.
(g) Except as provided in this Section 8, no adjustment with respect to
any dividends shall be made during the term of the Soliciting Dealer Warrants or
upon the exercise of the Soliciting Dealer Warrants.
(h) Irrespective of any adjustments in the Warrant Price (pursuant to
Subsection (b) of Section 7 above or this Section 8) or the number or kind of
securities purchasable upon the exercise of the Soliciting Dealer Warrant, the
Soliciting Dealer Warrant certificate or certificates theretofore or thereafter
issued may continue to express the same price or number or kind of securities
stated in the Soliciting Dealer Warrant initially issuable pursuant to this
Agreement.
9. FRACTIONAL INTEREST.
The Company shall not be required to issue fractional Shares or securities
upon the exercise of the Soliciting Dealer Warrants. If any such fractional
Shares would, except for the provisions of this Section 9, be issuable upon the
exercise of the Soliciting Dealer Warrants (or any specified portion thereof),
the Company may, at its election, pay an amount in cash equal to the then
current market price per Share multiplied by such fraction. For purposes of
this Agreement, the term "current market price" shall mean: on any date the
average of the Closing Price (as defined below) per Share for the five
consecutive Trading Days (as defined below) ending on such date. The "Closing
Price" on any date means the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the principal national securities exchange on which the Shares are
listed or admitted to trading or, if the Shares are not listed or admitted to
trading on any national securities exchange, the last quoted price, or if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by The Nasdaq Stock Market, Inc. ("Nasdaq"), or, if Nasdaq
is no longer in use, the principal automated quotation system that may then be
in use or, if the Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Shares selected by the Board, or if there is no
professional market maker making a market in the Shares, the average of the last
ten (10) sales pursuant to the Offering if the Offering has not concluded, or if
the Offering has concluded, the average of the last ten (10) purchases by the
Company pursuant to its Share Repurchase Program (the "SRP"), and if there are
fewer than ten (10) of such purchases under the SRP, then the average of such
lesser number of purchases, or, if the SRP is not then in existence, the price
at which the Company is then offering Shares to the public if the Company is
then engaged in a public offering of Shares, or if the Company is not then
offering Shares to the public, the price at which a Stockholder may purchase
Shares pursuant to the Company's Distribution Reinvestment Program (the "DRP")
if such DRP is then in
8
<PAGE>
existence, or if the DRP is not then in existence, the fair market value of
the Shares as determined by the Company, in its sole discretion. "Trading
Day" shall mean a day on which the principal national securities exchange or
national automated quotation system on which the Shares are listed or
admitted to trading is open for the transaction of business or, if the Shares
are not listed or admitted to trading on any national securities exchange or
national automated quotation system, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of
Illinois are authorized or obligated by law or executive order to close.
10. NO RIGHTS AS STOCKHOLDER; NOTICES OF WARRANTHOLDER.
Nothing contained in this Agreement or in the Soliciting Dealer Warrant
shall be construed as conferring upon the Warrantholder or its transferee any
rights as a Stockholder of the Company, either at law or in equity, including
the right to vote, receive dividends, consents or notices as a Stockholder with
respect to any meeting of Stockholders for the election of directors of the
Company or for any other matter.
11. REGISTRATION OF SOLICITING DEALER WARRANTS AND SHARES PURCHASABLE
THEREUNDER.
The distribution of the Soliciting Dealer Warrants and the Shares
purchasable thereunder to the Dealer Manager and/or to one or more Soliciting
Dealers is being registered as part of the Offering. The Company undertakes to
make additional filings with the Commission to the extent required to keep the
issuance of Shares issuable pursuant to the Soliciting Dealer Warrants to
Soliciting Dealers registered through the date which shall be five years from
the date of the first issuance of a Soliciting Dealer Warrant pursuant to this
Agreement. Any sales or transfers of Shares so issued shall be subject in all
respects to the limitations and restrictions contained in Subsection (d) of
Section 2 and to the provisions of Section 5 above.
12. INDEMNIFICATION.
In the event of the filing of any registration statement with respect to
the Soliciting Dealer Warrants or the Shares pursuant to Section 11 above, the
Company and the Warrantholder (and/or selling Warrantholder or such holder of
Shares, as the case may be), shall agree to indemnify and hold harmless the
other to the same extent and in the same manner as provided in the Dealer
Manager Agreement.
13. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which: (a) the Warrantholder or any holder of Shares makes a claim
for indemnification pursuant to Section 12 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right to appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for
9
<PAGE>
indemnification in such case; or (b) contribution under the Act may be
required on the part of the Warrantholder or any holder of Shares, the
Company and the Warrantholder, or such holder of Shares, shall agree to
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement,
including, but not limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable
considerations in the same manner as provided by the parties in the Dealer
Manager Agreement.
14. NOTICES.
Any notice given pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested:
(a) If to the Warrantholder, addressed to:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Brenda G. Gujral, President
(b) If to the Company, addressed to:
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attn: Ms. Roberta S. Matlin, Vice President
Each party hereto may, from time to time, change the address to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
15. PARTIES IN INTEREST.
Nothing in this Agreement shall be construed to give to any Person other
than the Company, the Warrantholder and, to the extent expressed, any holder of
Shares, any Person controlling the Company or the Warrantholder or any holder of
Shares, directors of the Company, nominees for directors (if any) named in the
Prospectus, or officers of the Company who have signed the Registration
Statement, any legal or equitable right, remedy or claim
10
<PAGE>
under this Agreement, and this Agreement shall be for the sole and exclusive
benefit of the aforementioned parties.
16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of
the parties listed in Section 15 above shall bind and inure to the benefit of
their respective executors, administrators, successors and assigns hereunder;
provided, however, that the rights of the Warrantholder or holder of Shares
shall be assignable only to those Persons specified in Subsection (d) of
Section 1 hereof, in which event such assignee shall be bound by each of the
terms and conditions of this Agreement.
17. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company shall not merge or consolidate with or into any other Person or
sell all or substantially all of its property to another Person unless it
complies with the provisions of Subsection (f) of Section 8 hereof.
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any schedule, exhibit, certificate or other
instrument delivered by or on behalf of the parties hereto, or in connection
with the transactions contemplated by this Agreement, shall be deemed to be
representations and warranties hereunder. Notwithstanding any investigations
made by or on behalf of the parties to this Agreement, all representations,
warranties and agreements made by the parties to this Agreement or pursuant
hereto shall survive.
19. CHOICE OF LAW.
This Agreement and the rights of the parties hereunder shall be governed by
and construed in accordance with the laws of the State of Illinois, including
all matters of construction, validity, performance and enforcement, and without
giving effect to the principles of conflict of laws.
20. JURISDICTION.
The parties submit to the jurisdiction of the Courts of the State of
Illinois or a Federal Court impaneled in the State of Illinois for the
resolution of all legal disputes arising under the terms of this Agreement.
21. ENTIRE AGREEMENT.
Except as provided herein, this Agreement, including exhibits, contains the
entire agreement of the parties, and supersedes all existing negotiations,
representations or agreements and all other oral, written or other
communications between them concerning the subject matter of this Agreement.
11
<PAGE>
22. SEVERABILITY.
If any provision of this Agreement is unenforceable, invalid or violates
applicable law, such provision shall be deemed stricken and shall not affect the
enforceability of any other provisions of this Agreement.
23. CAPTIONS.
The captions in this Agreement are inserted only as a matter of convenience
and for reference and shall not be deemed to define, limit, enlarge or describe
the scope of this Agreement or the relationship of the parties, and shall not
affect this Agreement or the construction of any provisions herein.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Inland Retail Real Estate Trust, Inc.
a Maryland corporation
By:
-------------------------------------
-------------------------------------
Name and Title
Inland Securities Corporation,
an Illinois corporation
By:
-----------------------------------
-----------------------------------
Name and Title
12
<PAGE>
EXHIBIT A
INLAND RETAIL REAL ESTATE TRUST, INC.
SOLICITING DEALER WARRANT NO. ____________
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS WARRANT OR THE
SHARES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION
IS NOT REQUIRED. TRANSFER OF THIS WARRANT IS ALSO RESTRICTED BY THAT
CERTAIN WARRANT PURCHASE AGREEMENT DATED AS OF _________________, 1998
A COPY OF WHICH IS AVAILABLE FROM THE ISSUER.
WARRANT TO PURCHASE ________ SHARES OF COMMON STOCK OF INLAND RETAIL
REAL ESTATE TRUST, INC.
Exercisable commencing on _________________, 19__
Void after 5:00 P.M. Central Standard Time on ________________, 2003
(the "Exercise Closing Date").
THIS CERTIFIES that, for value received, _____________________________ (the
"Warrantholder"), or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant (the "Warrant"), to purchase from Inland
Retail Real Estate Trust, Inc., a Maryland corporation (the "Company"),
_________ fully paid and nonassessable shares of Common Stock, $.01 par value
per share (the "Shares") of the Company at any time during the period commencing
on ______________, 19__ and continuing up to 5:00 P.M. central standard time on
______________, 2003 for $12 per Share, and is subject to all the terms thereof,
including the limitations on transferability as set forth in that certain
Warrant Purchase Agreement between Inland Securities Corporation and the Company
dated _________________, 1998. Pursuant to the Warrant Purchase Agreement, the
exercise price of Shares purchased pursuant to this Warrant may be amended to a
price equal to one hundred percent (120%) of the then current offering price of
Shares of the Company pursuant to the terms of the Prospectus originally dated
___________, 1998."
THIS WARRANT may be exercised by the holder thereof, in whole or in part,
by the presentation and surrender of this Warrant with the form of Election to
Purchase duly executed, with signature(s) guaranteed, at the principal office of
the Company (or at such other address as the Company may designate by notice to
the holder hereof at the address of such
<PAGE>
holder appearing on the books of the Company), and upon payment to the
Company of the purchase price in cash or by certified check or bank cashier's
check. The Shares so purchased shall be deemed to be issued to the holder
hereof as the record owner of such Shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for
such Shares. The Shares so purchased shall be registered to the holder (and,
if requested, certificates issued) promptly after this Warrant shall have
been so exercised and unless this Warrant has expired or has been exercised,
in full, a new Warrant identical in form, but representing the number of
Shares with respect to which this Warrant shall not have been exercised,
shall also be issued to the holder hereof.
NOTHING CONTAINED herein shall be construed to confer upon the holder of
this Warrant, as such, any of the rights of a Stockholder of the Company.
Inland Retail Real Estate Trust, Inc.,
a Maryland corporation
By:
------------------------------------
Name and Title
2
<PAGE>
EXHIBIT B
INLAND RETAIL REAL ESTATE TRUST, INC.
ELECTION TO PURCHASE
SOLICITING DEALER WARRANT
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached warrant (the "Warrant"), to purchase thereunder
______ shares of the Common Stock, $.01 par value per share, of Inland Retail
Real Estate Trust, Inc. (the "Shares") provided for therein and hereby tenders
$____________ in payment of the actual exercise price thereof, and requests that
the Shares be issued in the name of ___________________________________________
_______________________________________________________________________________
(Please Print Name, Address and SSN or FEIN of Stockholder below)
_______________________________________________________________________________
and, if said number of Shares shall not be the total possible number of Shares
purchasable under the attached Warrant certificate, that a new Warrant
certificate for the balance of the Shares purchasable under the attached Warrant
certificate be registered in the name of the undersigned Warrantholder or his
assignee as indicated below and delivered at the address state below:
Dated: _____________________________
Name of Warrantholder or Assignee: ___________________________________________
(Please Print)
_______________________________________________________________________________
_______________________________________________________________________________
Signature:_____________________________________________________________________
<PAGE>
EXHIBIT C
INLAND RETAIL REAL ESTATE TRUST, INC.
SOLICITING DEALER WARRANT ASSIGNMENT
(To be signed only upon assignment of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
_______________________________________________________________________________
(Please Print Name, Address and SSN or FEIN of Assignee Below)
________________________________________________________________________________
the attached Soliciting Dealer Warrant No. ____________, to purchase ________
shares of Common Stock, $.01 par value per share, of Inland Retail Real Estate
Trust, Inc. (the "Company"), hereby irrevocably constituting and appointing the
Company and/or its transfer agent as its attorney to transfer said Warrant on
the books of the Company, with full power of substitution.
Dated: __________________________
________________________________________
Signature of Registered Holder
Signature Guaranteed:
__________________________________
Note: The above signature must correspond with
the name as written upon the face of the attached
Warrant certificate in every particular respect,
without alteration, enlargement or any change
whatever, unless this Warrant has been duly
assigned.
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND
RESTATEMENT OF CHARTER
OF
INLAND RETAIL REAL ESTATE TRUST, INC.
FILED WITH THE STATE OF MARYLAND, STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION ON SEPTEMBER 17, 1998
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT OF CHARTER
THIS IS TO CERTIFY THAT:
FIRST: The incorporator of Inland Retail Real Estate Trust, Inc., a
Maryland corporation (the "Company"), desires to amend and restate the charter
of the Company as currently in effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE I
NAME
The name of the corporation is: Inland Retail Real Estate Trust, Inc. (the
"Company"). So far as may be practicable, the business of the Company shall be
conducted and transacted under that name.
ARTICLE II
ORGANIZATION
The name and address of the incorporator shall be Kristopher E. Moldovan,
225 West Wacker Drive, Suite 2600, Chicago, Illinois 60606. Said incorporator,
an individual older than eighteen (18) years, shall form the corporation under
the general laws of Maryland.
ARTICLE III
PURPOSES AND POWERS
The purposes for which the Company is formed are to engage in any lawful
act or activity (including, without limitation or obligation, qualifying as a
real estate investment trust (a "REIT") under Sections 856 through 860, or any
successor sections, of the Internal Revenue Code of 1986, as amended (the
"Code")), for which corporations may be organized under the general laws of the
State of Maryland as now or hereafter in force.
ARTICLE IV
RESIDENT OFFICE/AGENT AND PRINCIPAL OFFICE
The post office address of the principal office of the Company in the State
of Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard Street,
Baltimore, Maryland 21202. The Company may have such other offices and places
of business within or outside the
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State of Maryland as the Board of Directors may from time to time determine.
The Company shall continuously maintain in the State of Maryland a registered
office and a registered agent whose office is identical with such registered
office. The post office address of the Company's registered office in the
State of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202.
The name of the Company's registered agent at such address is The Corporation
Trust Incorporated. The Company reserves the power to change its registered
agent and registered office at any time.
ARTICLE V
DEFINITIONS
For the purposes of these Articles of Incorporation ("Articles"), the
following terms shall have the following meanings:
"ACQUISITION EXPENSES" means expenses related to the Company's selection,
evaluation and acquisition of, and investment in, Properties, whether or not
acquired or made, including but not limited to legal fees and expenses, travel
and communications expenses, costs of appraisals and surveys, non-refundable
option payments on Property not acquired, accounting fees and expenses, computer
use related expenses, architectural and engineering reports, environmental and
asbestos audits, title insurance and escrow fees, and personal and miscellaneous
expenses related to the selection and acquisition of Properties.
"ACQUISITION FEE" means the total of all fees and commissions paid by the
Company, the Advisor or any Affiliate of the Company or the Advisor to any
Person, or paid by any Person to the Advisor or any Affiliate of the Company or
the Advisor and remitted to the Company, in connection with making or investing
in mortgage loans or the purchase, development or construction of Property by
the Company. Included in the computation of such fees or commissions shall be
any real estate commission, selection fee, Development Fee, Construction Fee,
non-recurring management fee, loan fees or points or any fee of a similar
nature, however designated. Excluded shall be Development Fees and Construction
Fees paid to Persons not affiliated with the Sponsor in connection with the
actual development and construction of a project.
"ADVISOR" means the Person responsible for directing or performing the
day-to-day business affairs of the Company, including a Person to which an
Advisor subcontracts substantially all such functions. The Advisor is Inland
Retail Real Estate Advisory Services, Inc. or any Person which succeeds it in
such capacity.
"ADVISOR ASSET MANAGEMENT FEE" means the fee paid to the Advisor for
directing or performing the day-to-day business affairs of the Company, which
shall not exceed 1% of the Average Invested Assets.
"AFFILIATE" means, with respect to any other Person, (i) any Person
directly or indirectly owning, controlling or holding, with the power to vote,
10% or more of the outstanding voting securities of such other Person; (ii) any
Person 10% or more of whose
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outstanding voting securities are directly or indirectly owned, controlled or
held, with the power to vote, by such other Person; (iii) any Person directly
or indirectly controlling, controlled by or under common control with such
other Person; (iv) any executive officer, director, trustee or general
partner of such other Person; and (v) any legal entity for which such Person
acts as an executive officer, director, trustee or general partner.
"ASSET COVERAGE" means the ratio which the value of the total assets of the
Company, less all liabilities and indebtedness for unsecured borrowings, bears
to the aggregate amount of all unsecured borrowings of the Company.
"AVERAGE INVESTED ASSETS" means, for any period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"CASH FLOW" means, with respect to any period: (i) all cash receipts
derived from investments made by the Company; plus (ii) cash receipts from
operations (including any interest from temporary investments of the Company)
without deduction for depreciation or amortization; less (iii) cash receipts
used to pay operating expenses (including the Advisor Asset Management Fee).
"CODE" means the Internal Revenue Code of 1986, as amended, and the
Regulations promulgated thereunder (sometimes referred to as the "Treasury
Regulations") or corresponding provisions of subsequent revenue laws.
"COMPETITIVE REAL ESTATE COMMISSION" means the real estate or brokerage
commission paid for the purchase or sale of a Property which is reasonable,
customary and competitive in light of the size, type and location of such
Property.
"CONTRACT PRICE FOR THE PROPERTY" means the amount actually paid or
allocated to the purchase, development, construction or improvement of a
Property exclusive of Acquisition Fees and Acquisition Expenses.
"CONSTRUCTION FEE" means a fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitation on the
Company's Property.
"DEVELOPMENT FEE" means a fee for the packaging of the Property of the
Company, including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific Property, either initially or at a later date.
"DIRECTOR(S)" means the members of the Board of Directors of the Company
(including Independent Directors).
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"EQUITY STOCK" means stock that is either common stock or preferred stock
of the Company.
"INDEPENDENT DIRECTOR(S)" means the Directors who: (i) are not affiliated,
directly or indirectly, with the Company or the Advisor whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or as an officer or director of the Company, the Advisor or
any of their Affiliates; (ii) do not serve as a director for more than two other
REITs originated by the Company or the Advisor or advised by the Advisor; and
(iii) perform no other services for the Company, except as Directors. For this
purpose, an indirect relationship shall include circumstances in which a member
of the immediate family of a Director has one of the foregoing relationships
with the Company or the Advisor or any of their Affiliates. For purposes of
determining whether or not the business or professional relationship is
material, the aggregate gross revenue derived by the prospective Independent
Director from the Sponsor and Advisor and their Affiliates shall be deemed
material PER SE if it exceeds 5% of the prospective Independent Directors:
(i) annual gross revenue, derived from all sources, during either of the last
two years; or (ii) net worth, on a fair market value basis.
"INDEPENDENT EXPERT" means a Person with no material current or prior
business or personal relationship with the Advisor or the Directors who is
engaged, to a substantial extent, in the business of rendering opinions
regarding the value of assets of the type held by the Company.
"INITIAL INVESTMENT" means the purchase of 20,000 shares of Common Stock by
the Advisor in connection with the organization of the Company for $200,000, and
the capital contribution of $2,000 by the Advisor, for which the Advisor will
receive 200 LP Common Units in the Operating Partnership, which, subject to
certain conditions, will be exchangeable on a one-for-one basis for an aggregate
of 200 shares of Common Stock.
"LP COMMON UNITS" means common units representing limited partnership
interests in the common equity of the Operating Partnership.
"MARKET PRICE" means on any date the average of the Closing Price (as
defined below) per Share for the five consecutive Trading Days (as defined
below) ending on such date. The "Closing Price" on any date means the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the Shares
are not listed or admitted to trading on any national securities exchange, the
last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by The Nasdaq Stock
Market, Inc. ("Nasdaq"), or, if Nasdaq is no longer in use, the principal
automated quotation system that may then be in use or, if the Shares are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Shares
selected by the Board, or if there is no professional market maker making a
market in the Shares, the average of the last ten (10)
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sales pursuant to the Offering if the Offering has not concluded, or if the
Offering has concluded, the average of the last ten (10) purchases by the
Company pursuant to its Share Repurchase Program (the "SRP"), and if there
are fewer than ten (10) of such purchases under the SRP, then the average of
such lesser number of purchases, or, if the SRP is not then in existence, the
price at which the Company is then offering Shares to the public if the
Company is then engaged in a public offering of Shares, or if the Company is
not then offering Shares to the public, the price at which a Stockholder may
purchase Shares pursuant to the Company's Distribution Reinvestment Program
(the "DRP") if such DRP is then in existence, or if the DRP is not then in
existence, the fair market value of the Shares as determined by the Company,
in its sole discretion. "Trading Day" shall mean a day on which the
principal national securities exchange or national automated quotation system
on which the Shares are listed or admitted to trading is open for the
transaction of business or, if the Shares are not listed or admitted to
trading on any national securities exchange or national automated quotation
system, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of Illinois are authorized or obligated by
law or executive order to close.
"NET ASSETS" or "NET ASSET VALUE" means the total assets of the Company
(other than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities of the Company, calculated at least quarterly on
a basis consistently applied.
"NET INCOME" means, for any period, total revenues applicable to such
period, less the expenses applicable to such period other than additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall not include
the gain from the sale of the Company's assets.
"OPERATING PARTNERSHIP" means Inland Retail Real Estate Limited
Partnership, an Illinois limited partnership. The Company will be the General
Partner of the Operating Partnership.
"ORGANIZATION AND OFFERING EXPENSES" means all those expenses incurred by
and to be paid from the assets of the Company in connection with and in
preparing the Company for registration and subsequently offering and
distributing shares of common stock of the Company to the public, including, but
not limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriters' attorneys paid by the Company), expenses
for printing, engraving, mailing, salaries of the Company's employees while
engaged in sales activity, charges of transfer agents, registrars, trustees,
escrow holders, depositories, experts, expenses of qualification of the sale of
the securities under federal and state laws, including taxes and fees, and
accountants' and attorneys' fees and expenses.
"PERSON" means an individual, corporation, business trust, estate, trust,
partnership, limited liability company, association, two or more persons having
a joint or common interest, or any other legal or commercial entity.
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"PROPERTY" or "PROPERTIES" means any, or all, respectively, of the real
property and improvements thereon owned or to be owned by the Company, directly
or indirectly through one or more of its Affiliates.
"PROSPECTUS" means any document, notice, or other communication satisfying
the standards set forth in Section 10 of the Securities Act of 1933, as amended,
and contained in a currently effective registration statement filed by the
Company with, and declared effective by, the Securities and Exchange Commission,
or if no registration statement is currently effective, then the Prospectus
contained in the most recently effective registration statement.
"REIT" means a real estate investment trust as defined by the Code and the
applicable Regulations.
"ROLL-UP" means a transaction involving the acquisition, merger, conversion
or consolidation either directly or indirectly of the Company and a Roll-Up
Entity and the issuance of securities of such Roll-Up Entity to the Stockholders
of the Company. Such term does not include:
(a) a transaction involving securities of the Company that have been
for at least 12 months listed on a national securities exchange or traded
through The Nasdaq Stock Market-Nasdaq National Market; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Company if, as a consequence of the transaction,
there will be no significant adverse change in any of the following:
(i) Stockholders' voting rights;
(ii) the term and existence of the Company;
(iii) Sponsor or Advisor compensation; or
(iv) the Company's investment objectives.
"ROLL-UP ENTITY" means a partnership, REIT, corporation, trust or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up transaction.
"SPONSOR" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company, or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of any
such Person. Not included is any Person whose only relationship with the
Company is as that of an independent property manager of the Company's assets,
and whose only compensation is as such. Sponsor does not include wholly
independent third parties such as attorneys, accountants and underwriters whose
only compensation is for professional services. A Person may also be deemed a
Sponsor of the Company by:
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(a) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company; either alone or in
conjunction with one or more other Persons;
(b) receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company, in consideration
of services or property, or both services and property;
(c) having a substantial number of relationships and contacts with
the Company;
(d) possessing significant rights to control Company Properties;
(e) receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
(f) providing goods or services to the Company on a basis which was
not negotiated at arm's-length with the Company.
Initially the Sponsor shall be Inland Real Estate Investment Corporation or any
Person which succeeds it in such capacity.
"STOCKHOLDERS" means holders of shares of Equity Stock.
"TOTAL OPERATING EXPENSES" means the aggregate expenses of every character
paid or incurred by the Company as determined under Generally Accepted
Accounting Principles, including any fees paid to the Advisor, but excluding:
(a) the expenses of raising capital such as Organization and Offering
Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration and other fees, printing and other such expenses, and taxes
incurred in connection with the issuance, distribution, transfer, registration
and stock exchange listing of the shares of common stock of the Company;
(b) interest payments;
(c) taxes;
(d) non-cash expenditures such as depreciation, amortization and bad
debt reserves;
(e) incentive fees payable to the Advisor; and
(f) Acquisition Fees, Acquisition Expenses, real estate commissions
on resale of Property and other expenses connected with the acquisition,
disposition and ownership of real estate interests, mortgage loans or other
property (such as the costs of
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foreclosure, insurance premiums, legal services, maintenance, repair and
improvement of property).
ARTICLE VI
STOCK
SECTION 1. AUTHORIZED STOCK. The total number of shares of stock which
the Company has authority to issue is 110,000,000 shares, of which 100,000,000
are shares of common stock, $0.01 par value per share ("Common Stock"), and
10,000,000 are shares of preferred stock, $0.01 par value per share ("Preferred
Stock"). The aggregate par value of all authorized shares of stock having par
value is $1,100,000. The Board of Directors is authorized, from time to time,
to issue any stock or convertible securities and to classify or reclassify any
unissued stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the stock.
SECTION 2. LIQUIDATION. Subject to any preferential rights in favor of
any class of Preferred Stock, upon liquidation or dissolution of the Company,
each issued and outstanding share of Common Stock shall be entitled to
participate pro rata in the assets of the Company remaining after payment of, or
adequate provision for, all known debts and liabilities of the Company.
SECTION 3. COMMON STOCK.
(a) Subject to the provisions of Article IX regarding Excess Stock
(as such term is defined therein), each issued and outstanding share of Common
Stock shall entitle the holder thereof to one vote on all matters presented for
a vote of Stockholders. Shares of Common Stock do not have cumulative voting
rights.
(b) Notwithstanding any other provisions of these Articles, a
majority of the voting shares of Equity Stock may, without the necessity for
concurrence by the Directors, vote to remove any Director with or without cause.
(c) A majority of voting shares of Equity Stock present in person or
by proxy at an Annual Meeting at which a quorum is present, may, without the
necessity for concurrence by the Directors, vote to elect the Directors. A
quorum shall be 50% of the then outstanding voting shares of Equity Stock.
(d) With respect to voting shares of Equity Stock owned by the
Advisor, the Sponsor, the Directors or any Affiliate, neither the Advisor, the
Sponsor, the Directors, nor any Affiliate may vote or consent on matters
submitted to the Stockholders regarding the removal of the Advisor, the Sponsor,
the Directors, or any Affiliate or any transaction between the Company and any
of them. In determining the requisite percentage interest of voting shares of
Equity Stock necessary to approve a matter on which the Advisor, the Sponsor,
the
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Directors or any Affiliate may not vote or consent, any shares of Equity
Stock owned by any of them shall not be included.
SECTION 4. PREFERRED STOCK. Shares of Preferred Stock may be issued,
from time to time, in one or more series, as authorized by the Board of
Directors. Prior to issuance of shares of each series, the Board by resolution
shall: (i) designate that series to distinguish it from all other series and
classes of stock of the Company; (ii) specify the number of shares to be
included in the series; and (iii) subject to the provisions of Article IX
regarding Excess Stock, the Company shall determine: (a) the voting rights, if
any, of each class; (b) whether to set apart dividends for or pay dividends to
the holders of a specified class of stock before any dividends are set apart for
or paid to the holders of another class of stock; (c) the rate, amount and time
of payment of the dividends; (d) if a specified class of stock is preferred over
another class as to its distributive share of the assets on voluntary or
involuntary liquidations of the Company and the amount of the preference; (e) if
a specific class of stock is redeemable or convertible into shares of stock of
one or more other classes and the terms and conditions of conversion; (f) the
other rights which, by law, are or may be conferred on the Stockholders; and
(g) any other preferences, rights, restrictions, including restrictions on
transferability, and qualifications not inconsistent with law.
SECTION 5. GENERAL NATURE OF EQUITY STOCK. All shares of Equity Stock
shall be personal property entitling the Stockholders only to those rights
provided in these Articles. The Stockholders shall have no interest in any
Properties and shall have no right to compel any partition, division, dividend
or distribution of the Company or any Properties.
SECTION 6. FRACTIONAL SHARES OF EQUITY STOCK. The Company may, without
the consent or approval of any Stockholder, issue fractional shares of Equity
Stock, eliminate a fraction of a Share by rounding up or down to a full Share,
arrange for the disposition of a fraction of a Share by the person entitled to
it, or pay cash for the fair value of a fraction of a Share.
SECTION 7. PREEMPTIVE RIGHTS. Except as may be provided by the Board
in authorizing the issuance of shares of Preferred Stock pursuant to Section 4
of this Article VI, no Stockholder of the Company shall, as such Stockholder,
have any preemptive right to purchase or subscribe for any additional shares of
Equity Stock or any other security of the Company which it may issue or sell.
SECTION 8. ARTICLES OF INCORPORATION AND BYLAWS. All persons who shall
acquire Equity Stock shall acquire the same subject to the provisions of these
Articles and the bylaws of the Company (the "Bylaws"), as these Articles and
such Bylaws may be amended from time-to-time.
SECTION 9. TERMS AND CONDITIONS OF EQUITY STOCK. The Company shall not
issue:
(a) Common Stock which is non-voting or assessable;
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(b) Warrants, options or similar evidences of a right to buy its
Equity Stock, unless (i) issued to all of its holders of Equity Stock ratably,
(ii) as part of a financing arrangement, or (iii) as part of a stock option plan
to Directors, officers or employees of the Company;
(c) (i) Common Stock which is redeemable at the option of the holder;
(ii) debt securities unless the historical debt service coverage (in the most
recently completed fiscal year) as adjusted for known charges is sufficient to
properly service the higher level of debt; (iii) options or warrants to purchase
Equity Stock to the Sponsor, the Advisor, any Directors, or their Affiliates
except on the same terms as sold to the general public, provided that the
Company may issue options or warrants to persons not affiliated with the Company
at exercise prices not less than the fair market value of such securities on the
date of grant and for consideration (which may include services that in the
judgment of the Independent Directors have a market value not less than the
value of such option on the date of grant), and provided further that options or
warrants issuable to the Sponsor, the Advisor, Directors or Affiliates thereof
shall not exceed an amount equal to ten percent (10%) of the outstanding Equity
Stock on the date of grant of any options or warrants; except, however, that
this clause (iii) shall not apply to options granted to any Independent Director
under any stock option plan for Independent Directors; or
(d) Shares of Equity Stock on a deferred payment basis or similar
arrangement.
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. NUMBER AND CLASSIFICATION. The number of Directors of the
Company shall never be less than three, nor more than eleven, a majority of
which will be Independent Directors. Independent Directors shall nominate
replacements for vacancies amongst the Independent Directors' positions. The
Directors may establish such committees as they deem appropriate (provided the
majority of the members of each committee are Independent Directors). A
Director shall have had at least three years of relevant experience
demonstrating the knowledge and experience required to successfully acquire and
manage the type of assets being acquired by the Company. At least one of the
Independent Directors shall have three years of relevant real estate experience.
The names of three of the Directors who shall serve initially until the
first annual meeting of the Stockholders and until their successors are duly
elected and qualified are:
Barry Lazarus
Robert D. Parks
Daniel K. Deighan (Independent Director)
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Two additional Independent Directors shall be duly elected by the Stockholders
who shall also serve until the first annual meeting of the Stockholders and
until their successors are duly elected and qualified.
SECTION 2. ELECTION AND TERM. Each Director (other than a Director
elected to fill the unexpired term of another Director) is elected by the voting
Stockholders and shall serve a one year term and hold office until his or her
successor is duly elected and qualified. If a vacancy in the Board of Directors
shall occur (whether arising through death, resignation or through an increase
in the number of Directors), the vacancy shall be filled by the affirmative vote
of a majority of the remaining Directors, at any regular meeting or any special
meeting called for that purpose, even though less than a quorum of the Board of
Directors may exist.
SECTION 3. RESIGNATION, REMOVAL OR DEATH. Any Director may resign by
written notice to the Board, effective upon execution and delivery to the
Company of such written notice or upon any future date specified in the notice.
A Director may be removed at any time, with or without cause, at an annual or
special meeting of the Stockholders, by the affirmative vote of the holders of
not less than a majority of the shares of Equity Stock then outstanding and
entitled to vote generally in the election of Directors.
SECTION 4. SERVICE AS NOMINEE. Legal title to any Property shall be
vested in the Company, but the Company may cause legal title to any such
Property to be held by or in the name of any or all of the Directors or any
other person as nominee. Upon the resignation or removal of any Director, or
his otherwise ceasing to be a Director, he shall automatically cease to have any
right, title or interest in and to any Property and shall execute and deliver
such documents as the remaining Directors require for the conveyance of any such
Property held in his name, and shall account to the remaining Directors as they
require for all such Property which he holds as Director. Any right, title or
interest of the Director in and to any Property shall automatically vest in
successor and additional Directors upon their qualification and acceptance of
election or appointment as Directors, and they shall thereupon have all the
rights and obligations of Directors, whether or not any conveyancing documents
have been executed and delivered. Written evidence of the qualification and
acceptance of election or appointment of successor and additional Directors may
be filed with the records of the Company and in any such other offices, agencies
or places as the Company or Directors may deem necessary or desirable.
SECTION 5. DUTIES AND POWERS.
(a) GENERAL. The business and affairs of the Company shall be
managed under the direction of the Board of Directors. All powers of the
Company may be exercised by or under authority of the Board of Directors except
as conferred on or reserved to the Stockholders by law or by the Articles or the
Bylaws. These Articles shall be construed with a presumption in favor of the
grant of power and authority to the Board of Directors. Any construction of
these Articles or determination made in good faith by the Board of Directors
concerning its powers and authority hereunder shall be conclusive. The
enumeration and definition of particular powers of the Board of Directors
included in these Articles or in the
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Bylaws shall in no way be construed or deemed by inference or otherwise in
any manner to exclude or limit the powers conferred upon the Board of
Directors under the Maryland General Corporation Law, the general laws of the
State of Maryland or any other applicable laws as now or hereafter in force.
(b) REIT QUALIFICATION. The Board shall use its reasonable best
efforts to cause the Company to qualify for U.S. federal income tax treatment in
accordance with the provisions of the Code applicable to a REIT. In furtherance
of the foregoing, the Board shall use its reasonable best efforts to take such
actions as are necessary, and may take such actions as in its sole judgment and
discretion are desirable, to preserve the status of the Company as a REIT;
provided, however, that if a majority of the Board (including a majority of the
Independent Directors) determines that it is no longer in the best interests of
the Company to continue to have the Company qualify as a REIT, the Board may
revoke or otherwise terminate the Company's REIT election pursuant to
Section 856(g) of the Code.
(c) DISTRIBUTIONS. The Company intends to pay regular monthly
distributions to its Stockholders ("Distributions"). However, the Company
reserves the right to pay Distributions on a quarterly basis in an amount
determined by the Board. The Company's ability to pay Distributions and the
size of these Distributions will depend upon a variety of factors. There can be
no assurance that Distributions will be made.
To the extent possible, the Company seeks to avoid the fluctuations in
Distributions which might result if Distributions were based on actual cash
received during the Distribution period. To avoid fluctuation, the Company may
use Cash Flow received during prior periods, or Cash Flow received subsequent to
the Distribution period and prior to the payment date for such Distribution, in
order to pay annualized Distributions consistent with the Distribution level
established from time to time by the Board. The Company's ability to maintain
this policy is dependent upon the Company's Cash Flow and the applicable
requirements for qualifying as a REIT as contained in Code Section 856 through
960 and the Regulations promulgated thereunder. There can be no assurance that
there will be Cash Flow available to pay Distributions, or that Distribution
amounts will not fluctuate.
Concurrently with any Distribution, the Company shall provide
Stockholders with a statement disclosing the source of the funds distributed. If
such information is not available concurrently with the making of a
Distribution, a statement setting forth the reasons why such information is not
available shall be provided concurrently. In no event shall such information be
provided to Stockholders more than 60 days after the close of the fiscal year in
which the Distribution was made.
Distributions in-kind shall not be permitted, except for Distributions of:
(i) readily marketable securities; (ii) beneficial interests in a liquidating
trust established for the dissolution of the Company and the liquidation of its
assets; or (iii) Distributions of in-kind property which meet all of the
following conditions: (a) the Directors advise each Stockholder of the risks
associated with direct ownership of the in-kind Property; (b) the Directors
offer
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each Stockholder the election of receiving in-kind property Distributions,
and (c) the Directors distribute in-kind property only to those Stockholders who
accept the Directors' offer.
The Directors shall endeavor to declare and pay such Distributions as
shall be necessary under the Code; however, Stockholders shall have no right to
any Distribution unless and until declared by the Directors. The exercise of the
powers and rights of the Directors pursuant to this Section 5 shall be subject
to the provisions of any class or series of Equity Stock at the time
outstanding. The receipt by any person in whose name any shares of Equity Stock
are registered on the records of the Company or by his, her or its duly
authorized agent shall be a sufficient discharge for all dividends or
distributions payable or deliverable in respect of such shares of Equity Stock
and from all liability related to the application thereof.
(d) DISTRIBUTION REINVESTMENT PROGRAM. The Directors may adopt a
distribution reinvestment program on such terms and conditions as shall be set
forth in the Prospectus, which program may be amended from time to time by the
Directors, provided, however, that such program shall, at a minimum, provide for
the following:
(i) All material information regarding the Distribution to the
Stockholder and the effect of reinvesting such Distribution, including the tax
consequences thereof, shall be provided to the Stockholder at least annually;
and
(ii) Each Stockholder participating in the distribution
reinvestment program shall have a reasonable opportunity to withdraw from the
distribution reinvestment program at least annually after receipt of the
information required in subparagraph (i) above.
(e) DETERMINATION OF REASONABLENESS OF FEES AND EXPENSES. The
Independent Directors shall determine, from time to time but at least
annually, that the total fees and expenses of the Company are reasonable in
the light of the investment performance of the Company, its Net Assets, its
Net Income, and the fees and expenses of other comparable unaffiliated
Companies. Each such determination shall be reflected in the minutes of the
meeting of the Directors.
(f) REVIEW OF INVESTMENT POLICIES. The Directors shall establish
written policies on investments and borrowing and shall monitor the
administrative procedures, investment operations and performance of the Company
and the Advisor to assure that such policies are carried out. The Independent
Directors shall review such policies of the Company with sufficient frequency
and at least annually to determine that the policies being followed by the
Company at any time are in the best interests of the Stockholders. Each such
determination and the basis therefor shall be set forth in the minutes of the
Board of Directors.
(g) DETERMINATION OF CONSIDERATION. The consideration paid for
Properties acquired by the Company shall ordinarily be based upon the fair
market value of the Properties and approved by a majority of the Directors
(including a majority of the Independent Directors). In cases in which a
majority of the Independent Directors so determine, or if assets are acquired
from a Sponsor, Advisor, Director or an Affiliate of any of the foregoing,
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pursuant to Section 6 of Article VIII, such fair market value shall be as
determined by a qualified independent real estate appraiser selected by the
Independent Directors.
(h) ADVISORY AGREEMENT; ADVISOR COMPENSATION. Subject to the
approval of a majority of the Directors, including a majority of the Independent
Directors, an advisory agreement will be entered into by the Company which will
be for a one-year term subject to successive one-year renewals upon the mutual
consent of the parties. Such advisory agreement shall be terminable by either
party or by mutual consent of the parties or by a majority of the Independent
Directors of the Company or the Advisor, as the case may be, upon 60 days
written notice without cause or penalty. In the event of the termination of the
advisory agreement, the Advisor will cooperate with the Company and take all
reasonable steps requested to assist the Directors in making an orderly
transition of the advisory function. The Independent Directors shall determine
from time to time and at least annually that the compensation which the Company
contracts to pay to the Advisor is reasonable in relation to the nature and
quality of services performed and that such compensation is within the limits
prescribed by these Articles and applicable state law. The Independent
Directors shall also supervise the performance of the Advisor to determine that
the Advisor or a successor Advisor possesses sufficient qualifications to
perform the advisory function for the Company and to justify the compensation
paid to it by the Company as well as to confirm that the provisions of such
contract are being carried out. It shall be the duty of the Directors,
including the Independent Directors, to evaluate the performance of the Advisor
before entering into or renewing an advisory contract. Such determination shall
be based upon the following factors and all other factors such Independent
Directors may deem relevant and the findings of such Directors on each of such
factors shall be recorded in the minutes of a Directors meeting: (i) the size
of the advisory fee in relation to the size, composition and profitability of
the investment portfolio of the Company; (ii) the success of the Advisor in
generating opportunities that meet the investment objectives of the Company;
(iii) the rates charged to other REITs and to investors other than REITs by
advisors performing similar services; (iv) additional revenues realized by the
Advisor and its Affiliates through their relationship with the Company,
including loan administration, underwriting or broker commissions, servicing,
engineering, inspection and other fees, whether paid by the Company or by others
with whom the Company does business; (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the Company, including income, conservation or appreciation of
capital, frequency of problem investments and competence in dealing with
distress situations; and (vii) the quality of the investment portfolio of the
Company in relationship to the investments generated by the Advisor for its own
account. Payments to the Advisor, its Affiliates and the Directors for services
rendered in a capacity other than that as investment advisor or Director may
only be made upon a determination that: (i) the compensation is not in excess
of their compensation paid for any comparable services; and (ii) the
compensation is not greater than the charges for comparable services available
from others who are competent and not affiliated with any of the parties
involved.
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(i) RESERVED POWERS OF BOARD. The Board of Directors, without any
action by the Stockholders of the Company, shall have and may exercise, on
behalf of the Company, without limitation, the exclusive power to adopt, alter
and repeal Bylaws.
SECTION 6. PERFORMANCE OF DUTIES. A Director shall perform his or her
duties as a Director, including his or her duties as a member of a committee of
the Board on which he or she serves: (i) in good faith, (ii) in a manner he or
she reasonably believes to be in the best interest of the Company and (iii) with
the care that an ordinarily prudent person in a like position would use under
similar circumstances. In performing his or her duties, a Director is entitled
to rely on any information, opinion, report or statement, including any
financial statement or other financial data, prepared or presented by, (i) an
officer or employee of the Company whom the Director reasonably believes to be
reliable and competent in the matters presented, (ii) a lawyer, public
accountant or other person, as to matters which the Director reasonably believes
to be within the person's professional or expert competence, or (iii) a
committee of the Board of Directors on which the Director does not serve, as to
matters within its designated authority, if the Director reasonably believes the
committee to merit confidence. A person who performs his or her duties in
accordance with the standards provided in this Section 6 has no liability by
reason of being or having been a Director.
SECTION 7. FIDUCIARY DUTY. The Directors and Advisor of the Company
shall be deemed to be in a fiduciary relationship to the Company and the
Stockholders. The Directors shall also have a fiduciary duty to the
Stockholders to supervise the relationship of the Company with the Advisor.
SECTION 8. 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 consistent with these Articles 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 Company and every holder of shares of its Equity Stock:
(i) the amount of the net income of the Company for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its Equity Stock or the payment of other distributions on its Equity 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; (iii) 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 or charges shall have been created shall have been paid
or discharged); and (iv) the fair value, or any sale, bid or asked price to be
applied in determining the fair value, of any asset owned or held by the
Company; and any matters relating to the acquisition, holding and disposition of
any assets by the Company.
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ARTICLE VIII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN
POWERS OF THE COMPANY AND OF ITS DIRECTORS AND STOCKHOLDERS
Until such time as the Board of Directors shall determine, in its sole and
absolute discretion, that it is no longer in the best interests of the Company
or its Stockholders that the Company continue to operate as a REIT, or until
such time as the Company shall fail to qualify as a REIT:
SECTION 1. LIMITATION ON ORGANIZATION AND OFFERING EXPENSES. The
Organization and Offering Expenses paid in connection with the Company's
formation or the syndication or sale of shares of Common Stock shall be
reasonable and shall in no event exceed fifteen percent (15%) of the proceeds
raised in such syndication or sale.
SECTION 2. LIMITATION ON ACQUISITION FEES AND EXPENSES. The total of
all Acquisition Fees and Acquisition Expenses paid by the Company in connection
with the purchase of a property by the Company shall be reasonable, and shall in
no event exceed an amount equal to 6% of the Contract Price for the Property, or
in the case of a mortgage loan, 6% of the funds advanced; provided, however,
that a majority of the Directors (including the majority of the Independent
Directors) not otherwise interested in the transaction may approve fees and
expenses in excess of these limits if they determine the transaction to be
commercially competitive, fair and reasonable to the Company.
SECTION 3. LIMITATION ON TOTAL OPERATING EXPENSES. The annual Total
Operating Expenses of the Company shall not exceed in any fiscal year the
greater of 2% of the Average Invested Assets of the Company or 25% of the
Company's Net Income. The Independent Directors have a fiduciary responsibility
to limit the Company's annual Total Operating Expenses to amounts that do not
exceed the limitations described above. The Independent Directors may, however,
determine that a higher level of Total Operating Expenses is justified for such
period because of unusual and non-recurring expenses. Any such finding by the
Independent Directors and the reasons in support thereof shall be recorded in
the minutes of the meeting of Directors. Within 60 days after the end of any
fiscal quarter of the Company for which Total Operating Expenses (for the 12
months then ended) exceed 2% of Average Invested Assets or 25% of Net Income,
whichever is greater, as described above, there shall be sent to the
Stockholders a written disclosure of such fact. If the Independent Directors
determine that such higher Total Operating Expenses are justified, such
disclosure will also contain an explanation of the Independent Directors'
conclusion. In the event the Total Operating Expenses exceed the limitations
described above and if the Directors are unable to conclude that such excess was
justified then, within 60 days after the end of the Company's fiscal year, the
Advisor shall reimburse the Company the amount by which the aggregate annual
Total Operating Expenses paid or incurred by the Company exceed the limitation.
SECTION 4. LIMITATION ON REAL ESTATE COMMISSIONS. If the Company sells
property, the Company may pay real estate brokerage fees which are reasonable,
customary and competitive, taking into consideration the size, type and location
of the Property
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("Competitive Real Estate Commission"), which shall not in the aggregate
exceed the lesser of the Competitive Real Estate Commission or an amount
equal to 6% of the gross sales price of the Property. The amount of such
fees payable to the Advisor or an Affiliate thereof shall not exceed the
lesser of (i) one-half of the Competitive Real Estate Commission; or (ii) 3%
of the gross sales price of a Property and shall be paid only if such person
provides a substantial amount of services in connection with the sale of the
Property.
SECTION 5. LIMITATION ON INCENTIVE FEES. The Company shall pay the
Advisor a reasonable incentive advisory fee. In the case of multiple advisors,
advisors and Affiliates shall be allowed incentive fees in accordance with the
foregoing limitation, provided such fees are distributed by a proportional
method reasonably designed to reflect the value added to the Company's assets by
each respective advisor or Affiliate.
SECTION 6. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) SALES AND LEASES TO COMPANY. The Company shall not purchase
Property from the Sponsor, Advisor, Directors or any Affiliate thereof,
unless a majority of Directors (including a majority of Independent
Directors) not otherwise interested in such transaction approve the
transaction as being fair and reasonable to the Company and at a price to the
Company no greater than the cost of the asset to such Sponsor, Adviser,
Director or any Affiliate thereof, or if the price to the Company is in
excess of such cost, that substantial justification for such excess exists
and such excess is reasonable. In no event shall the cost of such asset to
the Company exceed its appraised value at the time of acquisition of the
Property by the Company.
(b) SALES AND LEASES TO SPONSOR, ADVISOR, DIRECTOR OR ANY AFFILIATE.
A Sponsor, Advisor, Director or any Affiliate thereof shall not acquire assets
from the Company unless approved by a majority of Directors (including a
majority of Independent Directors), not otherwise interested in such
transaction, as being fair and reasonable to the Company. The Company may lease
assets to a Sponsor, Advisor, Director or any Affiliate thereof only if approved
by a majority of the Directors (including a majority of Independent Directors),
not otherwise interested in such transaction, as being fair and reasonable to
the Company.
(c) LOANS. No loans may be made by the Company to the Sponsor,
Advisor, Director or any Affiliate thereof except as provided in Article X
hereof, or to wholly owned subsidiaries of the Company. The Company may not
borrow money from the Sponsor, Advisor, Director or any Affiliate thereof,
unless a majority of Directors (including a majority of Independent Directors)
not otherwise interested in such transactions, approve the transaction as being
fair, competitive and commercially reasonable and no less favorable to the
Company than loans between unaffiliated parties under the same circumstances.
(d) INVESTMENTS. The Company shall not invest in joint ventures with
the Sponsor, Advisor, Director or any Affiliate thereof, unless a majority of
Directors (including a majority of Independent Directors) not otherwise
interested in such transactions, approve the transaction as being fair and
reasonable to the Company and on substantially the same terms
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and conditions as those received by the other joint ventures. The Company
shall not invest in equity securities unless a majority of Directors
(including a majority of Independent Directors) not otherwise interested in
such transaction approve the transaction as being fair, competitive, and
commercially reasonable.
(e) OTHER TRANSACTIONS. All other transactions between the Company
and the Sponsor, Advisor, Director or any Affiliate thereof, shall require
approval by a majority of the Directors (including a majority of Independent
Directors) not otherwise interested in such transactions as being fair and
reasonable to the Company and on terms and conditions not less favorable to the
Company than those available from unaffiliated third parties.
SECTION 7. LIMITATION ON BORROWING. The Company may not incur
indebtedness to enable it to make Distributions except as necessary to satisfy
the requirement that the Company distribute at least 95% of its REIT taxable
income, or otherwise as necessary or advisable to assure that the Company
maintains its qualification as a REIT for federal income tax purposes. The
aggregate borrowing of the Company, secured and unsecured, shall be reasonable
in relation to the Net Assets of the Company and shall be reviewed by the Board
of Directors at least quarterly. The aggregate amount of Company borrowings in
relation to the Net Assets shall, in the absence of a satisfactory showing that
a higher level of borrowing is appropriate, not exceed 300% of Net Assets. Any
excess in borrowing over such 300% of Net Assets level shall be approved by a
majority of the Independent Directors and disclosed to Stockholders in the
Company's next quarterly report to Stockholders, along with justification for
such excess. Any excess in borrowing over such 300% of Net Assets level shall
be subject to the approval by the Stockholders.
SECTION 8. SUITABILITY OF STOCKHOLDERS.
(a) INCOME AND NET WORTH STANDARDS. Stockholders shall have (i) a
minimum annual gross income of $45,000 and a minimum net worth of $45,000, or
(ii) a minimum net worth of $150,000 at the time they make their investment in
the Company. Net worth shall be determined exclusive of home, home furnishings
and automobiles. In the case of sales to fiduciary accounts, these minimum
standards shall be met by the beneficiary, the fiduciary account, or by the
donor or grantor who directly or indirectly supplies the funds to purchase the
shares of Equity Stock if the donor or grantor is the fiduciary.
(b) DETERMINATION THAT SALE TO STOCKHOLDER IS SUITABLE AND
APPROPRIATE. The Sponsor and each Person selling shares of Equity Stock on
behalf of the Sponsor or Company shall make every reasonable effort to determine
that the purchase of shares of Equity Stock is a suitable and appropriate
investment for each Stockholder. In making this determination, the Sponsor or
each Person selling shares of Equity Stock on behalf of the Sponsor or the
Company shall ascertain that the prospective Stockholder: (i) meets the minimum
income and net worth standards established for the Company; (ii) can reasonably
benefit from the Company based on the prospective Stockholder's overall
investment objectives and portfolio structure; (iii) is able to bear the
economic risk of the investment based on the prospective Stockholder's overall
financial situation; and (iv) has apparent understanding of: (1) the
fundamental risks of investment; (2) the risk that the Stockholder may lose the
entire
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investment; (3) the lack of liquidity of shares of Equity Stock of a
REIT; (4) the restrictions on transferability of shares of Equity Stock of a
REIT; (5) the background and qualification of the Sponsor or the Advisor; and
(6) the tax consequences of the investment.
ARTICLE IX
RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF SHARES
SECTION 1. DEFINITIONS. Solely for the purposes of this Article IX,
the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity Stock by a Person who
would be treated as an owner of such Equity Stock under Section 542(a)(2) of the
Code either directly or constructively through the application of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns," "Beneficially Own" and "Beneficially
Owned" shall have the correlative meanings.
"Beneficiary" shall mean the beneficiary of the Excess Share Trust as
determined pursuant to Section 14 of this Article IX.
"Constructive Ownership" shall mean ownership of Equity Stock or options to
acquire Equity Stock by a Person who would be treated as an owner of such Equity
Stock either directly or indirectly through the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructively Owned," "Constructively Owning" and "Constructively Owns" shall
have correlative meanings.
"Equity Stock" shall mean any class of stock of the Company.
"Excess Share Trust" shall mean the entity created pursuant to Section 14
of this Article IX.
"Ownership Limit" shall initially mean 9.8%, in number of shares or value,
of the outstanding Equity Stock of the Company, and after any adjustment as set
forth in Section 9 of this Article IX, shall mean such revised percentage of the
outstanding Equity Stock as so adjusted. The number and value of shares of the
outstanding Equity Stock of the Company shall be determined by the Board of
Directors in good faith, which determination shall be conclusive for all
purposes hereof.
"Person" shall mean an individual, corporation, business trust,
partnership, limited liability company, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), 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; but
does not
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include an underwriter which participated in a public offering of the
Equity Stock for a period of 90 days following the purchase by such underwriter
of the Equity Stock.
"Property Partnerships" means those entities (other than the Operating
Partnership), such as limited liability companies, general and limited
partnerships and trusts that own one or more of the Properties.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock as defined in Section 3 of this
Article IX, the Purported Record Transferee who would have acquired shares of
Equity Stock, if such Transfer had been valid under Section 2 of this
Article IX.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock as defined below in Section 3 of this
Article IX, the Purported Record Transferee of the Equity Stock who would have
acquired such record ownership of shares of Equity Stock if such Transfer had
been valid under Section 2 of this Article IX.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Stock including: (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Stock; (ii) the sale, transfer, assignment or other disposition of any
securities, Units or rights convertible into or exchangeable for Equity Stock,
but excluding the exchange of any security of the Company or Units for Equity
Stock; and (iii) any transfer or other disposition of any interest in Equity
Stock (as a result of a change in the marital status of the holder thereof),
whether voluntary or involuntary, whether of record or beneficially (including
but not limited to transfers of interests in other entities which result in
changes in beneficial ownership of Equity Stock) and whether by operation of law
or otherwise. The terms "Transfers" and "Transferred" shall have the
correlative meanings.
"Units" means all the units of partnership interests representing the
equity in the Operating Partnership or the Property Partnerships, if any.
SECTION 2. OWNERSHIP LIMITATION.
(a) Commencing as of July 1, 1999, and except as provided in
Section 11 of this Article IX, no Person shall Beneficially Own shares of Equity
Stock in excess of the Ownership Limit.
(b) Commencing as of July 1, 1999, and except as provided in
Sections 9 and 11 of this Article IX, any Transfer that, if effective, would
result in any Person Beneficially Owning Equity Stock in excess of the Ownership
Limit shall be void AB INITIO as to the Transfer of such shares of Equity Stock
which would be otherwise Beneficially Owned by such Person in excess of the
Ownership Limit; and the intended transferee shall acquire no rights in such
shares of Equity Stock.
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(c) Commencing as of January 1, 1999, any Transfer that, if
effective, would result in the Equity Stock being Beneficially Owned (as
provided in Section 856(a) of the Code) by less than 100 Persons (determined
without reference to any rules of attribution) shall be void AB INITIO as to the
Transfer of such shares of Equity Stock which would be otherwise beneficially
owned (as provided in Section 856(a) of the Code) by the transferee; and the
intended transferee shall acquire no rights in such shares of Equity Stock.
(d) Any Transfer that, if effective, would result in the Company
being "closely held" within the meaning of Section 856(h) of the Code or
would otherwise result in the Company failing to qualify as a REIT
(including, but not limited to, a Transfer or other event that would result
in the Company Constructively Owning an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if the income derived by the
Company from such tenant would cause the Company to fail to satisfy any of
the gross income requirements of Section 856(c) of the Code), shall be void
AB INITIO as to the Transfer of the shares of Equity Stock which would cause
the Company: (i) to be "closely held" within the meaning of Section 856(h)
of the Code; or (ii) otherwise to fail to qualify as a REIT, as the case may
be; and the intended transferee shall acquire no rights in such shares of
Equity Stock.
SECTION 3. EXCESS STOCK.
(a) If, notwithstanding the other provisions contained in this
Article IX, any Person would Beneficially Own Equity Stock on July 1, 1999, or
thereafter, in excess of the applicable Ownership Limit, then, except as
otherwise provided in Sections 9 and 11 of this Article IX, such shares of
Equity Stock in excess of such applicable Ownership Limit (rounded up to the
nearest whole share) shall constitute "Excess Stock" and be treated as provided
in this Article IX. Such designation and treatment shall be effective as of the
close of business on the business day prior to the date on which the violation
of the Ownership Limit occurred.
(b) If, notwithstanding the other provisions contained in this
Article IX, there is a purported Transfer or other change in the capital
structure of the Company such that any Person would Beneficially Own Equity
Stock in excess of the applicable Ownership Limit, then, except as otherwise
provided in Sections 9 and 11 of this Article IX, such shares of Equity Stock in
excess of such applicable Ownership Limit (rounded up to the nearest whole
share) shall constitute "Excess Stock" and be treated as provided in this
Article IX. Such designation and treatment shall be effective as of the close
of business on the business day prior to the date of the purported Transfer or
change in capital structure.
(c) If, notwithstanding the other provisions contained in this
Article IX, there is a purported Transfer or other change in the capital
structure of the Company which, if effective, would cause the Company to become
"closely held" within the meaning of Section 856(h) of the Code or would
otherwise result in the Company failing to qualify as a REIT (including, but not
limited to, a Transfer or other event that would result in the Company
Constructively Owning an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Company from such tenant
would cause the Company to fail to satisfy any of the gross income requirements
of Section 856(C) of the
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Code), then the shares of Equity Stock being Transferred which would cause
the Company to be "closely held" within the meaning of Section 856(h) of the
Code (rounded up to the nearest whole share) or which would otherwise result
in the Company failing to qualify as a REIT shall constitute Excess Stock and
be treated as provided in this Article IX. Such designation and treatment
shall be effective as of the close of business on the business day prior to
the date of the purported Transfer or change in capital structure.
SECTION 4. PREVENTION OF TRANSFER. If the Board of Directors or its
designee shall at any time determine in good faith that a purported Transfer has
taken place in violation of Section 2 of this Article IX, or that a Person
intends to acquire Beneficial Ownership of any shares of Equity Stock in
violation of Section 2 of this Article IX, the Board of Directors or its
designee may take such action as it deems advisable to enforce this Article IX
by refusing to give effect to or to prevent such proposed or purported Transfer,
including, but not limited to, refusing to give effect to any purported Transfer
on the books of the Company or instituting proceedings to enjoin any proposed
Transfer; provided, however, that any purported Transfers in violation of
Sections 2(b),(c),and (d) of this Article IX shall automatically result in the
designation and treatment described in Section 3 of this Article IX,
irrespective of any action (or non-action) by the Board of Directors.
SECTION 5. NOTICE TO THE COMPANY. Any Person who purports to acquire
shares in violation of Section 2 of this Article IX, or any Person who is a
Purported Beneficial Transferee or a Purported Record Transferee such that
Excess Stock results under Section 3 of this Article IX, shall immediately give
notice to the Company or, in the event of a proposed Transfer, give at least 15
days prior written notice to the Company of such proposed Transfer and in either
event, shall provide to the Company such other information as the Company may
request in order to determine the effect, if any, of such purported or proposed
Transfer on the Company's status as a REIT.
SECTION 6. INFORMATION FOR THE COMPANY.
(a) Every Beneficial Owner of more than 5.0% (or such other
percentage, between 0.5% and 5.0%, as provided in the income tax Regulations
promulgated under the Code) of the number or value of outstanding shares of
Equity Stock of the Company shall, within 30 days after January 1 of each year,
give written notice to the Company stating the name and address of such
Beneficial Owner, the number of shares Beneficially Owned, and a description of
how such shares are held. Each such Beneficial Owner shall provide to the
Company such additional information as the Company may reasonably request in
order to determine the effect, if any, of such Beneficial Ownership on the
Company's status as a REIT.
(b) Each Person who is a Beneficial Owner of Equity Stock and each
Person (including the Stockholder of record) who is holding Equity Stock for a
Beneficial Owner shall provide to the Company such information that the Company
may reasonably request in order to determine the Company's status as a REIT, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
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SECTION 7. OTHER ACTION BY THE BOARD. Nothing contained in this
Article IX, shall limit the authority of the Board of Directors to take such
other action as it deems necessary or advisable to protect the Company and the
interests of its Stockholders by preservation of the Company's status as a REIT.
SECTION 8. AMBIGUITIES. In the case of an ambiguity in the application
of any of the provisions of this Article IX, including any definition contained
in Section 1, the Board of Directors shall have the power to determine the
application of the provisions of this Article IX, with respect to any situation
based on the facts known to it.
SECTION 9. ADJUSTMENT OF OWNERSHIP LIMIT. Subject to the limitations
provided in Section 10 of this Article IX, the Board of Directors may from time
to time increase or decrease the Ownership Limit; provided, however, that any
decrease may only be made prospectively as to subsequent holders other than a
decrease as a result of a retroactive change in existing law, in which case such
decrease shall be effective immediately.
SECTION 10. LIMITATIONS ON CHANGES IN OWNERSHIP LIMITS.
(a) The Ownership Limit may not be increased if, after giving effect
to such increase (or creation), five Beneficial Owners of Common Stock could
Beneficially Own, in the aggregate, more than 50.0% in number or value of the
outstanding shares of Equity Stock.
(b) Prior to the modification of any Ownership Limit pursuant to
Section 9 this Article IX, the Board of Directors of the Company may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Company's status as a
REIT.
SECTION 11. WAIVERS BY BOARD. The Board of Directors, upon receipt of a
ruling from the Internal Revenue Service or an opinion of counsel or other
evidence satisfactory to the Board of Directors and upon at least 15 days
written notice from a transferee of a purported Transfer or a proposed Transfer
which, if consummated, would result in the intended transferee Beneficially
Owning shares in excess of Ownership Limit, as the case may be, and upon such
other conditions as the Board of Directors may direct, may waive the Ownership
Limit with respect to such transferee.
SECTION 12. LEGEND. Each certificate for shares of Equity Stock shall
bear substantially the following legend:
The securities represented by this certificate are subject
to restrictions on transfer for the purpose of the Company's
maintenance of its status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. Except
as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may (i) Beneficially
Own shares of Equity Stock in excess of 9.8% (or such
greater percentage as
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may be determined by the Board of Directors of the
Company) of the number or value of the outstanding
Equity Stock of the Company, (ii) Beneficially Own
Equity Stock that would result in the Equity Stock
being Beneficially Owned by fewer than 100 Persons
(determined without reference to any rules of
attribution), (iii) Beneficially Own Equity Stock
that would result in the Company being "closely
held" under Section 856(h) of the Code, or (iv)
Constructively Own Equity Stock that would cause the
Company to Constructively Own 10% or more of the
membership interests in a tenant of the Company's
real property within the meaning of Section
856(d)(2)(B) of the Code. Any Person who purports
or proposes to Beneficially Own or Constructively
Own shares of Equity Stock in violation of the above
limitations is in violation of the restrictions on
transfer and any securities so transferred shall be
designated as Excess Stock and held in trust by the
Company. Any Person who purports or proposes to
Beneficially Own or Constructively Own shares of
Equity Stock in violation of the above limitations
must notify the Company in writing immediately, in
the case of a purported Transfer, and at least 15
days prior to a proposed Transfer. All capitalized
terms in this legend have the meanings defined in
the Articles of Incorporation of the Company, a copy
of which, including the restrictions on transfer,
will be sent without charge to each stockholder who
so requests. If the restrictions on transfer are
violated, the securities represented hereby will be
designated and treated as shares of Excess Stock
which will be held in trust by the Company with
consequent loss of voting and dividend rights and
the right to realize any further appreciation in
value.
SECTION 13. SEVERABILITY. If any provision of this Article IX or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions shall be affected only to the extent
necessary to comply with the determination of such court.
SECTION 14. EXCESS SHARE TRUST. Upon any purported Transfer that
results in Excess Stock pursuant to Section 3 of this Article IX, such Excess
Stock shall be deemed to have been transferred to the Company, as trustee of an
Excess Share Trust for the benefit of such Beneficiary or Beneficiaries to whom
an interest in such Excess Stock may later be transferred pursuant to Section 17
of this Article IX. Shares of Excess Stock so held in trust shall be issued and
outstanding stock of the Company. The Purported Record Transferee shall have no
rights in such Excess Stock except the right to designate a Beneficiary of an
interest in the Excess Share Trust (representing the number of shares of Excess
Stock held by the Excess Share Trust attributable to a purported Transfer that
resulted in the Excess Stock upon the
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terms specified in Section 17 of this Article IX). The Purported Beneficial
Transferee shall have no rights in such Excess Stock except as provided in
Section 17 of this Article IX.
SECTION 15. NO DISTRIBUTIONS FOR EXCESS STOCK. The holder of any Excess
Stock or any beneficiary of the Excess Share Trust established pursuant to
Section 14 of this Article IX shall not be entitled to any distributions
(whether as dividends or as distributions upon liquidation, dissolution or
winding up). Any dividend or distribution paid prior to the discovery by the
Company that the shares of Equity Stock have been Transferred so as to be deemed
Excess Stock shall be repaid to the Company upon demand.
SECTION 16. NO VOTING RIGHTS FOR EXCESS STOCK. The Purported Record
Transferee of shares of Excess Stock shall not be entitled to vote on any matter
with respect to those shares of Excess Stock.
SECTION 17. NON-TRANSFERABILITY OF EXCESS STOCK. Excess Stock shall not
be transferable. The Purported Record Transferee may freely designate a
Beneficiary of an interest in the Excess Share Trust (representing the number of
shares of Excess Stock held by the Excess Share Trust attributable to a
purported Transfer to a purported Record Transferee that resulted in the Excess
Stock), if: (i) the shares of Excess Stock held in the Excess Share 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 (a) the price
per share such Purported Beneficial Transferee paid for the Equity Stock in the
purported Transfer that resulted in the Excess Stock, or (b) if the Purported
Beneficial Transferee did not give value for such Excess Stock (through a gift,
devise or other transaction), a price per share equal to the Market Price for
the shares of the Excess Stock on the date of the purported Transfer that
resulted in the Excess Stock. Upon such transfer of an interest in the Excess
Share Trust, the corresponding shares of Excess Stock in the Excess Share Trust
shall be automatically exchanged for an equal number of shares of Equity Stock
and such shares of Equity Stock shall be transferred of record to the transferee
of the interest in the Excess Share Trust if such shares of Equity Stock would
not be Excess Stock in the hands of such transferee. Prior to any transfer of
any interest in the Excess Share Trust, the Purported Record Transferee must
give advance notice to the Company of the intended transfer and the Company must
have waived in writing its purchase rights under Section 18 of this Article IX.
Notwithstanding the foregoing, if a Purported Beneficial Transferee
receives a price for designating a Beneficiary of an interest in the Excess
Share Trust that exceeds the amounts allowable under this Section 17 of this
Article IX, such Purported Beneficial Transferee shall pay, or cause such
Beneficiary to immediately pay, such excess to the Company.
If any of the foregoing restrictions on transfer of Excess Stock are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Company, to have acted as an agent of the Company in acquiring such
Excess Stock and to hold such Excess Stock on behalf of the Company.
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SECTION 18. CALL BY COMPANY ON EXCESS STOCK. Shares of Excess Stock
shall be deemed to have been offered for sale to the Company, or its designee,
at a price per share equal to the lesser of: (i) the price per share in the
transaction that created such Excess Stock (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift); and (ii) the Market Price
of the Equity Stock to which such Excess Stock relates on the date the Company,
or its designee, accepts such offer. The Company shall have the right to accept
such offer for a period of 90 days after the later of: (i) the date of the
Transfer which resulted in such Excess Stock; and (ii) the date the Board of
Directors determines in good faith that a Transfer resulting in Excess Stock has
occurred, if the Company does not receive a notice of such Transfer pursuant to
Section 5 of this Article IX but in no event later than a permitted Transfer
pursuant to and in compliance with the terms of Section 17 of this Article IX.
ARTICLE X
INVESTMENT RESTRICTIONS
The investment policies set forth in this Article X shall be approved by a
majority of the Independent Directors. Subject to the restrictions set forth in
this Article X and so long as the Company qualifies as a REIT, a majority of the
Directors (including a majority of the Independent Directors) may set the
investment policies if they determine that such policies are in the best
interests of the Company. The Independent Directors shall review the Company's
investment policies at least annually to determine that the policies being
followed are in the best interests of the Stockholders.
The Company shall not make investments in: (i) any foreign currency or
bullion; (ii) short sales; and (iii) any security in any entity holding
investments or engaging in activities prohibited by these Articles.
In addition to other investment restrictions imposed by the Directors from
time to time consistent with the Company's objective to qualify as a REIT, the
Company will observe the following restrictions on its investments:
(a) Not more than 10% of the Company's total assets will be invested
in unimproved real property or mortgage loans on unimproved real property. For
purposes of this paragraph, "unimproved real properties" does not include
properties under construction, under contract for development or planned for
development within one year;
(b) The Company may not invest in commodities or commodity future
contracts. Such limitation is not intended to apply to interest rate futures,
when used solely for hedging purposes;
(c) The Company may not invest in contracts for the sale of real
estate;
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(d) The Company may not invest in or make mortgage loans unless an
appraisal is obtained concerning the underlying property. Mortgage indebtedness
on any property shall not exceed such property's appraised value. In cases in
which the majority of Independent Directors so determine, and in all cases in
which the mortgage loan involves the Advisor, the Sponsor, the Directors or any
Affiliates, such appraisal must be obtained from an Independent Expert
concerning the underlying property. The appraisal shall be maintained in the
Company's records for at least five years, and shall be available for inspection
and duplication by any Stockholder. In addition to the appraisal, a mortgagee's
or owner's title insurance policy or commitment as to the priority of the
mortgage or condition of the title must be obtained. The Company may not invest
in real estate contracts of sale otherwise known as land sale contracts;
(e) The Company may not make or invest in mortgage loans, including
construction loans, on any one property if the aggregate amount of all mortgage
loans outstanding on the property, including the loans of the Company, would
exceed an amount equal to 85% of the appraised value of the property as
determined by appraisal unless substantial justification exists because of the
presence of other underwriting criteria provided that such loans would in no
event exceed the appraised value of the property at the date of the loans;
(f) The Company may not make or invest in any mortgage loans that are
subordinate to any mortgage or equity interest of the Advisor, the Sponsor, any
Director or Affiliates thereof;
(g) The Company may not acquire securities in any company holding
investments or engaging in activities prohibited by this Article X;
(h) The Company shall not invest in equity securities unless a
majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction approves the transaction as being
fair, competitive and commercially reasonable. Investments in entities
affiliated with the Sponsor, the Advisor, any Directors or Affiliates thereof
are subject to the restrictions on joint venture investments. Notwithstanding
these restrictions, the Company may purchase its own securities, when traded on
a secondary market or on a national securities exchange or market, if a majority
of the Directors (including a majority of the Independent Directors) determine
such purchase to be in the best interests of the Company;
(i) The Company may not engage in any short sale or borrow, on an
unsecured basis, if such borrowing will result in an Asset Coverage of less than
300%;
(j) To the extent the Company invests in Properties, a majority of
the Directors shall approve the consideration paid for such Properties, based on
the fair market value of the Property. If a majority of the Independent
Directors determine, such fair market value shall be determined by a qualified
independent real estate appraiser selected by the
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Independent Directors. In the event the Company acquires Property from the
Advisor, the Sponsor, any Director, or Affiliates, the provisions of Section
6 of Article VIII are applicable;
(k) The Company may not invest in indebtedness (herein called "Junior
Debt") secured by a mortgage on real property which is subordinate to the lien
of other indebtedness (herein called "Senior Debt"), except where the amount of
such Junior Debt, plus the outstanding amount of the Senior Debt, does not
exceed 90% of the appraised value of such Property, if after giving effect
thereto, the value of all such investments of the Company (as shown on the books
of the Company in accordance with generally accepted accounting principles,
after all reasonable reserves but before provision for depreciation) would not
then exceed 25% of the Company's tangible assets. The value of all investments
in Junior Debt of the Company which does not meet the aforementioned
requirements shall be limited to 10% of the Company's tangible assets (which
would be included within the 25% limitation);
(l) The Company may not engage in trading, as compared with
investment activities; and
(m) The Company may not engage in underwriting or the agency
distribution of securities issued by others.
ARTICLE XI
STOCKHOLDERS
SECTION 1. ACCESS TO RECORDS. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the
Company at all reasonable times, and may inspect and copy any of them for the
purposes specified below. Inspection of the Company's books and records by a
state securities administrator shall be provided upon reasonable notice and
during normal business hours. In addition, an alphabetical list of names,
addresses and business telephone numbers of the Stockholders of the Company
along with the number of shares of Equity Stock held by each of them (the
"Stockholder List") shall be maintained and updated quarterly as part of the
books and records of the Company and shall be available for inspection by any
Stockholder or the Stockholder's designated agent at the business office of
the Company upon the request of the Stockholder. A copy of the Stockholder
List shall be mailed to any Stockholder requesting the Stockholder List
within ten days of the request. The copy of the Stockholder List shall be
printed in alphabetical order, on white paper, and in a readily readable type
size (in no event smaller than 10-point type). The Company may impose a
reasonable charge for expenses incurred in reproducing such list. The
permitted purposes for which a Stockholder may request a copy of the
Stockholder List include, without limitation, matters relating to
Stockholders' voting rights under these Articles and the exercise of
Stockholders' rights under federal proxy laws. If the Advisor or the
Directors of the Company neglect or refuse to exhibit, produce or mail a copy
of the Stockholder List as requested in accordance with and as required by
applicable law and these Articles, the Advisor and the Directors shall be
liable to any Stockholder requesting the Stockholder List, for the costs,
including reasonable attorneys' fees, incurred by that
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Stockholder for compelling the production of the Stockholder List, and for
actual damages suffered by any Stockholder by reason of such refusal or
neglect. It shall be a defense to such liability that the actual purpose and
reason for the requests for inspection or for a copy of the Stockholder List
is to secure such list of Stockholders or other information for the purpose
of selling such Stockholder List or copies thereof, or of using the same for
a commercial purpose or other purpose not in the interest of the applicant as
a Stockholder relative to the affairs of the Company. The Company may
require the Stockholder requesting the Stockholder List to represent that the
Stockholder List is not requested for a commercial purpose unrelated to the
Stockholder's interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition to,
and shall not in any way limit, other remedies available to Stockholders
under federal law, or the laws of any state.
SECTION 2. REPORTS AND MEETINGS.
(a) REPORTS. Each year the Company shall prepare an annual report of
its operations. The report shall include a balance sheet, an income statement,
and a surplus statement. The financial statements in the annual report shall be
certified by an independent certified public accountant based on the
accountant's examination of the books and records of the Company in accordance
with generally accepted auditing procedure. The annual report shall also
include: (i) the ratio of the costs of raising capital during the period to the
capital raised; (ii) the aggregate amount of advisory fees and the aggregate
amount of other fees paid to the Advisor and any Affiliate of the Advisor by the
Company and including fees or charges paid to the Advisor and any Affiliate of
the Advisor by third parties doing business with the Company; (iii) the Total
Operating Expenses of the Company stated as a percentage of Average Invested
Assets and as a percentage of Net Income; (iv) a report from the Independent
Directors that they believe the policies being followed by the Company are in
the best interests of the Stockholders, and the basis for such determination;
and (v) separately stated, full disclosure of all material terms, factors and
circumstances surrounding any and all transactions involving the Company, the
Advisor, the Directors and any Affiliates thereof occurring in the year for
which the annual report is made. Independent Directors shall examine and
comment in the annual report on the fairness of all transactions involving the
Company. The annual report shall be submitted to each Stockholder at or before
the annual meeting of the Stockholders and shall be placed on file at the
Company's principal office within the earlier of 20 days after the annual
meeting of Stockholders or 120 days after the end of the Company's fiscal year.
(b) MEETINGS. Meetings of Stockholders shall be held at any place in
the United States as is provided in the Bylaws or as set by the Board of
Directors under provisions in the Bylaws.
There shall be an annual meeting of the Stockholders of the Company to
elect Directors and transact any other business within a reasonable period (not
less than 30 days) following delivery of the annual report, but within six
months after the end of each fiscal year. The Directors, including the
Independent Directors, are required to take reasonable steps to insure that the
requirements of this Article XI are met. Special meetings of the Stockholders
may be called by the President, a majority of the Directors or a majority of the
Independent
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Directors, or any other person specified in the Bylaws, and shall be
called by the Secretary of the Company upon written request (which states the
purpose of the meeting and the matter(s) to be acted upon) of Stockholders
holding in the aggregate not less than 10% of the outstanding shares of Equity
Stock entitled to vote at such meeting. Upon receipt of such a written request,
the Secretary of the Company shall inform the Stockholders making the request of
the reasonably estimated cost of preparing and mailing a Notice of such meeting;
and upon payment of these costs to the Company, notify each Stockholder entitled
to Notice of the meeting.
Notice of any annual or special meeting of Stockholders shall be given
not less than 10 nor more than 90 days before such meeting and shall state the
purpose of the meeting and the matters to be acted upon.
ARTICLE XII
ELECTION
SECTION 1. ELECTION. Pursuant to the authority granted by
Section 3-603(e)(1)(iii) of the Maryland General Corporation Law, the Company
hereby elects not to be governed by the provisions of Section 3-602 of the
Maryland General Corporation Law, in whole as to business combinations involving
the Company and The Inland Group, Inc., a Delaware corporation, or any of the
Affiliates of The Inland Group, Inc.
ARTICLE XIII
ROLL-UPS
SECTION 1. APPRAISAL. In connection with a proposed Roll-Up, an
appraisal of all of the Company's assets shall be obtained from an Independent
Expert. The appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity and shall be filed with the Securities and
Exchange Commission and the state regulatory commissions as an exhibit to the
registration statement for the offering of the Roll-Up Entity's shares.
Accordingly, an issuer using the appraisal shall be subject to liability for
violation of Section 11 of the Securities Act of 1933, as amended, and
comparable provisions under state laws for any material misrepresentations or
material omissions in the appraisal.
The Company's assets shall be appraised in a consistent manner. The
appraisal shall:
(a) be based on an evaluation of all relevant information;
(b) indicate the value of the Company's assets as of a date
immediately prior to the announcement of the proposed Roll-Up transaction; and
(c) assume an orderly liquidation of the Company's assets over a
12-month period.
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The terms of the engagement of the Independent Expert shall clearly state
that the engagement is for the benefit of the Company and its Stockholders. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Stockholders in
connection with the proposed Roll-Up.
SECTION 2. STOCKHOLDER OPTIONS. Stockholders who vote "no" on the
proposed Roll-Up shall have the choice of:
(a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; or
(b) one of either;
(i) remaining as Stockholders of the Company and preserving
their interests therein on the same terms and conditions as previously existed,
or
(ii) receiving cash in an amount equal to the Stockholder's pro
rata share of the appraised value of the net assets of the Company.
SECTION 3. RESTRICTIONS. The Company may not participate in any
proposed Roll-Up which would:
(a) result in the Stockholders having rights to meetings less
frequently or which are more restrictive to Stockholders than those provided in
these Articles;
(b) result in the Stockholders having voting rights that are less
than those provided in these Articles;
(c) result in the Stockholders having greater liability than as
provided in these Articles;
(d) result in the Stockholders having rights to receive reports that
are less than those provided in these Articles;
(e) result in the Stockholders having access to records that are more
limited than those provided in these Articles;
(f) include provisions which would operate to materially impede or
frustrate the accumulation of shares of Equity Stock by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity);
(g) limit the ability of an investor to exercise the voting rights of
its securities in the Roll-Up Entity on the basis of the number of shares of
Equity Stock held by that investor;
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(h) result in investors in the Roll-Up Entity having rights of access
to the records of the Roll-Up Entity that are less than those provided in these
Articles; or
(i) place any of the costs of the transaction on the Company if the
Roll-Up is not approved by a majority of the shares of Equity Stock;
provided, however, that nothing herein shall be construed to prevent
participation in any proposed Roll-Up which would result in Stockholders having
rights and restrictions comparable to those contained in this Article XIII.
Approval of a majority of the voting shares of Equity Stock is required for the
Company to engage in any Roll-Up which is in conformity with this Article XIII.
SECTION 4. GENERAL. The provisions of this Article XIII will cease to
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt, or continue, to qualify as a REIT.
ARTICLE XIV
AMENDMENTS AND EXTRAORDINARY ACTIONS
SECTION 1. GENERAL. The Company reserves the right from time to time
to make any amendment to these Articles, now or hereafter authorized by law,
including any amendment altering the terms or contract rights, as expressly set
forth in these Articles, of any unissued shares of Equity Stock. All rights and
powers conferred by these Articles on Stockholders, Directors and officers are
granted subject to this reservation. All references to these Articles shall
include all amendments thereto.
SECTION 2. STOCKHOLDERS APPROVAL. Subject to (a) the provisions of any
class or series of Equity Stock at the time outstanding, (b) the restrictions on
Roll-Ups described in Article XIII hereof so long as applicable, (c) the
limitations described in Article IX hereof, and (d) Section 3 of this Article
XIV, the Directors may not, without the approval of holders of at least a
majority of the outstanding voting shares of Equity Stock: (i) amend these
Articles or sell all or substantially all of the Company's assets other than in
the ordinary course of the Company's business or in connection with liquidation
and dissolution; nor (ii) except in each case to the extent the Maryland General
Corporation Law permits such transactions to be approved solely by the Board of
Directors, cause a merger, consolidation or share exchange of the Company; nor
(iii) dissolve or liquidate the Company.
SECTION 3. BY STOCKHOLDERS. Notwithstanding anything to the contrary
in these Articles, and if permitted by the Maryland General Corporation Law, a
majority of the then outstanding voting shares of Equity Stock may, without the
necessity of any concurrence, approval, or resolution by the Board of Directors,
vote to (i) amend these Articles, or (ii) dissolve the Company. Such vote may
be taken at a meeting called by the holder(s) of voting shares of Equity Stock
representing not less than a majority of the then outstanding voting shares of
Equity Stock upon not less than thirty (30) days prior written notice or by
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written consent signed by such majority. In the event such vote or written
consent of the majority of then outstanding voting shares of Equity Stock
directs the amendment of these Articles or the dissolution of the Company, the
proper officers of the Company shall promptly file such documents and take all
such corporate action as is necessary to accomplish such amendment or
dissolution.
ARTICLE XV
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 1. LIMITATION OF STOCKHOLDER LIABILITY. No Stockholder shall
be personally liable for any debt, claim, demand, judgment or obligation of any
kind of, against or with respect to the Company by reason of its being a
Stockholder, nor shall any Stockholder be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any Person in connection with the
Property or the affairs of the Company.
SECTION 2. LIMITATION OF DIRECTOR AND OFFICER LIABILITY. A Director
who performs his duties in accordance with the standards provided by Section
2-405.1 of the Maryland General Corporation Law shall have no liability by
reason of being or having been a Director. To the maximum extent that the
Maryland General Corporation Law and the general laws of the State of
Maryland, in effect from time to time, permit limitation of the liability of
Directors and officers of a corporation, no Director or officer of the
Company shall be liable to the Company or to any Stockholder for money
damages except to the extent that (i) the Director or officer actually
received an improper benefit or profit in money, property or services, in
which case the liability shall not exceed the amount of the benefit or profit
in money, property or services actually received; or (ii) a judgment or other
final adjudication adverse to the Director or officer is entered in a
proceeding based on a finding in the proceeding that the Director's or
officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. Neither the amendment nor repeal of this Section 2, nor the
adoption or amendment of any other provision of these Articles inconsistent
with this Section 2, 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. In the
absence of any Maryland statute limiting the liability of Directors and
officers of a Maryland corporation for money damages in a suit by or on
behalf of the Company or by any Stockholder, no Director or officer of the
Company shall be liable to the Company or to any Stockholder for money
damages except to the extent that (i) the Director or officer actually
received an improper benefit or profit in money, property or services, in
which case the liability shall not exceed the amount of the benefit or profit
in money, property or services actually received; or (ii) a judgment or other
final adjudication adverse to the Director or officer is entered in a
proceeding based on a finding in the proceeding that the Director's or
officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
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SECTION 3. INDEMNIFICATION.
(a) Subject to paragraphs (b), (c) and (d) of this Section 3, the
Company shall, to the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted and, without limiting the generality
of the foregoing, in accordance with Section 2-418 of the Maryland General
Corporation Law, indemnify and pay, advance or reimburse reasonable expenses to
any Director, officer, employee and agent of the Company and the Advisor and its
Affiliates (each an "Indemnified Party").
(b) As long as the Company qualifies as a REIT, it shall not
indemnify nor pay, advance or reimburse expenses to an Indemnified Party unless:
(i) the Indemnified Party has determined, in good faith, that the course of
conduct which caused the loss or liability was in the best interest of the
Company; (ii) the Indemnified Party was acting on behalf of or performing
services on the part of the Company; (iii) such liability or loss was not the
result of negligence or misconduct on the part of the Indemnified Party except
that in the event the Indemnified Party is or was an Independent Director, such
liability or loss shall not have been the result of gross negligence or willful
misconduct; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of the Net Assets of the Company and not from the
Stockholders.
(c) As long as the Company qualifies as a REIT and notwithstanding
anything to the contrary in Section 3(b) of this Article XV, the Company shall
not indemnify a Director, officer, employee or agent of the Company or the
Advisor or its Affiliates for losses, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws by such party
unless one or more of the following conditions are met: (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party; (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party; or (iii) a court of competent
jurisdiction approves a settlement of the claims and finds that indemnification
of the settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission (the "Commission") and the published opinions of any state securities
regulatory authority in which securities of the Company were offered or sold as
to indemnification for violations of securities laws.
(d) The Company may advance amounts to an Indemnified Party for legal
and other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
Maryland General Corporation Law, and, as long as the Company qualifies as a
REIT, only if all of the following conditions are satisfied: (i) the legal
action relates to acts or omissions with respect to the performance of duties or
services by the Indemnified Party for or on behalf of the Company; (ii) the
legal action is initiated by a third party who is not a Stockholder or the legal
action is initiated by a Stockholder acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; and
(iii) the Indemnified Party receiving such advances undertakes in writing to
repay the advanced funds to the Company, together with the
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applicable legal rate of interest thereon, in cases in which such party is
found not to be entitled to indemnification.
(e) The Company shall have the power to purchase and maintain
insurance or provide similar protection on behalf of an Indemnified Party
against any liability asserted which was incurred in any such capacity with the
Company or arising out of such status; provided, however, that the Company shall
not incur the costs of any liability insurance which insures any person against
liability for which he, she or it could not be indemnified under these Articles.
Nothing contained herein shall constitute a waiver by any Indemnified Party of
any right which he, she or it may have against any party under federal or state
securities laws. The Company shall also have power to enter into any contract
for indemnity and advancement of expenses with an officer, employee or agent who
is not a Director to such further extent consistent with law.
ARTICLE XVI
MISCELLANEOUS
SECTION 1. CHOICE OF LAW. These Articles and the Bylaws, as amended,
shall be construed in accordance with the laws of the State of Maryland and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws; provided, however, that causes of action for
violations of federal or state securities laws shall not be governed by this
Section 1.
SECTION 2. INITIAL INVESTMENT BY THE ADVISOR. The Company is the
general partner of the Operating Partnership. The Operating Partnership will be
capitalized through (i) a $200,000 cash contribution by the Company, for which
the Company will receive 20,000 GP Common Units, and (ii) a $2,000 cash
contribution by the Advisor, for which the Advisor will receive 200 LP Common
Units. The Advisor will purchase 20,000 shares of Common Stock for $10 per
share, or an aggregate of $200,000, in connection with the organization of the
Company. The Advisor shall not sell the Initial Investment represented by the
LP Common Units and the 20,000 shares of Common Stock while the Advisor remains
as the Advisor but may transfer some or all of the Initial Investment
represented by the LP Common Units and the 20,000 shares of Common Stock to an
Affiliate.
SECTION 3. RELIANCE BY THIRD PARTIES. Any certificate shall be final
and conclusive as to any Person dealing with the Company if executed by an
individual who, according to the records of the Company or of any recording
office in which these Articles may be recorded, appears to be the Secretary or
an Assistant Secretary of the Company or a Director, and if certifying to:
(a) the number or identity of Directors, officers of the Company or
Stockholders; (b) the due authorization of the execution of any document;
(c) the action or vote taken, and the existence of a quorum, at a meeting of the
Board of Directors or Stockholders;
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(d) a copy of these Articles or of the Bylaws as a true and complete copy as
then in force; (e) an amendment to these Articles; (f) the termination of the
Company; or (g) the existence of any fact which relates to the affairs of the
Company. No purchaser, lender, transfer agent or other Person shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made on behalf of the Company by the Directors or by any officer, employee or
agent of the Company.
SECTION 4. SEVERABILITY.
(a) The provisions of these Articles are severable, and if the Board
of Directors shall determine, with the advice of counsel, that any one or more
of such provisions (the "Conflicting Provisions") are in conflict with the REIT
provisions of the Code or other applicable federal or state laws, the
Conflicting Provisions shall be deemed never to have constituted a part of these
Articles, even without any amendment of these Articles pursuant to Article XVI
hereof; provided, however, that such determination by the Board of Directors
shall not affect or impair any of the remaining provisions of these Articles or
render invalid or improper any action taken or omitted prior to such
determination. No Director shall be liable for making or failing to make such a
determination.
(b) If any provision of these Articles shall be held invalid or
unenforceable in any jurisdiction, such holding shall not in any manner affect
or render invalid or unenforceable such provision in any other jurisdiction or
any other provision of these Articles in any jurisdiction.
SECTION 5. CONSTRUCTION. In these Articles, unless the context
otherwise requires, words used in the singular or in the plural include both the
plural and singular and words denoting any gender include all genders. The
title and headings of different parts are inserted for convenience and shall not
affect the meaning, construction or effect of these Articles.
IN WITNESS WHEREOF, as incorporator of Inland Retail Real Estate Trust, Inc., I
have signed these Articles of Amendment and Restatement of the Charter and
acknowledge the same to be my act.
/s/ KRISTOPHER E. MOLDOVAN
-------------------------------------
Kristopher E. Moldovan
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EXHIBIT 3.2
BYLAWS
OF
INLAND RETAIL REAL ESTATE TRUST, INC.
<PAGE>
BYLAWS
OF
INLAND RETAIL REAL ESTATE TRUST, INC.
ARTICLE I
OFFICES AND FISCAL YEAR
SECTION 1. REGISTERED OFFICE/AGENT. Inland Retail Real Estate Trust, Inc.
(the "Company") shall continuously maintain in the State of Maryland a
registered office and a registered agent whose office is identical with such
registered office. The address of the Company's registered office in the State
of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202. The name of
the Company's registered agent at such address is The Corporation Trust
Incorporated. The Company reserves the power to change its registered agent and
registered office at any time.
SECTION 2. PRINCIPAL OFFICE. The post office address of the principal
office of the Company in the State of Maryland is c/o The Corporation Trust
Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.
SECTION 3. OTHER OFFICES. The Company may also have offices other than
its principal office at such other places both within and without the State of
Maryland as the Board of Directors of the Company (the "Board") may from time to
time determine or as the business of the Company may require.
SECTION 4. FISCAL AND TAXABLE YEARS. The fiscal and taxable years of the
Company shall begin on January 1 and end on December 31.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders of
the Company (the "Stockholders") shall be held on the first Tuesday in May of
each year, commencing in 1999, or on such other day in May as the Board may
determine; provided, however, such meeting shall not be held less than 30
days after delivery of the annual report to the Stockholders. The purpose of
each annual meeting of the Stockholders is to elect directors of the Company
(the "Directors") and to transact such other business, as may properly come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the Stockholders may be
called by the chairman, the president, a majority of the Directors or a majority
of the Independent Directors (as defined in the Articles of Incorporation of the
Company), and shall be called by the secretary or another officer of the Company
upon written request (which request states the purpose of the meeting and the
matter(s) to be acted upon) of Stockholders holding in the aggregate not less
than 10% of the outstanding shares of capital stock of the
<PAGE>
Company ("Shares") entitled to vote at such meeting. Upon receipt of such a
written request, the secretary of the Company shall inform the Stockholders
making the request of the reasonably estimated cost of preparing and mailing
a notice of such meeting; and upon payment of these costs to the Company,
notify each Stockholder entitled to notice of the meeting. Unless requested
by the Stockholders entitled to cast a majority of all the votes entitled to
be cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any special
meeting of the Stockholders held during the preceding 12 months.
SECTION 3. PLACE OF MEETINGS. Each meeting of the Stockholders for the
election of Directors shall be held at the principal executive offices of the
Company unless the Board shall by resolution designate any other place for
such meeting. Meetings of Stockholders for any other purpose may be held at
such place, within or without the State of Maryland, and at such time as
shall be determined pursuant to Section 2 of this Article II, and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 4. NOTICE OF MEETINGS. Not less than ten (10) nor more than
ninety (90) days before an annual or a special meeting of Stockholders, the
secretary shall give to each Stockholder entitled to vote at such meeting and to
each Stockholder not entitled to vote who is entitled to notice of the meeting,
written or printed notice stating the time and place of the meeting and, in the
case of a special meeting or as otherwise may be required by any statute, the
purpose for which the meeting is called, either by mail, by presenting it to
such Stockholder personally or by leaving it at such Stockholder's residence or
usual place of business. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the Stockholder at its
post office address which appears in the records of the Company, with postage
thereon prepaid.
SECTION 5. SCOPE OF NOTICE. Any business of the Company may be transacted
at an annual meeting of Stockholders without being specifically designated in
the notice required in Section 4 of this Article II, except such business as is
required by any statute to be stated in such notice. No business shall be
transacted at a special meeting of Stockholders except as specifically
designated in the notice.
SECTION 6. WAIVER OF NOTICE. Anything in these Bylaws to the contrary
notwithstanding, with respect to any meeting of the Stockholders, any
Stockholder who in person or by proxy shall have waived in writing notice of the
meeting, either before or after such meeting, or who shall attend the meeting in
person or by proxy, shall be deemed to have waived notice of such meeting unless
such Stockholder attends for the express purpose of objecting, at the beginning
of the meeting, and does so object to the transaction of any business because
the meeting is not lawfully called or convened.
SECTION 7. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. Subject to any
other provision of these Bylaws, the Articles of Incorporation of the Company,
as amended and restated (the "Articles"), and the Maryland General Corporation
Law (the "MGCL"), as to the vote that is required for a specified action, the
presence in person or by
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proxy of the holders of a majority of the outstanding Shares entitled to vote
at any meeting of Stockholders shall constitute a quorum for the transaction
of business and may, without the necessity for concurrence by the Directors,
vote to elect the Directors. The vote of the holders of a majority of the
Shares entitled to vote, present in person or represented by proxy at a
meeting at which a quorum is present, shall be binding on all Stockholders,
unless the vote of a greater number or voting by classes is required by the
MGCL, the Articles or these Bylaws. The Stockholders present at a duly
called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of Stockholders
such that less than a quorum is present.
In the absence of a quorum, Stockholders holding a majority of the Shares
present in person or by proxy and entitled to vote, or if no Stockholders are
present, any officer entitled to preside at or act as secretary of the meeting,
may adjourn the meeting to another time and place. Any business which might
have been transacted at the original meeting may be transacted at any adjourned
meeting at which a quorum is present. No notice of an adjourned meeting need be
given if the time and place are announced at the meeting at which the
adjournment is taken except that, if adjournment is for more than 120 days or
if, after the adjournment, a new record date is fixed for the meeting, notice of
the adjourned meeting shall be given pursuant to Section 4 of this Article II.
Meetings of the Stockholders shall be presided over by the chairman, or in
his absence by the president, or in his absence by a vice president, or in the
absence of the foregoing persons by a chairman designated by the Board, or in
the absence of such designation, by a chairman chosen at the meeting. The
secretary of the Company shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting. The order of business at all meetings of the Stockholders shall
be determined by the chairman. The order of business so determined, however,
may be changed by vote of the holders of a majority of the Shares present in
person or represented by proxy at a meeting at which a quorum is present.
SECTION 8. VOTING; PROXIES. (a) Except as provided in paragraph (b) of
this Section 8, or the Articles, each Stockholder of record on the record date,
as determined pursuant to Section 6 of Article VI of these Bylaws, shall be
entitled to one vote for every Share registered in his name. Each Stockholder
entitled to vote at any meeting of Stockholders or to express consent to or
dissent from corporate action in writing without a meeting may authorize another
person to act for him by proxy. No proxy shall be valid after 11 months from
its date of execution, unless the proxy provides for a longer period.
(b) Notwithstanding any other provision in these Bylaws, Subtitle 7 of
Title 3 of the MGCL (or any successor statute) shall not apply to any
acquisition by The Inland Group, Inc., a Delaware corporation, or any affiliate
of The Inland Group, Inc. This Section 8(b) may be altered or repealed, in
whole or in part, by a majority of the Directors (including a majority of the
Independent Directors) at any time.
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SECTION 9. FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD. In
order that the Company may determine the Stockholders entitled to notice of or
to vote at any meeting of Stockholders or any adjournment thereof or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of Shares or for the purpose of any other lawful action, the Board
may fix, in advance, a record date, which shall not be (i) more than ninety (90)
nor less than ten (10) days before the date of such meeting nor (ii) more than
ninety (90) days prior to any other action. If no record date is fixed:
(a) the record date for determining Stockholders entitled to notice of or to
vote at a meeting of Stockholders shall be at the close of business on the day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (b) the record date for determining Stockholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto. A determination of Stockholders of record entitled
to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Any Shares registered in
the name of a corporation, partnership, trust or other entity, if entitled to be
voted, may be voted by the president, a vice president, a general partner or
trustee thereof, as the case may be, or by a proxy appointed by any of the
foregoing individuals, unless some other person, who has been appointed to vote
such Shares pursuant to a bylaw or a resolution of the governing board of such
corporation or other entity or agreement of the partners of the partnership,
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such Shares. Any trustee or other fiduciary may vote
Shares registered in his name as such fiduciary, either in person or by proxy.
Shares of the Company directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding Shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding Shares at any given time.
The Directors may adopt by resolution a procedure by which a Stockholder
may certify in writing to the Company that any Shares registered in the name of
the Stockholder are held for the account of a specified person other than the
Stockholder. The resolution shall set forth the class of Stockholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; and any other
provisions with respect to the procedure which the Directors consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the Stockholder of record of the specified Shares in place of the
Stockholder who makes the certification.
SECTION 11. INSPECTORS OF ELECTION.
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<PAGE>
(a) In advance of any meeting of Stockholders, the Board may appoint
inspectors of election to act at each meeting of Stockholders and any
adjournment thereof. If inspectors of election are not so appointed, the
chairman of the meeting may, and upon the request of any Stockholder or his
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one or three. If appointed at the meeting upon the
request of one or more Stockholders or proxies, the vote of the holders of a
majority of Shares present in person or by proxy shall determine whether one or
three inspectors are appointed. In any case, if any person appointed as an
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Directors in advance of the meeting or at the meeting
by the person acting as chairman.
(b) The inspector(s) of election shall determine the number of outstanding
Shares, the Shares represented at the meeting and the existence of a quorum,
shall receive votes or consents, shall count and tabulate all votes and shall
determine the result; and in connection therewith, the inspector(s) shall
determine the authority, validity and effect of proxies, hear and determine all
challenges and questions, and do such other ministerial acts as may be proper to
conduct the election or vote with fairness to all Stockholders. If there are
three inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. If no
inspectors of election are appointed, the secretary shall pass upon all
questions and shall have all other duties specified in this Section 11.
(c) Upon request of the chairman of the meeting or any Stockholder or his
proxy, the inspector(s) of election shall make a report in writing of any
challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.
SECTION 12. REPORTS TO STOCKHOLDERS.
(a) The Directors shall submit to the Stockholders at or before the annual
meeting of Stockholders a report of the business and operations of the Company
during such fiscal year, containing a balance sheet and a statement of income
and surplus of the Company, accompanied by the certification of an independent
certified public accountant, and such further information as the Directors may
determine is required pursuant to any law or regulation to which the Company is
subject or is deemed desirable. Within the earlier of twenty (20) days after
the annual meeting of Stockholders or one hundred and twenty (120) days after
the end of the fiscal year of the Company, the Directors shall place the annual
report on file at the principal office of the Company and with any governmental
agencies as may be required by law and as the Directors may deem appropriate.
(b) Not later than forty-five (45) days after the end of each of the first
three (3) quarterly periods of each fiscal year, the Directors shall deliver or
cause to be delivered an interim report to the Stockholders containing unaudited
financial statements for such quarter and for the period from the beginning of
the fiscal year to the end of such quarter, and such
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<PAGE>
further information as the Directors may determine is required pursuant to
any law or regulation to which the Company is subject or is deemed desirable.
SECTION 13. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The secretary shall
make, at least ten (10) days before every meeting of Stockholders, a complete
list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of Shares registered in the name of each Stockholder. Such list shall be open
to the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any Stockholder who is present.
SECTION 14. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of Stockholders may be taken without a meeting if a
unanimous consent in writing, setting forth such action, is signed by each
Stockholder entitled to vote on the matter and any other Stockholder entitled to
notice of a meeting of Stockholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the Stockholders.
SECTION 15. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board and the proposal
of business to be considered by the Stockholders may be made at an annual
meeting of Stockholders: (i) pursuant to the Company's notice of meeting;
(ii) by or at the direction of the Board; or (iii) by any Stockholder of the
Company who was a Stockholder of record at the time of giving of notice provided
for in this Section 15(a), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 15(a).
(2) For nominations or other business to be properly brought before
an annual meeting by a Stockholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 15, the Stockholder must have given timely notice thereof in
writing to the secretary of the Company. To be timely, a Stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
Stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such Stockholder's notice shall set forth: (i) as to each person whom the
Stockholder proposes to
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nominate for election or reelection as a Director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected);
(ii) as to any other business that the Stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such Stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
Stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, the name and address of such
Stockholder, as they appear on the Company's books, and that of such
beneficial owner, and the class and number of Shares which are owned
beneficially and of record by such beneficial owner and such Stockholder.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 15 to the contrary, in the event that the
number of Directors to be elected to the Board is increased and there is no
public announcement naming all of the nominees for Director or specifying the
size of the increased Board made by the Company at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a Stockholder's notice
required by this Section 15(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the secretary at the principal executive offices of the Company
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Company.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of persons
for election to the Board may be made at a special meeting of Stockholders at
which Directors are to be elected: (i) pursuant to the Company's notice of
meeting; (ii) by or at the direction of the Board; or (iii) provided that the
Board has determined that Directors shall be elected at such special meeting, by
any Stockholder of the Company who is a Stockholder of record at the time of
giving of notice provided for in this Section 15(b), who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 15(b). In the event the Company calls for a special meeting of
Stockholders for the purpose of electing one or more Directors to the Board, any
such Stockholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Company's notice of meeting, if
the Stockholder's notice required by paragraph (a)(2) of this Section 15 shall
be delivered to the secretary at the principal executive offices of the Company
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special meeting
or the tenth day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board to be
elected at such meeting.
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(c) ACCESS TO RECORDS. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the
Company at all reasonable times, and may inspect and copy any of them for
purposes specified below. Inspection of the Company's books and records by a
state securities administrator shall be provided upon reasonable notice and
during normal business hours at the business office of the Company. In
addition, an alphabetical list of names, addresses and business telephone
numbers of the Stockholders of the Company along with the number of Shares
held by each of them (the "Stockholder List") shall be maintained and updated
quarterly as part of the books and records of the Company and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the business office of the Company upon the request of the
Stockholder. A copy of the Stockholder List shall be mailed to any
Stockholder requesting the Stockholder List within ten days of the request.
The copy of the Stockholder List shall be printed in alphabetical order, on
white paper, and in a readily readable type size (in no event smaller than
10-point type). The Company may impose a reasonable charge for expenses
incurred in reproducing such list. The permitted purposes for which a
Stockholder may request a copy of the Stockholder List include, without
limitation, matters relating to Stockholders' voting rights under the
Articles and the exercise of Stockholders' rights under federal proxy laws
and regulations. If the advisor of the Company (the "Advisor") or the
Directors neglect or refuse to exhibit, produce or mail a copy of the
Stockholder List as requested in accordance with and as required by
applicable law and the Articles, the Advisor and the Directors shall be
liable to any Stockholder requesting the Stockholder List, for the costs,
including reasonable attorneys' fees, incurred by that Stockholder for
compelling the production of the Stockholder List, and for actual damages
suffered by any Stockholder by reason of such refusal or neglect. It shall
be a defense to such liability that the actual purpose and reason for the
requests for inspection or for a copy of the Stockholder List is to secure
such list of Stockholders or other information for the purpose of selling
such Stockholder List or copies thereof, or of using the same for a
commercial purpose or other purpose not in the interest of the applicant as a
Stockholder relative to the affairs of the Company. The Company may require
the Stockholder requesting the Stockholder List to represent that the
Stockholder List is not requested for a commercial purpose unrelated to the
Stockholder's interest in the Company. The remedies provided hereunder to
Stockholders requesting copies of the Stockholder List are in addition to,
and shall not in any way limit, other remedies available to Stockholders
under federal law, or the laws of any state.
(d) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 15 shall be eligible to serve as Directors
and only such business shall be conducted at a meeting of Stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 15. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 15 and, if any proposed nomination or business is not in
compliance with this Section 15, to declare that such defective nomination or
business proposal be disregarded.
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(2) For purposes of this Section 15, "public announcement" shall
mean disclosure in a press release prepared by or on behalf of the Company
and reported by the Dow Jones News Service, Associated Press or comparable
news service or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 15, a
Stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 15. Nothing in this Section 15 shall be
deemed to affect any rights of Stockholders to request inclusion of proposals in
any of the Company's proxy statements pursuant to Rule 14a-8 under the Exchange
Act.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company shall
be managed by or under the direction of the Board. Unless otherwise provided by
the Articles, Directors need not be Stockholders. A Director shall be an
individual at least 21 years of age who is not under legal disability.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Company shall initially be three (3). At any regular meeting or at any
special meeting called for that purpose, by the affirmative vote of at least a
majority of the Directors (including a majority of the Independent Directors),
the Board may increase or decrease the number of Directors; provided, that the
number thereof shall not be fewer than three (3) nor more than eleven (11); and
provided further, that the tenure of office of a Director shall not be affected
by any decrease in the number of Directors.
SECTION 3. RESIGNATIONS AND REMOVAL. Any Director may resign by written
notice to the Board, effective upon execution and delivery to the Company of
such written notice or upon any future date specified in the notice. A Director
may be removed at any time, with or without cause, at an annual or special
meeting of the Stockholders, by the affirmative vote of the holders of not less
than a majority of Shares then outstanding and entitled to vote generally in
the election of Directors.
SECTION 4. MEETINGS. Meetings of the Board may be called by or at the
request of the chairman, the president, a majority of the Directors or a
majority of the Independent Directors. The person or persons authorized to call
meetings of the Board may fix any place as the place for holding any meeting of
the Board called by them. Meetings of the Board may be held within or outside
the State of Maryland.
SECTION 5. BUSINESS OF MEETINGS. Except as otherwise expressly provided
in these Bylaws, any and all business may be transacted at any meeting of the
Board.
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SECTION 6. NOTICE OF MEETINGS. Notice of any meeting shall be given to
each Director at his principal place of business: (i) at least two days
previous thereto if delivered by messenger, overnight courier or facsimile; or
(ii) at least five days previous thereto if mailed.
SECTION 7. ATTENDANCE BY TELEPHONE. Directors may participate in meetings
of the Board by means of conference telephone or similar communications
equipment by means of which all Directors participating in the meeting can hear
and speak to one another, and such participation shall constitute presence in
person at the meeting.
SECTION 8. QUORUM AND MANNER OF ACTING; ADJOURNMENT. Subject to the
following sentence, a majority of the Directors shall constitute a quorum for
the transaction of business at any meeting of the Board and the act of a
majority of the Directors present at any meeting at which a quorum is present
shall be the act of the Board. If less than a majority of such Directors are
present at said meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice, and provided further that if,
pursuant to the Articles or these Bylaws, the vote of a majority of Independent
Directors is required for action, a quorum must also include a majority of such
group.
SECTION 9. ACTION WITHOUT A MEETING. Any action which could be taken at a
meeting of the Board may be taken without a meeting if all of the Directors
consent to the action in writing and the writing or writings are filed with the
minutes of proceedings of the Board.
SECTION 10. FILLING OF VACANCIES. If for any reason any or all the
Directors cease to be Directors, such event shall not terminate the Company or
affect these Bylaws or the powers of the remaining Directors hereunder (even if
fewer than three Directors remain). If a vacancy in the Board of Directors
shall occur (whether arising through death, resignation or through an increase
in the number of Directors), the vacancy shall be filled by the affirmative vote
of a majority of the remaining Directors, at any regular meeting or any special
meeting called for that purpose, even though less than a quorum of the Board of
Directors may exist. Any vacancy in the number of Directors created as a result
of the removal of a Director by the Stockholders shall be filled by a majority
vote of the Stockholders. Any Director may resign at any time and may be
removed with or without cause at an annual or special meeting of Stockholders by
the affirmative vote of the holders of not less than a majority of the
outstanding Shares entitled to vote generally in the election of Directors. Any
individual so elected as Director shall hold office for the unexpired term of
the Director he is replacing.
SECTION 11. COMPENSATION OF DIRECTORS. The Board shall have the authority
to fix the compensation of Directors, unless otherwise provided in the Articles.
10
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SECTION 12. PRESIDING OFFICER. The presiding officer at any meeting of
the Board shall be the chairman, or in his absence, any other Director elected
chairman by vote of a majority of the Directors present at the meeting.
SECTION 13. COMMITTEE. The Board will designate an Audit Committee
consisting of two Independent Directors. The Audit Committee shall (i) make
recommendations concerning the engagement of independent public accountants,
(ii) review the plans and results of the audit engagement with the independent
public accountants, (iii) approve professional services provided by, and the
independence of, the independent public accountants, (iv) consider the range of
audit and non-audit fees, and (v) consult with the independent public
accountants regarding the adequacy of the Company's internal accounting
controls.
The Board may establish an Executive Committee consisting of three
Directors, Including two Independent Directors. The Executive Committee, to the
extent provided by the Board and otherwise permitted by law, shall have and
exercise all of the authority of the Board in the management of the Company,
such Executive Committee to keep minutes of its proceedings and report the same
to the Board when required.
The Board may establish an Executive Compensation Committee consisting of
three Directors, including two Independent Directors, to establish compensation
policies and programs for the Company's executive officers. The Executive
Compensation Committee will exercise all powers of the Board in connection with
establishing and implementing compensation matters, including incentive
compensation and benefit plans.
The Board may establish such other committees as the Directors deem
appropriate and appoint the members thereof. Service on such committees shall
be at the pleasure of the Board, which may by a majority vote taken in
accordance with these Bylaws, increase or decrease committee membership, remove
a committee member and appoint members to fill vacancies in a committee. Any
committee of the Board shall make such reports as required by the Board
available to the entire Board for review and any necessary action by the Board.
Nothing in this Section 13 shall be construed as precluding the Board or
officers from appointing such other committees as they deem necessary and
proper, to aid in the management and operation of the Company's business.
SECTION 14. RELIANCE. Each Director, officer, employee and agent of the
Company shall, in the performance of his duties with respect to the Company, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the
Company, upon an opinion of counsel or upon reports made to the Company by any
of its officers or employees or by the Advisor, accountants, appraisers or other
experts or consultants selected by the Board or officers of the Company,
regardless of whether such counsel or expert may also be a Director.
11
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ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Company may consist of the
chairman, the president, one or more vice presidents (the number thereof to be
determined by the Board), the secretary, the treasurer and such assistant
secretaries and assistant treasurers or any other officers thereunto authorized
or elected by the Board. Any two or more offices may be held by the same
person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company shall
be elected by the Board at their first meeting and thereafter at any subsequent
meeting and shall hold their offices for such term as determined by the Board.
Each officer shall hold office until his successor is duly elected and
qualified, or until his death or disability, or until he resigns or is removed
from his duties in the manner hereinafter provided.
SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by a majority of the Directors then in office, at any
meeting of the Board. Any officer may resign at any time by giving written
notice to the Company. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation or removal or any other cause may be filled by the Board.
SECTION 5. CHAIRMAN. The chairman shall preside at all meetings of the
Board, and at all Stockholders' meetings, whether annual or special, at which he
or she is present and shall exercise such other powers and perform such other
duties as the Board may from time to time assign to him or her or as may be
prescribed by these Bylaws. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the Company, or a
different mode of execution is expressly prescribed by the Board or these
Bylaws, the chairman may execute for the Company certificates for its Shares and
any contracts, deeds, mortgages, bonds or other instruments which the Board have
authorized to be executed, and the chairman may accomplish such execution either
under or without the seal of the Company, or either individually or with the
secretary, any assistant secretary or any other officer thereunto authorized by
the Board, according to the requirements of the form of the instrument or
applicable law.
SECTION 6. PRESIDENT. The president shall be the chief executive
officer and the chief operating officer of the Company. Subject to the
direction and control of the Board, the president shall be in charge of the
business of the Company; the president shall see that the resolutions and
directions of the Board are carried into effect, except in those instances in
which that responsibility is specifically assigned to some other person by
the Board; and in general, the president shall discharge all duties incident
to the office of president and such other duties as may be prescribed by the
Board from time to time. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the
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Company, or a different mode of execution is expressly prescribed by the
Board or these Bylaws, the president may execute for the Company,
certificates for its Shares, and any contracts, deeds, mortgages, bonds or
other instruments which the Board have authorized to be executed, and the
president may accomplish such execution either under or without the seal of
the Company, or either individually or with the secretary, any assistant
secretary or any other officer thereunto authorized by the Board, according
to the requirements of the form of the instrument or applicable law. The
president may vote all securities which the Company is entitled to vote,
except as and to the extent such authority shall be vested in a different
officer or agent of the Company by the Board.
SECTION 7. VICE PRESIDENT. The vice president (or in the event there be
more than one vice president, each of the vice presidents), if one shall be
elected, shall assist the president in the discharge of the president's duties,
as the president may direct, and shall perform such other duties as from time to
time may be assigned to him or her by the president or by the Board. In the
absence of the president or in the event of the president's inability or refusal
to act, the vice president (or in the event there be more than one vice
president, the vice presidents in the order designated by the Board, or in the
absence of any designation, then in the order of seniority of tenure as vice
president) shall perform the duties of the president, and when so acting, shall
have the powers of and be subject to all the restrictions upon the president.
Except in those instances in which the authority to execute is expressly
delegated to another officer or agent of the Company, or a different mode of
execution is expressly prescribed by the Board or these Bylaws, the vice
president (or each of them if there are more than one) may execute for the
Company, certificates for its Shares and any contracts, deeds, mortgages, bonds
or other instruments which the Board have authorized to be executed, and he or
she may accomplish such execution either under or without the seal of the
Company, and either individually or with the secretary, any assistant secretary
or any other officer thereunto authorized by the Board, according to the
requirements of the form of the instrument or applicable law.
SECTION 8. TREASURER. The treasurer shall be the chief financial officer
of the Company. The treasurer shall: (i) have charge of and be responsible for
the maintenance of the adequate books and records for the Company; (ii) have
charge and custody of all funds and securities of the Company, and be
responsible therefor and for the receipt and disbursement thereof; and
(iii) perform all the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him or her by the president or by
the Board. If required by the Board, the treasurer shall give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the Board may determine.
SECTION 9. SECRETARY. The secretary shall: (i) record the minutes of the
Stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate books and records and of the seal of the Company;
(iv) keep a register of the post-office address of each Stockholder which shall
be furnished to the secretary by such Stockholder; (v) sign with the chairman or
the president or a vice president or any other officer thereunto authorized by
the Board, certificates
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for the Shares, and any contracts, deeds, mortgages, bonds or other
instruments which the Board have authorized to be executed, according to the
requirements of the form of the instrument or applicable law, except when a
different mode of execution is expressly prescribed by the Board or these
Bylaws; (vi) have general charge of the stock transfer books of the Company;
and (vii) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the Board.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the Board. When the secretary is unavailable, any assistant
secretary may sign with the president, or a vice president, or any other officer
thereunto authorized by the Board, any contracts, deeds, mortgages, bonds or
other instruments according to the requirements of the form of the instrument or
applicable law, except when a different mode of execution is expressly
prescribed by the Board or these Bylaws. The assistant treasurers shall if
required by the Board, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board shall determine.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board (or an appropriately designated committee of the
Board) and no officer shall be prevented from receiving such salary by reason of
the fact that he is also a Director of the Company.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Company and such authority may be
general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Company
and no evidences of indebtedness shall be issued in its name, unless authorized
by a resolution of the Board. Such authority may be general or confined to
specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Company shall be signed by such officer or officers or agent or
agents of the Company and in such manner as shall from time to time be
determined by resolution of the Board.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in such banks,
trust companies or other depositories as the Board may designate.
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ARTICLE VI
SHARES OF EQUITY STOCK
SECTION 1. RECORDS AND CERTIFICATES. Records shall be kept by or on
behalf of the Company, which shall contain the names and addresses of
Stockholders, the number of Shares held by them, respectively, and the number of
certificates, if any, representing the Shares, and in which there shall be
recorded all transfers of Shares. Every Stockholder shall be entitled to a
certificate signed by the chairman, or the president or a vice president, and by
the secretary or an assistant secretary of the Company, certifying the class and
number of Shares owned by him in the Company, provided that any and all
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Company
with the same effect as if he or it were such officer, transfer agent or
registrar at the date of issue. Each certificate representing Shares which are
restricted as to their transferability or voting powers, which are preferred or
limited as to their dividends or as to their allocable portion of the assets of
the Company upon liquidation or which are redeemable at the option of the
Company, shall have a statement of such restriction, limitation, preference or
redemption provision, or a summary thereof, plainly stated on the certificate.
In lieu of such statement or summary, the Company may set forth upon the face or
back of the certificate a statement that the Company will furnish to any
Stockholder, upon request and without charge, a full statement of such
information.
SECTION 2. TRANSFER AGENTS AND REGISTRARS. The Company may serve as the
transfer agent and registrar of the Shares, or the Board may, in its discretion,
appoint one or more responsible banks or trust companies as the board may deem
advisable, from time to time, to act as transfer agents and registrars of
Shares. No certificate for Shares shall be valid until countersigned by the
transfer agent and registered by the registrar.
SECTION 3. STOCKHOLDERS' ADDRESSES. Every Stockholder or transferee shall
furnish the secretary or a transfer agent with the address to which notice of
meetings and all other notices may be served upon or mailed to such Stockholder
or transferee, and in default thereof, such Stockholder or transferee shall not
be entitled to service or mailing of any such notice.
SECTION 4. LOST CERTIFICATES. In the event a certificate for Shares is
lost, stolen or destroyed, the Board, in its discretion, or any transfer agent
duly authorized by the Board in its discretion, may authorize the issue of a
substitute certificate in place of the certificate so lost, stolen or destroyed.
The Company may require the owner of the lost, stolen or destroyed certificate
or his legal representative to give the Company a bond sufficient to indemnify
the Company against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or uncertified Shares.
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SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. To the extent permitted by the
MGCL and subject to any restrictions contained in the Articles, the Directors
may declare and pay dividends upon the Shares in the manner and upon the terms
and conditions provided by the MGCL and the Articles.
SECTION 6. RECORD DATES. The Board may set, in advance, a record date for
the purpose of determining Stockholders entitled to notice of or to vote at any
meeting of Stockholders, or Stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of Stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
Stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of Stockholders is to be held or
taken.
In lieu of fixing a record date, the Board may provide that the stock
transfer books shall be closed for a stated period but not longer than 20 days.
If the stock transfer books are closed for the purpose of determining
Stockholders entitled to notice of or to vote at a meeting of Stockholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books are not closed for
the determination of Stockholders: (a) the record date for the determination of
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of Stockholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the Directors, declaring
the dividend or allotment of rights, is adopted.
When a determination of Stockholders entitled to vote at any meeting of
Stockholders has been made as provided in this Section 6, such determination
shall apply to any adjournment thereof, except where the determination has been
made through the closing of the transfer books and the stated period of closing
has expired.
SECTION 7. TRANSFERS OF SHARES. Shares of the Company may be transferred
by delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificates, or by written power of attorney to
sell, assign and transfer the same, signed by the record holder thereof; but no
transfer shall affect the right of the Company to pay any distribution upon the
Shares to the holder of record thereof, or to treat the holder of record as the
holder in fact thereof for all purposes, and no transfer shall be valid, except
between the parties thereto, until such transfer shall have been made upon the
books of the Company.
SECTION 8. REPURCHASE OF SHARES ON OPEN MARKET. The Company may purchase
its Shares on the open market and invest its assets in its own Shares, provided
that in each case the consent of the Board shall have been obtained.
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ARTICLE VII
INDEMNIFICATION AND INSURANCE
Capitalized terms used in this Article VII and not otherwise defined shall
have the meanings set forth in the Articles.
SECTION 1. INDEMNIFICATION.
(a) Subject to paragraphs (b), (c) and (d) of this Section 1, the Company
shall, to the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted and, without limiting the generality of the foregoing,
in accordance with Section 2-418 of the MGCL, indemnify and pay, advance or
reimburse reasonable expenses to any Director, officer, employee and agent of
the Company and the Advisor and its Affiliates (each an "Indemnified Party").
(b) As long as the Company qualifies as a REIT, it shall not indemnify nor
pay, advance or reimburse expenses to an Indemnified Party unless: (i) the
Indemnified Party has determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interest of the Company;
(ii) the Indemnified Party was acting on behalf of or performing services on the
part of the Company; (iii) such liability or loss was not the result of
negligence or misconduct on the part of the Indemnified Party except that in the
event the Indemnified Party is or was an Independent Director, such liability or
loss shall not have been the result of gross negligence or willful misconduct;
and (iv) such indemnification or agreement to be held harmless is recoverable
only out of the Net Assets of the Company and not from the Stockholders.
(c) As long as the Company qualifies as a REIT and notwithstanding
anything to the contrary in Section 1(b) of this Article VII, the Company shall
not indemnify a Director, officer, employee or agent of the Company or the
Advisor or its Affiliates for losses, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws by such party
unless one or more of the following conditions are met: (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party; (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party; or (iii) a court of competent
jurisdiction approves a settlement of the claims and finds that indemnification
of the settlement and related costs should be made and the court considering the
request has been advised of the position of the Securities and Exchange
Commission and the published opinions of any state securities regulatory
authority in which securities of the Company were offered or sold as to
indemnification for violations of securities laws.
(d) The Company may advance amounts to an Indemnified Party for legal and
other expenses and costs incurred as a result of any legal action for which
indemnification is being sought only in accordance with Section 2-418 of the
Maryland General Corporation Law, and,
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as long as the Company qualifies as a REIT, only if all of the following
conditions are satisfied: (i) the legal action relates to acts or omissions
with respect to the performance of duties or services by the Indemnified
Party for or on behalf of the Company; (ii) the legal action is initiated by
a third party who is not a Stockholder or the legal action is initiated by a
Stockholder acting in his or her capacity as such and a court of competent
jurisdiction specifically approves such advancement; and (iii) the
Indemnified Party receiving such advances undertakes in writing to repay the
advanced funds to the Company, together with the applicable legal rate of
interest thereon, in cases in which such party is found not to be entitled to
indemnification.
(e) Neither the amendment nor repeal of this Article VII, nor the adoption
or amendment of any other provision of the Bylaws or the Articles inconsistent
with this Article VII, shall apply to or affect in any respect the applicability
of the preceding paragraphs with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption.
SECTION 2. INDEMNIFICATION INSURANCE. The Company shall have the power
to purchase and maintain insurance on behalf of an indemnified party against
any liability asserted which was incurred in any such capacity with the
Company, or arising out of such status; provided, however, that the Company
shall not incur the costs of any liability insurance which insures any person
against liability for which he, she or it could not be indemnified under the
provisions of this Article VII. Nothing contained herein shall constitute a
waiver by any Indemnified Party of any right which he, she or it may have
against any party under federal or state securities laws.
ARTICLE VIII
SEAL
SECTION 1. SEAL. The Board may authorize the adoption of a seal by the
Company. The seal shall have inscribed thereon the name of the Company and the
year of its organization. The Board may authorize one or more duplicate seals
and provide for the custody thereof.
SECTION 2. AFFIXING SEAL. Whenever the Company is required to place its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Company.
ARTICLE IX
AMENDMENTS
Unless otherwise provided in the Articles, these Bylaws may be altered,
amended or repealed and new Bylaws, not inconsistent with the Articles or the
laws of the State of
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Maryland or other applicable law, may be adopted at any properly constituted
meeting of the Board by a majority vote of the Directors present at the
meeting, except that in the case of a matter which requires greater than a
majority vote of the Directors, any amendment with respect to such matter
must be approved by a vote of Directors equal to or greater than the number
of votes required under these Bylaws to effectuate the matter in question.
19
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Exhibit 4.1
Form of Agreement of Limited Partnership
of Inland Retail Real Estate Limited Partnership
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF INLAND RETAIL REAL ESTATE LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Article 1. Definitions and Exhibits. . . . . . . . . . . . . . . . . . . . . 4
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.2 Exhibits, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Article 2. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.1 Formation of Partnership. . . . . . . . . . . . . . . . . . . . . .13
2.2 Partnership Name. . . . . . . . . . . . . . . . . . . . . . . . . .13
2.3 Location of the Principal Place of Business . . . . . . . . . . . .13
2.4 Registered Agent and Registered Office. . . . . . . . . . . . . . .13
Article 3. Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.1 Issuance of Units . . . . . . . . . . . . . . . . . . . . . . . . .14
3.2 Redemption Right. . . . . . . . . . . . . . . . . . . . . . . . . .15
3.3 Conversion Right. . . . . . . . . . . . . . . . . . . . . . . . . .16
3.4 Additional Capital. . . . . . . . . . . . . . . . . . . . . . . . .18
3.5 No Third Party Beneficiary. . . . . . . . . . . . . . . . . . . . .18
3.6 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . .18
3.7 No Interest on or Return of Capital . . . . . . . . . . . . . . . .20
3.8 Negative Capital Accounts . . . . . . . . . . . . . . . . . . . . .20
3.9 Limit on Contributions and Obligations of Partner . . . . . . . . .20
Article 4. Purpose and Powers of Partnership . . . . . . . . . . . . . . . .20
4.1 Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.2 Compliance with REIT Requirements . . . . . . . . . . . . . . . . .21
Article 5. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Article 6. Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.1 Profits or Losses . . . . . . . . . . . . . . . . . . . . . . . . .21
6.2 Special Allocations . . . . . . . . . . . . . . . . . . . . . . . .22
6.3 Other Allocation Rules. . . . . . . . . . . . . . . . . . . . . . .23
6.4 Tax Allocations; Code Section 704(c) / Section 1245 and
1250 Recapture . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.5 Nonrecourse Liabilities . . . . . . . . . . . . . . . . . . . . . .24
Article 7. Cash Available For Distribution . . . . . . . . . . . . . . . . .25
7.1 Distributions to Partners . . . . . . . . . . . . . . . . . . . . .25
7.2 REIT Distributions. . . . . . . . . . . . . . . . . . . . . . . . .25
7.3 Consent to Distributions. . . . . . . . . . . . . . . . . . . . . .25
7.4 Liquidating Distributions . . . . . . . . . . . . . . . . . . . . .25
Article 8. Management of Partnership . . . . . . . . . . . . . . . . . . . .25
i
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8.1 General Partner . . . . . . . . . . . . . . . . . . . . . . . . . .25
8.2 Limitations on Powers and Authorities of Partners . . . . . . . . .28
8.3 Title Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
8.4 Compensation of the General Partner . . . . . . . . . . . . . . . .29
8.5 Standard of Conduct . . . . . . . . . . . . . . . . . . . . . . . .29
8.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . .30
8.7 Other Activities of Partners and Agreements with Related
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.8 Other Matters Concerning the General Partner. . . . . . . . . . . .32
Article 9. Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Article 10. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.1 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.2 Books of Account . . . . . . . . . . . . . . . . . . . . . . . . .33
10.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.4 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
10.5 Method of Accounting . . . . . . . . . . . . . . . . . . . . . . .33
10.6 Tax Election . . . . . . . . . . . . . . . . . . . . . . . . . . .34
10.7 Tax Matters Partner. . . . . . . . . . . . . . . . . . . . . . . .34
10.8 Administrative Adjustments . . . . . . . . . . . . . . . . . . . .34
Article 11. Transfers of Partnership Interests . . . . . . . . . . . . . . .34
11.1 General Partner. . . . . . . . . . . . . . . . . . . . . . . . . .34
11.2 Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . .36
11.3 Admission Adjustments. . . . . . . . . . . . . . . . . . . . . . .38
Article 12. Rights and Obligations of the Limited Partners . . . . . . . . .38
12.1 No Participation in Management . . . . . . . . . . . . . . . . . .38
12.2 Death, Legal Incompetency, Etc. of a Limited Partner . . . . . . .38
12.3 No Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . .38
12.4 Duties and Conflicts . . . . . . . . . . . . . . . . . . . . . . .38
Article 13. Liquidation and Dissolution of Partnership . . . . . . . . . . .39
13.1 Termination Events . . . . . . . . . . . . . . . . . . . . . . . .39
13.2 Method of Liquidation. . . . . . . . . . . . . . . . . . . . . . .39
13.3 Distribution in Kind . . . . . . . . . . . . . . . . . . . . . . .39
13.4 Documentation of Liquidation . . . . . . . . . . . . . . . . . . .40
13.5 Liability of the Liquidating Trustee . . . . . . . . . . . . . . .40
Article 14. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . .40
Article 15. Amendment of Agreement . . . . . . . . . . . . . . . . . . . . .41
15.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
15.2 Merger, Etc. of General Partner. . . . . . . . . . . . . . . . . .41
Article 16. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . .41
ii
<PAGE>
16.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
16.2 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
16.3 Binding Character. . . . . . . . . . . . . . . . . . . . . . . . .42
16.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
16.5 No Alteration of Agreement . . . . . . . . . . . . . . . . . . . .43
Article 17. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .43
17.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
17.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .43
17.3 Duplicate Originals. . . . . . . . . . . . . . . . . . . . . . . .44
17.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . .44
17.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .44
17.6 Other Instruments. . . . . . . . . . . . . . . . . . . . . . . . .44
17.7 General Partner with Interest as Limited Partner . . . . . . . . .44
17.8 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
17.9 Prior Agreements Superseded. . . . . . . . . . . . . . . . . . . .44
17.10 Purchase for Investment . . . . . . . . . . . . . . . . . . . . .44
17.11 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
17.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .45
17.13 Notice for Certain Transactions . . . . . . . . . . . . . . . . .45
</TABLE>
EXHIBIT A: Name of Partners and Number of Units Held by Each Partner under
This Agreement
EXHIBIT B: Form of Notice of Conversion
EXHIBIT C: Form of Notice of Redemption
EXHIBIT D: Capital Account of Each Partner
iii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF INLAND RETAIL REAL ESTATE LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") has been executed
and delivered as of September __, 1998, by and among Inland Retail Real Estate
Trust, Inc., a Maryland corporation ("Inland"), as General Partner, and Inland
Retail Real Estate Advisory Services, Inc., an Illinois corporation, as the
initial Limited Partner, and those other parties, if any, whose names appear on
the signature pages hereto, each such other party as a Limited Partner.
RECITALS
WHEREAS, the Partnership was formed as a limited partnership under the name
"Inland Retail Real Estate Limited Partnership," in accordance with the Revised
Uniform Limited Partnership Act of the State of Illinois, pursuant to a
Certificate of Limited Partnership filed with the Secretary of State of the
State of Illinois on September __, 1998.
WHEREAS, Inland was formed on September 3, 1998, to acquire and manage,
directly or indirectly, a diversified portfolio of real estate primarily
(i) improved for use as retail establishments, principally multi-tenant shopping
centers; or (ii) improved with other commercial facilities which provide goods
or services. Such real estate will be located mainly in the states east of the
Mississippi River in the United States. Inland may also acquire single-user
retail properties located anywhere throughout the United States if they are
leased on a triple-net lease basis by creditworthy tenants.
WHEREAS, this Agreement sets forth certain rights and obligations of the
Partners and the terms and conditions pursuant to which the Partnership shall be
governed.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE 1. DEFINITIONS AND EXHIBITS.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Accountants" shall mean the firm or firms of independent certified public
accountants selected by the General Partner on behalf of the Partnership to
audit the books and records of the Partnership and to prepare statements and
reports in connection therewith.
"Act" shall mean the Revised Uniform Limited Partnership Act of the State
of Illinois, as amended from time to time, and any successor statute.
<PAGE>
"Administrative Expenses" shall mean (i) all administrative and operating
costs and expenses incurred by the Partnership and (ii) those administrative
costs and expenses of the General Partner, including salaries paid to trustees,
officers and employees of the General Partner, accounting and legal expenses,
the costs and expenses of preparing reports required to be filed by the General
Partner and costs and expenses incurred in complying with applicable laws, that
are undertaken by the General Partner on behalf of, or for the benefit of, the
Partnership.
"Affected Gain" shall have the meaning provided in Section 6.4.E hereof.
"Affiliate" shall mean, with respect to any Partner (or with respect to
any other Person the affiliates of whom are relevant for purposes of any of
the provisions of this Agreement): (i) any member of the Immediate Family of
such Partner or Person; (ii) any trustee or beneficiary of such Partner or
Person; (iii) any legal representative or successor of any Person referred to
in the preceding clauses (i) and (ii); (iv) any trust for the benefit of any
Person referred to in the preceding clauses (i) through (iii); or (v) any
Entity which, directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, any Person
referred to in the preceding clauses (i) through (iv).
"Agreement" shall mean this Agreement of Limited Partnership, as it may be
amended, modified, supplemented or restated from time to time, as the context
requires.
"Audited Financial Statements" shall mean financial statements (including,
without limitation, balance sheet, statement of income, statement of partners'
equity and statement of cash flows) prepared in accordance with generally
accepted accounting principles and accompanied by an independent auditor's
report containing (i) an opinion containing no material qualification and
(ii) no explanatory paragraph disclosing information relating to material
uncertainties (except as to litigation) or going concern issues.
"Bankruptcy" of a Partner shall mean (i) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (ii) the making by a Partner of any assignment for the
benefit of its creditors or the admission by a Partner in writing of its
inability to pay its debts as they mature, or (iii) the expiration of sixty (60)
days after the filing of an involuntary petition under Title 11 of the United
States Code (or corresponding provisions of future laws), seeking an application
for the appointment of a receiver for the assets of a Partner, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other Federal or state insolvency law, provided that the same
shall not have been vacated, set aside or stayed within such 60-day period.
"Business Combination" shall have the meaning set forth in Section 11.1
hereof.
"Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.6 hereof.
5
<PAGE>
"Capital Contribution" shall mean, when used with respect to a Partner, the
amount of money and the initial Gross Asset Value of property (other than money)
contributed by a Partner to the capital of the Partnership pursuant to the terms
of this Agreement, including, without limitation, the provisions of Section 3.1
hereof. A Partner's Capital Contribution includes the Capital Contribution made
by a predecessor holder of the Partnership Interest of such Partner.
"Cash Amount" shall mean, with respect to each Unit held by a Limited
Partner, an amount equal to (i) the Net Equity Value of all property
contributed to the Partnership by such Limited Partner on the date of
contribution of the property, divided by (ii) the total number of Units
received by such Limited Partner for such property contributed.
"Certificate" shall mean the Certificate of Limited Partnership filed with
the Secretary of State of the State of Illinois, as such Certificate may be
amended or restated from time to time.
"Charter" shall mean the Articles of Incorporation of the General Partner,
as they may be amended or restated from time to time.
"Closing Price" on any date shall mean the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by The Nasdaq Stock Market,
Inc. ("NASDAQ") or, if NASDAQ is no longer in use, the principal automated
quotation system that may then be in use, or, if the Common Stock is not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the General Partner, or, if there is no professional market maker
making a market in the Common Stock, the average of the last ten (10) sales
pursuant to the IPO if the IPO has not concluded, or, if the IPO has concluded,
the average of the last ten (10) purchases by the General Partner pursuant to
its Share Repurchase Program (the "SRP"), and if there are fewer than ten (10)
of such purchases under the SRP, then the average of such lesser number of
purchases, or, if the SRP is not then in existence, the price at which the
General Partner is then offering shares of Common Stock to the public if the
General Partner is then engaged in a public offering of Common Stock, or if the
General Partner is not then offering Common Stock to the public, the price at
which a stockholder may purchase Common Stock pursuant to the General Partner's
Distribution Reinvestment Program (the "DRP") if such DRP is then in existence,
or if the DRP is not then in existence, the fair market value of the Common
Stock as determined by the General Partner in its sole discretion.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time, and any successor statute.
6
<PAGE>
"Common Stock" shall mean the shares of the common stock, par value $0.01
per share, of Inland.
"Contributing Partner" shall have the meaning set forth in Section 3.1.B
hereof.
"Control" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, or by contract or otherwise, to
elect a majority of the directors of a corporation, to select the managing
partner of a partnership, or otherwise to select, or have the power to remove
and then select, a majority of those persons exercising governing authority over
an Entity. In the case of a limited partnership, the sole general partner, all
of the general partners to the extent each has equal management control or
authority, or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust,
any trustee thereof or any person having the right to select any such trustee
shall be deemed to have control of such trust.
"Conversion Factor" shall mean 1.0, provided that in the event the General
Partner (i) declares or pays a dividend on its outstanding shares of Common
Stock in shares of Stock or makes a distribution to all holders of its
outstanding Common Stock in shares of Stock; (ii) subdivides its outstanding
shares of Common Stock; or (iii) combines its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by a fraction, the numerator of
which will be the number of issued and outstanding shares of Common Stock
immediately after such dividend, distribution, subdivision or combination, and
the denominator of which will be the actual number of shares of Common Stock
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination, unless the General Partner concurrently declares,
makes or pays an equivalent dividend, distribution, subdivision or combination
of Units.
"Conversion Right" shall have the meaning set forth in Section 3.3.A below.
"Converting Partner" shall have the meaning set forth in Section 3.3.A
below.
"Deficit Limitation" means the dollar amount of any deficit balance in a
Partner's Capital Account as of the end of any fiscal year of the Partnership,
which deficit such Partner is obligated to restore within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(c), increased by the amount described
under Regulations Section 1.704-2(g)(1) relating to the Partner's Share of
Minimum Gain (as that term is hereinafter defined) and by the amount described
in Regulations Section 1.704-2(i)(5) relating to a nonrecourse loan by a
Partner, and decreased by the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Demand Notice" shall have the meaning set forth in Section 16.2 hereof.
"Depreciation" shall mean, for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such period for federal income tax
purposes, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such
7
<PAGE>
period, Depreciation shall be an amount that bears the same relationship to
such beginning Gross Asset Value as the depreciation, amortization or cost
recovery deduction in such period for federal income tax purposes bears to
the beginning adjusted tax basis; provided, however, that if the adjusted
basis for federal income tax purposes of an asset at the beginning of such
period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Entity" shall mean any general partnership, limited partnership,
corporation, joint venture, trust, business trust, limited liability company,
limited liability partnership, cooperative or association.
"Final Partnership Administrative Adjustment" shall have the meaning set
forth in Section 10.8 hereof.
"FPAA" means a Final Partnership Administrative Adjustment.
"General Partner" shall mean Inland, its duly admitted successors and
assigns and any other person who is a general partner at the time referenced.
"GP Common Units" shall mean the Units held by the General Partner other
than Preferred Units.
"Gross Asset Value" shall mean, with respect to any asset of the
Partnership, the asset's adjusted basis for federal income tax purposes, except
as follows:
(i) The initial Gross Asset Value of any property contributed to
the Partnership shall be the gross fair market value of such property, as
determined by the General Partner;
(ii) The Gross Asset Value of all Partnership property shall be
adjusted to equal its respective gross fair market value, as determined by
the General Partner in its sole and absolute discretion, as of the
following times: (a) the acquisition of an additional Partnership Interest
by any new or existing Partner in exchange for more than a DE MINIMIS
Capital Contribution; (b) the distribution by the Partnership to a Partner
of more than a DE MINIMIS amount of Partnership property as consideration
for a Partnership Interest; (c) the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (b)-(c) above shall be made only
if the General Partner reasonably determines that such adjustments are
necessary or appropriate to maintain Capital Accounts and to provide for
allocations of Profits and Losses that reflect the relative economic
interests of the Partners in the Partnership.
(iii) The Gross Asset Value of any Partnership property distributed
to any Partner shall be adjusted to equal the gross fair market value of
such property, taking Section 7701(g) of the Code into account, on the date
of distribution as determined by the General Partner; and
8
<PAGE>
(iv) The Gross Asset Values of Partnership property shall be
increased (or decreased) to reflect any adjustments to the adjusted basis
of such property pursuant to Code Section 734(b) or Code Section 743(b),
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m) and paragraph (vi) of the definition of
Profits and Losses; provided, however, that Gross Asset Values shall not be
adjusted pursuant to this paragraph (iv) to the extent the General Partner
determines that an adjustment pursuant to paragraph (ii) above is necessary
or appropriate in connection with a transaction that would otherwise result
in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of a property has been determined or adjusted
pursuant to paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such property. The General Partner may adjust the Capital Accounts to
reflect any adjustment to the Gross Asset Value of Partnership property if so
required or permitted under Regulations Section 1.704-1(b)(2)(iv).
"Holding Period" shall mean, the period beginning on the date of the
issuance of a Unit and ending on the first anniversary of such date.
"Immediate Family" shall mean, with respect to any Person, such Person's
spouse, parents, parents-in-law, descendants, nephews, nieces, brothers,
sisters, brothers-in-law, sisters-in-law and children-in-law.
"Independent Director" shall have the meaning given such term in the
Articles of Incorporation of Inland.
"Inland" means Inland Retail Real Estate Trust, Inc., a Maryland
corporation.
"Inland Group" shall mean Inland, the Partnership, the Property
Partnerships, and any other Entity in which one or more other members of the
Inland Group has or will have a direct or indirect interest of 50% or more (by
vote or by value).
"IPO" means the General Partner's first sale of shares of its Common Stock
in a public offering pursuant to its first effective registration statement for
such Common Stock filed under the Securities Act of 1933, as amended, which is
expected to commence in 1998.
"IRS" means the Internal Revenue Service.
"Limited Partner" shall mean any Person (i) whose name is set forth as a
Limited Partner on Exhibit A attached hereto or who has become a Limited Partner
pursuant to the terms and conditions of this Agreement and (ii) who holds a
Partnership Interest other than as a Transferee who is not a substituted Limited
Partner.
"LP Common Units" shall mean Units held by a Limited Partner, other than
Preferred Units.
9
<PAGE>
"Net Equity Value" of a property as of the date of contribution of the
property to the Partnership, generally, will be the purchase price of the
property to the Partnership (I.E., its fair market value), less the amount, as
of the date of contribution, of any liabilities (E.G., mortgages or other
monetary encumbrances) to which the property is subject or which are assumed by
the Partnership in connection with such contribution.
"Nonrecourse Deductions" shall have the meaning set forth in Regulations
Section 1.704-2(b) and (c).
"Nonrecourse Liability" shall have the meaning set forth in Regulations
Section 1.704-2(b)(3).
"Notice of Conversion" shall mean the Notice of Conversion substantially in
the form of Exhibit C to this Agreement.
"Notice of Redemption" shall mean the Notice of Redemption substantially in
the form of Exhibit B to this Agreement.
"Ownership Limit" shall mean the prohibition of beneficial ownership of no
more than 9.8%, by number of shares or by value, of the outstanding shares of
Common Stock of the General Partner, as set forth in the Articles of
Incorporation of Inland, as they may be amended or restated from time to time.
"Partner Nonrecourse Debt" shall have the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning set forth in
Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Deductions" shall have the meaning set forth in
Regulations Section 1.704-2(i)(2).
"Partners" shall mean, collectively, the General Partner and the Limited
Partners, or any additional or successor partners of the Partnership. Reference
to a Partner shall be to any one of the Partners.
"Partnership" shall mean the limited partnership governed by this
Agreement, as amended and/or restated from time to time.
"Partnership Interest" shall mean the ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which such Partner may be entitled as provided in this
Agreement, and to the extent not inconsistent with this Agreement, under the
Act, together with the obligations of such Partner to comply with all of the
terms and provisions of this Agreement and of the Act.
"Partnership Minimum Gain" shall have the meaning set forth in Regulations
Sections 1.704-2(h)(2) and 1.704-2(d).
10
<PAGE>
"Percentage Interest" of a Partner in the Partnership shall be equal to the
quotient (expressed as a percentage) arrived at by dividing the number of Units
held by the Partner by the total number of Units then outstanding.
"Person" shall mean any individual or Entity.
"Preferred Return" shall mean an amount, either fixed or as a rate of
interest, payable in arrears, which fixed amount or rate of interest (including
the frequency of compounding, if any) shall be determined at the time the
Preferred Unit is issued by the General Partner in its sole and absolute
discretion.
"Preferred Units" shall mean Units issued by the Partnership on which a
Preferred Return is paid or which provides for some other preference over Common
Units.
"Profits" and "Losses" shall mean, for each fiscal year or portion thereof,
an amount equal to the Partnership's items of taxable income or loss for such
year or period, determined in accordance with Section 703(a) of the Code with
the following adjustments:
(i) any income which is exempt from Federal income tax and not
otherwise taken into account in computing Profits or Losses shall be added
to taxable income or loss;
(ii) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Section 705(a)(2)(B) expenditures under
Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Profits or Losses will be subtracted from taxable
income or loss;
(iii) in the event that the Gross Asset Value of any Partnership
asset is adjusted pursuant to the definition of Gross Asset Value contained
in this Article 1, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits and Losses;
(iv) gain or loss resulting from any disposition of Partnership
assets with respect to which gain or loss is recognized for Federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year
or other period;
(vi) to the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) to be taken
into account in determining Capital Accounts as a result of a distribution
other than in complete liquidation of a
11
<PAGE>
Partner's Partnership Interest, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases the basis of the asset) from
the disposition of the asset and shall be taken into account for purposes
of computing Profits or Losses; and
(vii) any items specially allocated pursuant to Section 6.2 hereof
shall not be considered in determining Profits or Losses.
"Property Partnerships" means those Entities controlled, directly or
indirectly, by the General Partner, other than the Partnership.
"Redeeming Partner" shall have the meaning set forth in Section 3.2 hereof.
"Redemption Right" shall have the meaning set forth in Section 3.2 hereof.
"Regulations" shall mean the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"REIT" shall mean a real estate investment trust as defined in Section 856
of the Code.
"REIT Requirements" shall have the meaning set forth in Section 4.2 hereof.
"REIT Shares Amount" shall mean, with respect to the exercise of a
Redemption Right by a Limited Partner with respect to any Unit, that number of
shares of Common Stock (including fractional shares) having a Closing Price on
the date of the Notice of Redemption equal to the Cash Amount.
"Requesting Party" shall have the meaning set forth in Section 16.2 hereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Specified Conversion Date" shall mean the tenth (10th) Trading Day after
receipt by the General Partner of a Notice of Conversion from a Limited Partner.
"Specified Redemption Date" shall mean the tenth (10th) Trading Day after
receipt by the General Partner of a Notice of Redemption from a Limited Partner.
"Stock" means any class of stock of Inland.
"Surviving Entity" shall have the meaning set forth in Section 11.1 hereof.
"Tax Matters Partner" shall have the meaning set forth in Section 10.7
hereof.
"TMP" means the Tax Matters Partner.
12
<PAGE>
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of
Illinois are authorized or obligated by law or executive order to close.
"Transfer" shall have the meaning set forth in Section 11.2 hereof.
"Transferee" shall have the meaning set forth in Section 11.2 hereof.
"Units" shall have the meaning set forth in Section 3.1 hereof.
1.2 EXHIBITS, ETC. References to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Agreement, and references to
a "Section" or "Article" are, unless otherwise specified, to one of the Sections
or Articles of this Agreement. Each Exhibit attached hereto and referred to
herein is hereby incorporated herein by such reference.
ARTICLE 2. ORGANIZATION.
2.1 FORMATION OF PARTNERSHIP. Upon the initial filing of the
Certificate with the Secretary of State of the State of Illinois on September
__, 1998, the Partnership was formed as a limited partnership pursuant to the
provisions of the Act, and all other pertinent laws of the State of Illinois.
The Partners agree that the rights and liabilities of the Partnership shall be
as provided in the Act except as otherwise herein expressly provided. The
Partnership Interest of each Partner shall be personal property for all
purposes.
2.2 PARTNERSHIP NAME. The business of the Partnership shall be
conducted under the name of "Inland Retail Real Estate Limited Partnership";
provided, however, that the General Partner may, from time to time, change the
name of the Partnership or may adopt such trade or fictitious names as it may
determine in its sole and absolute discretion.
2.3 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the
principal place of business of the Partnership shall be at 2901 Butterfield
Road, Oak Brook, IL 60523, or such other location as shall be selected from
time to time by the General Partner in its sole and absolute discretion.
2.4 REGISTERED AGENT AND REGISTERED OFFICE. The Registered Agent of
the Partnership shall be Robert H. Baum or such other Person as the General
Partner may select in its sole and absolute discretion. The Registered Office
of the Partnership shall be 2901 Butterfield Road, Oak Brook, IL 60523, or such
other location as the General Partner may select in its sole and absolute
discretion.
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ARTICLE 3. CAPITAL.
3.1 ISSUANCE OF UNITS.
A. The Partnership Interest of a Partner in the Partnership is
sometimes referred to as being evidenced by one or more "Units." The
aggregate total of all Units outstanding as of the date of this Agreement,
and the names of the Partners holding such Units (including the number of
Units owned by each such Partner) are set forth on Exhibit A.
B. From time to time, the General Partner, subject to the provisions
of this Section 3.1.B, may cause the Partnership to issue additional Common
or Preferred Units to existing or newly-admitted Partners (including
itself) in exchange for a contribution by a Partner (the "Contributing
Partner") of additional Capital Contributions to the Partnership.
C. The number of Common Units issued to a Contributing Partner under
this Section 3.1.C shall be equal to the quotient (rounded to the nearest
whole number) arrived at by dividing (i) the amount of money and the Net
Equity Value of any property contributed as a Capital Contribution by
(ii) the product of (a) the Closing Price of the Common Stock on the date
of contribution and (b) the Conversion Factor.
D. Subject to the provisions of Sections 3.1.B and 3.1.C hereof, the
General Partner is hereby authorized to cause the Partnership from time to
time to issue to the Partners (including the General Partner) or other
Persons additional Common or Preferred Units or other Partnership Interests
in one or more classes, or one or more series of any such class with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties
senior to the Partnership Interests and Units held by the Limited Partners,
all as shall be determined by the General Partner in its sole and absolute
discretion, including, without limitation (i) the right of such class or
series of Partnership Interests to share in Partnership distributions and
(ii) the rights which each such class or series of Partnership Interests
shall have upon dissolution or liquidation of the Partnership, upon the
terms and conditions determined by the General Partner in its sole and
absolute discretion.
E. No Limited Partner shall, by virtue of being the holder of one or
more Units, be deemed to be a shareholder of, or have any other interest
in, the General Partner.
3.2 REDEMPTION RIGHT.
A. Subject to Sections 3.2.B and 3.2.C hereof, upon the expiration
of the Holding Period applicable to any Unit, each holder of an LP Common
Unit, shall have the right to require the Partnership to redeem on a
Specified Redemption Date such LP Common Unit (the "Redemption Right").
The redemption price for such Unit shall be
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the Cash Amount, which shall be paid by the Partnership. The Redemption
Right shall be exercised pursuant to a Notice of Redemption delivered to
the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the Redemption Right (the "Redeeming Partner")
setting forth the number of LP Common Units to be redeemed; provided,
however, that the Partnership shall not be obligated to satisfy such
Redemption Right if the General Partner elects to purchase such LP
Common Units pursuant to Section 3.2.B hereof. Effective as of the
Specified Redemption Date, the Redeeming Partner shall not receive any
dividends or distributions with respect to any such LP Common Unit. The
Transferee of any Limited Partner may exercise the rights of such
Limited Partner pursuant to this Section 3.2, and such Limited Partner
shall be deemed to have assigned such rights to such Transferee and
shall be bound by the exercise of such rights by such Transferee. In
connection with any exercise of such rights by such Transferee on behalf
of such Limited Partner, the Cash Amount shall be paid by the
Partnership directly to such Transferee and not to such Limited Partner.
B. Notwithstanding the provisions of Section 3.2.A hereof, a
Redeeming Partner shall be deemed to have offered to sell the number of LP
Common Units set forth in the Notice of Redemption to the General Partner,
and the General Partner may, in its sole and absolute discretion, elect to
purchase directly and acquire such LP Common Units by paying to the
Redeeming Partner with respect to each LP Common Unit covered by the Notice
of Redemption either (i) the Cash Amount, or (ii) the REIT Shares Amount,
as elected by the General Partner (in its sole and absolute discretion), on
the Specified Redemption Date, whereupon on such date the General Partner
shall acquire the LP Common Units offered for redemption by the Redeeming
Partner and shall be treated for all purposes of this Agreement as the
owner of such LP Common Units. If the General Partner shall elect to
exercise its right to purchase LP Common Units under this Section 3.2.B
with respect to a Notice of Redemption, it shall so notify the Redeeming
Partner within five Trading Days after the receipt by the General Partner
of such Notice of Redemption. If the General Partner (in its sole and
absolute discretion) elects not to exercise its right to purchase LP Common
Units from the Redeeming Partner pursuant to this Section 3.2.B, the
General Partner shall not have any obligation to the Redeeming Partner or
the Partnership with respect to the Redeeming Partner's exercise of the
Redemption Right, and the Partnership shall be required to pay the
Redeeming Partner with respect to each LP Common Unit covered by the Notice
of Redemption the Cash Amount in accordance with the provisions of
Section 3.2.A hereof. In the event the General Partner shall exercise its
right to purchase LP Common Units with respect to the exercise of a
Redemption Right as described in the first sentence of this Section 3.2.B,
the Partnership shall have no obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of such
Redemption Right, and each of the Redeeming Partner, the Partnership and
the General Partner, as the case may be, shall treat the transaction
between the General Partner and the Redeeming Partner for federal income
tax purposes as a sale of the Redeeming Partner's LP Common Units to the
General Partner. Each Redeeming Partner agrees to execute such documents
as the General
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Partner may reasonably require in connection with the issuance of shares
of Common Stock upon exercise of the Redemption Right.
C. Notwithstanding the provisions of Section 3.2.A and Section 3.2.B
hereof, (i) the General Partner shall not be entitled to exercise its right
to pay the Redeeming Partner the REIT Shares Amount in lieu of the Cash
Amount pursuant to Section 3.2.B. hereof if the delivery of shares of
Common Stock to such Partner pursuant to Section 3.2.B hereof would (A)
violate the Ownership Limit; (B) result in the General Partner being
"closely held" within the meaning of Code Section 856(h); (C) cause the
General Partner to own, directly or constructively, 10% or more of the
ownership interests in a tenant of the General Partner's or the
Partnership's property within the meaning of Code Section 856(d)(2)(B); (D)
cause, in the opinion of counsel to the General Partner, the General
Partner to no longer qualify (or create a material risk that the General
Partner would no longer qualify) as a REIT; or (E) cause the acquisition of
Common Stock by such Limited Partner to be "integrated" with any other
distribution of Common Stock for purposes of complying with the
registration provisions of the Securities Act of 1933, as amended. In
addition, a Limited Partner shall not have the right to exercise the
Redemption Right pursuant to Section 3.2.A hereof if in the opinion of
counsel to the General Partner the General Partner would, as a result
thereof, no longer qualify (or if there is a material risk that the General
Partner no longer would qualify) as a REIT.
D. The General Partner shall, pursuant to Section 3.1 hereof, have
the right, in its sole and absolute discretion, to grant holders of other
classes of Units rights similar to the rights granted to holders of LP
Common Units pursuant to this Section 3.2.
3.3 CONVERSION RIGHT.
A. Subject to Sections 3.3.B and 3.3.C hereof, upon the expiration
of the Holding Period applicable to any Unit, each holder of an LP Common
Unit, shall have the right to require the General Partner to cause such LP
Common Unit to be converted on a Specified Redemption Date into shares of
Common Stock (the "Conversion Right"). The Conversion Right shall be
exercised pursuant to a Notice of Conversion delivered to the Partnership
(with a copy to the General Partner) by the Limited Partner who is
exercising the Conversion Right (the "Converting Partner") setting forth
the number of LP Common Units to be converted. Each LP Common Unit shall
be convertible into that number of shares of Common Stock (including
fractional shares) having a Closing Price on the Specified Conversion Date
equal to the Cash Amount; provided, however, that the General Partner shall
not be obligated to satisfy such Conversion Right in shares of Common Stock
if the General Partner elects to purchase such LP Common Units pursuant to
Section 3.3.B hereof. Effective as of the Specified Conversion Date, the
Converting Partner shall not receive any dividends or distributions with
respect to any LP Common Unit so converted. The Transferee of any Limited
Partner may exercise the rights of such Limited Partner pursuant to this
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Section 3.3.A, and such Limited Partner shall be deemed to have assigned
such rights to such Transferee and shall be bound by the exercise of such
rights by such Transferee. In connection with the exercise of such rights
by any Transferee on behalf of such Limited Partner, the shares of Common
Stock to be received pursuant to the exercise of the Conversion Right shall
be delivered by the General Partner directly to the Transferee and not to
such Limited Partner. The Limited Partner, the Partnership and the General
Partner shall treat the transaction between the Limited Partner and the
General Partner for federal income tax purposes as a sale of the Limited
Partner's Units to the General Partner. Each Converting Partner agrees to
execute such documents as the General Partner may reasonably require in
connection with the issuance of shares of Common Stock upon exercise of the
Conversion Right.
B. Notwithstanding the provisions of Section 3.3.A hereof, a
Converting Partner that exercises the Conversion Right shall be deemed to
have offered to sell the number of LP Common Units set forth in the Notice
of Conversion to the General Partner for cash, and the General Partner may,
in its sole and absolute discretion, elect to pay such Converting Partner
with respect to each LP Common Unit covered by the Notice of Conversion the
Cash Amount in lieu of issuing shares of Common Stock, on the Specified
Conversion Date, whereupon on such date the General Partner shall acquire
the LP Common Units offered for conversion by the Converting Partner and
shall be treated for all purposes of this Agreement as the owner of such LP
Common Units. If the General Partner shall elect to exercise its right to
purchase LP Common Units under this Section 3.3.B with respect to a Notice
of Conversion, it shall so notify the Limited Partner within five Trading
Days after the receipt by the General Partner of such Notice of Conversion.
C. Notwithstanding the provisions of Section 3.3.A hereof, a Limited
Partner shall not be entitled to exercise the Conversion Right pursuant to
Section 3.3.A hereof if the delivery of shares of Common Stock to such
Limited Partner on the Specified Conversion Date would (A) violate the
Ownership Limit; (B) result in the General Partner being "closely held"
within the meaning of Code Section 856(h); (C) cause the General Partner to
own, directly or constructively, 10% or more of the ownership interests in
a tenant of the General Partner's or the Partnership's property, within the
meaning of Code Section 856(d)(2)(B); (D) cause, in the opinion of counsel
to the General Partner, the General Partner to no longer qualify (or create
a material risk that the General Partner would no longer qualify) as a
REIT; or (E) cause the acquisition of Common Stock by such Limited Partner
to be "integrated" with any other distribution of Common Stock for purposes
of complying with the registration provisions of the Securities Act of
1933, as amended. In addition, the General Partner shall not have the
right to exercise its right to pay the Converting Partner the Cash Amount
pursuant to Section 3.3.B hereof if, in the opinion of counsel to the
General Partner, the General Partner would, as a result thereof, no longer
qualify (or if there is a material risk that the General Partner no longer
would qualify) as a REIT.
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D. The General Partner shall, pursuant to Section 3.1 hereof, have
the right, in its sole and absolute discretion, to grant holders of other
classes of Units rights similar to the rights granted to holders of LP
Common Units pursuant to this Section 3.3.
3.4 ADDITIONAL CAPITAL. No Partner shall be assessed or required to
contribute additional funds or other property to the Partnership. Any
additional funds or other property required by the Partnership, as determined by
the General Partner in its sole and absolute discretion, may, at the option of
the General Partner and without any obligation to do so, be contributed by the
General Partner as additional Capital Contributions. If and as the General
Partner or any other Partner makes additional Capital Contributions to the
Partnership, each such Contributing Partner shall receive additional Units or
other Partnership Interests as provided for in Section 3.1 hereof. The General
Partner shall also have the right (but not the obligation) to raise additional
funds required for the Partnership by causing the Partnership to borrow the
necessary funds from third parties on such terms and conditions as the General
Partner shall deem appropriate. If the General Partner elects to cause the
Partnership to borrow funds, it may cause one or more of the Partnership's
assets to be encumbered to secure the loan. No Limited Partner shall have the
right to make additional Capital Contributions or loans to the Partnership
without the prior written consent of the General Partner.
3.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners
herein set forth to make Capital Contributions or loans to the Partnership shall
be deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners.
3.6 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained
for each Partner. Each Partner's Capital Account shall be adjusted as set forth
below in this Section 3.6.
A. To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are
specifically allocated pursuant to Article 6 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Partnership property distributed to such Partner.
B. To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Partnership property
distributed to such Partner pursuant to any provision of this Agreement,
such Partner's distributive share of Losses
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and any items in the nature of deductions or losses which are specifically
allocated pursuant to Article 6 hereof, and the amount of any liabilities
of such Partner assumed by the Partnership or which are secured by any
property contributed by such Partner to the Partnership.
C. In the event that all or a portion of a Partnership Interest is
transferred in accordance with the terms of this Agreement (including a
transfer of Units pursuant to Section 3.2 or 3.3 hereof), the Transferee
shall succeed to the Capital Account of the transferor to the extent such
Capital Account relates to the transferred Partnership Interest.
D. In determining the amount of any liability for purposes of
Sections 3.6.A and 3.6.B hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
E. This Section 3.6 and the other provisions of this Agreement
relating to the maintenance of Capital Accounts (and the determination of
credits and debits thereto) are intended to comply with Section 704(b) of
the Code and Regulations Sections 1.704-1(b) and 1.704-2, and shall be
interpreted and applied in a manner consistent with such Regulations. In
the event the General Partner shall determine that it is prudent to modify
the manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, (i) allocations pursuant to Article 6
hereof or (ii) debits or credits relating to liabilities which are secured
by contributed or distributed property or which are assumed by the
Partnership or the Partners) are computed in order to comply with such
Regulations or more accurately reflect the Partners' interests in the
Partnership, the General Partner may make such modification in its sole and
absolute discretion. The General Partner also may (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on
the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g), (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Sections 1.704-1(b) and
1.704-2, and (iii) adopt such conventions and make such elections for
purposes of maintaining Capital Accounts and the allocation of items for
tax purposes as it determines are necessary or appropriate in its sole and
absolute discretion.
F. The Capital Accounts of the Partners shall be adjusted in the
circumstances described in Section (ii) of the definition of Gross Asset
Value
3.7 NO INTEREST ON OR RETURN OF CAPITAL.
A. Except to the extent authorized by Partnership Interests issued
pursuant to Section 3.1.C hereof, no Partner shall be entitled to any
interest on its Capital Account balance or on its Capital Contributions to
the Partnership.
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B. Except as provided by non-waivable provisions of law, by the
terms of this Agreement, or to the extent authorized by Partnership
Interests issued pursuant to Section 3.1.C hereof, no Partner shall have
the right to demand or to receive the return of all or any part of its
Capital Contributions to the Partnership and there shall be no priority of
one Partner over another as to the return of Capital Contributions or
withdrawals or distributions of Profits and Losses. Except to the extent
authorized by Partnership Interests issued pursuant to Section 3.1.C
hereof, no Partner shall have the right to demand or receive property other
than cash in return for the contributions of such Partner to the
Partnership.
3.8 NEGATIVE CAPITAL ACCOUNTS. Except as otherwise provided by
non-waivable provisions of the law, no Partner shall be required to pay to
the Partnership any deficit or negative balance which may exist in its
Capital Account.
3.9 LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNER. Neither the
Limited Partners nor the General Partner shall be required to make any
additional advances, loans, or Capital Contributions to or on behalf of the
Partnership or to endorse or to guaranty any obligations of the Partnership.
ARTICLE 4. PURPOSE AND POWERS OF PARTNERSHIP.
4.1 PURPOSES. The purposes of the Partnership shall be to, directly
or through its ownership interest in other Entities, acquire, hold, purchase,
own, operate, manage, develop, redevelop, construct, improve, maintain, invest
in, finance, refinance, sell, convey, exchange, transfer, encumber, lease and
otherwise deal with the properties of the Partnership and other real and
personal property; to undertake such other activities as may be necessary,
advisable, desirable or convenient to the business of the Partnership, and to
engage in such other ancillary activities as shall be necessary or desirable to
effectuate the foregoing purposes. The Partnership shall have all powers
necessary or desirable to accomplish the purposes enumerated in this
Section 4.1. In connection with the foregoing, but subject to all of the terms,
covenants, conditions and limitations contained in this Agreement and in any
other agreement entered into by the Partnership, the Partnership shall have full
power and authority, directly or through its interests in other Entities, to
enter into, perform and carry out contracts of any kind, to borrow money and to
issue evidences of indebtedness, whether or not secured by mortgage, trust deed,
pledge or other lien, and directly or indirectly to acquire and to construct
additional properties as necessary or useful in connection with its business.
4.2 COMPLIANCE WITH REIT REQUIREMENTS. The Partners acknowledge and
agree that the Partnership shall be operated in a manner that will enable the
General Partner to (i) satisfy the requirements for qualification and taxation
as a REIT under the Code and the Regulations (the "REIT Requirements") and
(ii) avoid the imposition of any federal income or excise tax liability. The
Partnership shall avoid taking any action, or permitting any Affiliate to take
any action, which would result in the General Partner ceasing to satisfy the
REIT Requirements or which would result in the imposition of any federal income
or excise tax liability on the General Partner.
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ARTICLE 5. TERM.
The Partnership shall continue until the Partnership is terminated
upon the earliest to occur of the following events:
A. December 31, 2040;
B. Subject to Section 11.1 hereof, the election to dissolve the
Partnership made in writing by the General Partner.
C. The Bankruptcy, dissolution or termination of the General
Partner, unless, within ninety (90) days after such Bankruptcy, dissolution
or termination, the remaining Limited Partners holding a majority of the
Units held by Limited Partners agree in writing, in their sole and absolute
discretion, to continue the business of the Partnership and to appoint,
effective as of the date of such Bankruptcy, dissolution or termination, a
substitute General Partner;
D. Dissolution required by operation of law; or
E. The sale or other disposition of all or substantially all of the
assets of the Partnership unless the General Partner elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be
deemed to be part of the winding up of the affairs of the Partnership).
ARTICLE 6. ALLOCATIONS.
6.1 PROFITS OR LOSSES.
A. ALLOCATION OF PROFITS. Profits for each taxable year shall be
allocated among the Partners, and shall be credited or debited to the
respective Capital Accounts of the Partners, in the following order and
priority:
(i) First, to the holders of the Preferred Units, until the
cumulative amount of Profits allocated to each such holder pursuant to
this Section 6.1.A.(i) and Section 6.1.A.(iii) below for the current
and all prior taxable years is equal to the sum of the cumulative
amount distributed to each such holder pursuant to Section 7.1.A for
the current and all prior taxable years;
(ii) Second, to the Partners, pari passu, until the cumulative
amount of Profits allocated to each such Partner pursuant to this
Section 6.1.A.(ii) and Section 6.1.A.(iv) for the current and all
prior taxable years is equal to the sum of the cumulative amount
distributed to each such Partner pursuant to Section 7.1.B.
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(iii) Third, to the holders of Preferred Units, if any, pari
passu, to the extent there exists any accrued but unpaid Preferred
Return for which Profits have not previously been allocated
pursuant to this Section 6.1.A.(iii), in proportion to the accrued
but unpaid Preferred Return owned to each such holder for which
Profits have not previously been allocated pursuant to this Section
6.1.A.(iii).
(iv) Fourth, any remaining amounts shall be allocated to the
holders of GP Common Units and LP Common Units (and LP Preferred
Units, if any, which are entitled to share in the Profits of the
Company beyond, or in lieu of, the receipt of a Preferred Return),
pari passu, in proportion to the number of Units owned by each such
holder.
B. ALLOCATION OF LOSSES. Losses for any taxable year shall be
allocated, for purposes of adjusting the Capital Accounts of the Partners,
pro rata to each member in accordance with their relative positive Capital
Account Balances (calculated for this purpose by adding to such Partner's
Capital Account such Partner's share of Partnership Minimum Gain and
Partner Minimum Gain).
6.2 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
A. MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations Section 1.704-2(f), but notwithstanding any other provision of
this Article 6 hereof, if there is a net decrease in Partnership Minimum
Gain during any fiscal year, each Partner shall be specially allocated
items of Partnership income and gain for such fiscal year (and, if
necessary, subsequent fiscal years) in an amount equal to such Partner's
share of the net decrease in Partnership Minimum Gain, determined in
accordance with Regulations Section 1.704-2(g). The items to be so
allocated shall be determined in accordance with Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2) (assuming for this purpose that this
Agreement complies with the requirements of Regulations
Section 1.704-1(e)). This Section 6.2.A is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(f) and
shall be interpreted and applied consistently therewith.
B. PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), but notwithstanding any other provision
of this Article 6 other than Section 6.2.A, if there is a net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse
Debt during any Partnership fiscal year, each Partner who has a share of
the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(4) (assuming for this purpose that this Agreement
complies with the requirements of Regulations Section 1.704-1(e)). The
items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.2.B is intended
to comply with the minimum gain chargeback requirement in Regulations
Section 1.704-2(i)(4) and shall be interpreted and applied consistently
therewith.
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C. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any fiscal
year shall be allocated among the Partners in accordance with their
respective Percentage Interests.
D. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable, in
accordance with Regulations Section 1.704-2(i)(1).
6.3 OTHER ALLOCATION RULES.
A. Profits, Losses or any other items allocable to any period shall
be determined on a daily, monthly or other basis, as determined by the
General Partner using any permissible method under Code Section 706 and the
Regulations thereunder (including proration or a closing of the books).
B. The Partners are aware of the income tax consequences of the
allocations made by this Article 6 hereof and hereby agree to be bound by
the provisions of this Article 6 hereof in reporting their shares of
Partnership income and loss for income tax purposes.
6.4 TAX ALLOCATIONS; CODE SECTION 704(c) / SECTION 1245 AND 1250
RECAPTURE.
A. Except as otherwise provided in this Agreement, for federal,
state and local income tax purposes, all items of Partnership income, gain,
loss, deduction, credit, and any other allocations not otherwise provided
for, shall be allocated among the Partners in the same manner as the
corresponding items of income, gain, loss or deduction are allocated
pursuant to the preceding sections.
B. Income, gain, loss and deduction with respect to any property
contributed to the Partnership as a Capital Contribution shall, solely for
tax purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for federal income tax purposes and its initial Gross Asset Value in
accordance with any permissible method under Code Section 704(c) and the
Regulations thereunder. Initially, the Partnership shall use the
traditional method provided for under the Regulations, but, to the extent
permitted by law, the Partnership may adopt such other methods as the
General Partner in its sole and absolute discretion shall deem appropriate.
C. In the event the Gross Asset Value of any asset is adjusted
pursuant to the definition of "Gross Asset Value" contained in Section 1.1
hereof, subsequent allocations of income, gain, loss and deduction with
respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax
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purposes and its Gross Asset Value in accordance with any permissible
method or methods permitted under Code Section 704(c) and the Regulations
thereunder.
D. Any elections or other decisions relating to tax allocations
pursuant to this Section 6.4 shall be made by the General Partner in any
permissible manner under the Code or the Regulations that the General
Partner may elect in its sole and absolute discretion, and the General
Partner may adopt such conventions and methods for complying with the
requirements of Code Section 704(c) and the Regulations thereunder as the
General Partner shall deem appropriate in its sole and absolute discretion.
Allocations pursuant to this Section 6.4 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be
taken into account in computing, any Partner's Capital Account or share of
Partnership distributions.
E. Except as otherwise required under Section 6.1, 6.2 or 6.4.C
hereof, if any portion of gain from the sale of property is treated as gain
which is ordinary income by virtue of the application of Code Section 1245
or 1250 ("Affected Gain"), then, to the extent possible, (i) such Affected
Gain shall be allocated among the Partners in the same proportion that the
depreciation and amortization deductions giving rise to the Affected Gain
were allocated and (ii) other items of gain of the same character that
would have been recognized, but for the application of Code Section 1245
and/or 1250, shall be allocated away from those Partners who are allocated
Affected Gain pursuant to clause (i) so that, to the extent possible, the
other Partners are allocated the same amount, and type, of capital gain
that would have been allocated to them had Code Section 1245 and/or 1250
not applied.
6.5 NONRECOURSE LIABILITIES. The Partners agree that the
Partnership's "excess nonrecourse liabilities" within the meaning of Regulations
Section 1.752-3(a)(3) shall be allocated among the Partners in accordance with
their respective interests in Partnership Profits which, solely for purposes of
Regulations Section 1.752-3(a)(3), shall be deemed to be their Percentage
Interests.
ARTICLE 7. CASH AVAILABLE FOR DISTRIBUTION.
7.1 DISTRIBUTIONS TO PARTNERS. Distributions shall be made at such
times and in such amounts as the General Partner shall determine in its sole and
absolute discretion, in the following order of priority:
A. First, to the holders of the Preferred Units, if any, an amount
equal to the cumulative Preferred Return, if any, reduced by the amount of
any prior distributions pursuant to this Section 7.1.A.
B. Second, any remaining amounts shall be distributed pro rata to
the holders of the GP Common Units and the LP Common Units (and the
holders of LP Preferred Units, if any, which are entitled to share
in the distributions from the Partnership in addition to, or in lieu of,
any Preferred Return) in proportion to the number of Units owned by
each such holder.
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Notwithstanding any other provision of this Agreement, the General
Partner shall have the rights to amend this Section 7.1 to reflect the issuance
of additional classes of Common Units or Preferred Units with rights different
than, and superior to, those of the LP Common Units.
7.2 REIT DISTRIBUTIONS. The General Partner shall use its best
efforts to cause distributions to be made so as to allow the General Partner to
satisfy the REIT Requirements and avoid imposition of any federal income or
excise tax.
7.3 CONSENT TO DISTRIBUTIONS. Each of the Partners hereby consents
to the distributions provided for in this Agreement.
7.4 LIQUIDATING DISTRIBUTIONS. Distributions upon liquidation of the
Partnership shall be made in accordance with Section 13.2 hereof.
ARTICLE 8. MANAGEMENT OF PARTNERSHIP.
8.1 GENERAL PARTNER. The General Partner shall be the sole manager
of the business of the Partnership, and shall have the right and power to make
all decisions and take any and every action with respect to the property,
business and affairs of the Partnership and shall have all the rights, power and
authority generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All such decisions or actions
made or taken by the General Partner hereunder shall be binding upon all of the
Partners and upon the Partnership. Except as otherwise expressly provided
herein, the powers of the General Partner to manage the Partnership business
shall include, without limitation, the power and authority to:
A. manage, control, invest, reinvest, acquire by purchase, lease,
sell, contract to purchase or sell, grant, obtain, or exercise options to
purchase, options to sell or conversion rights, assign, transfer, convey,
deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair,
maintain, insure, lease for any term and otherwise deal with any and all
property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the purposes of the Partnership;
B. acquire, directly or indirectly, interests in real estate of any
kind and of any type, and any and all kinds of interests therein, and
determine the manner in which title thereto is to be held; manage, insure
against loss, protect and subdivide any of the real estate, interests
therein or parts thereof; improve, develop or redevelop any such real
estate; participate in the ownership and development of any property;
dedicate for public use, vacate any subdivisions or parts thereof,
resubdivide, contract to sell; grant options to purchase or lease; sell on
any terms; convey, mortgage, pledge or otherwise encumber said property, or
any part thereof; lease said property or any part thereof from time to
time, upon any terms and for any period of time, and renew or extend
leases, amend, change or modify the terms and provisions of any leases and
grant options to lease and options to renew leases and options to purchase;
partition or exchange said real property, or any part thereof, for other
real or personal property;
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grant easements or charges of any kind; release, convey or assign any
right, title or interest in or about or easement appurtenant to said
property or any part thereof; construct and reconstruct, remodel, alter,
repair add to or take from buildings on said premises; insure any Person
having an interest in or responsibility for the care, management or
repair of such property; direct the trustee of any land trust to mortgage,
lease, convey or contract to convey the real estate held in such land trust
or to execute and deliver deeds, mortgages, notes, and any and all
documents pertaining to the property subject to such land trust
or in any matter regarding such trust, execute assignments of all or any
part of the beneficial interest in such land trust;
C. employ, engage or contract with or dismiss from employment or
engagement Persons to the extent deemed necessary by the General Partner
for the operation and management of the Partnership business, including but
not limited to, contractors, subcontractors, engineers, architects,
surveyors, mechanics, consultants, accountants, attorneys, insurance
brokers, real estate brokers and others;
D. enter into contracts on behalf of the Partnership;
E. borrow money, procure loans and advances from any Person for
Partnership purposes, and to apply for and secure from any Person, credit
or accommodations; to contract liabilities and obligations, direct or
contingent and of every kind and nature with or without security; and to
repay, discharge, settle, adjust, compromise, or liquidate any such loan,
advance, credit, obligation or liability;
F. pledge, hypothecate, mortgage, assign, deposit, deliver, enter
into sale and leaseback arrangements or otherwise give as security or as
additional or substitute security, or for sale or other disposition any and
all Partnership property, tangible or intangible, including, but not
limited to, real estate and beneficial interests in land trusts, and to
make substitutions thereof, and to receive any proceeds thereof upon the
release or surrender thereof; to sign, execute and deliver any and all
assignments, deeds and other contracts and instruments in writing; to
authorize, give, make, procure, accept and receive moneys, payments,
property, notices, demands, vouchers, receipts, releases, compromises and
adjustments; to waive notices, demands, protests and authorize and execute
waivers of every kind and nature; to enter into, make, execute, deliver and
receive written agreements, undertakings and instruments of every kind and
nature; to give oral instructions and make oral agreements; and generally
to do any and all other acts and things incidental to any of the foregoing
or with reference to any dealings or transactions which any attorney may
deem necessary, proper or advisable;
G. acquire and enter into any contract of insurance which the
General Partner deems necessary or appropriate for the protection of the
Partnership, for the conservation of the Partnership's assets or for any
purpose convenient or beneficial to the Partnership;
H. conduct any and all banking transactions on behalf of the
Partnership; to adjust and settle checking, savings and other accounts with
such institutions as the
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General Partner shall deem appropriate; to draw, sign, execute, accept,
endorse, guarantee, deliver, receive and pay any checks, drafts, bills of
exchange, acceptances, notes, obligations, undertakings and other
instruments for or relating to the payment of money in, into, or from
any account in the Partnership's name; to execute, procure, consent to and
authorize extensions and renewals of the same; to make deposits and
withdraw the same and to negotiate or discount commercial paper,
acceptances, negotiable instruments, bills of exchange and dollar drafts;
and to approve and adopt the form of any banking resolutions of any
financial institution as though set forth in full herein;
I. demand, sue for, receive, and otherwise take steps to collect or
recover all debts, rents, proceeds, interests, dividends, goods, chattels,
income from property, damages and all other property, to which the
Partnership may be entitled or which are or may become due the Partnership
from any Person; to commence, prosecute or enforce, or to defend, answer or
oppose, contest and abandon all legal proceedings in which the Partnership
is or may hereafter be interested; and to settle, compromise or submit to
arbitration any accounts, debits, claims, disputes and matters which may
arise between the Partnership and any other Person and to grant an
extension of time for the payment or satisfaction thereof on any terms,
with or without security;
J. make arrangements for financing, including the taking of all
action deemed necessary or appropriate by the General Partner to cause any
approved loans to be closed;
K. take all reasonable measures necessary to insure compliance by
the Partnership with applicable arrangements, and other contractual
obligations and arrangements entered into by the Partnership from time to
time in accordance with the provisions of this Agreement, including
periodic reports as required to lenders and using all due diligence to
insure that the Partnership is in compliance with its contractual
obligations;
L. maintain the Partnership's books and records;
M. prepare and deliver, or cause to be prepared and delivered by the
Partnership's Accountants, all financial and other reports with respect to
the operations of the Partnership, and preparation and filing of all
Federal and state tax returns and reports;
N. organize one or more partnerships or corporations which are
controlled, directly or indirectly, by the Partnership and make any capital
contributions required pursuant to the partnership agreements of any such
partnerships;
O. except as provided in Article 15 of this Agreement, amend the
Agreement;
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P. file a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of the Partnership's debts under
Title 11 of the United States Code (or corresponding provisions of future
laws) or any other state or federal insolvency law, or file an answer
consenting or acquiescing to any such petition; make an assignment for the
benefit of the creditors of the Partnership or admit in writing that the
Partnership cannot pay its debts as they mature; and
Q. subject to Section 5.1, elect to dissolve or terminate the
Partnership.
8.2 LIMITATIONS ON POWERS AND AUTHORITIES OF PARTNERS.
Notwithstanding the powers of the General Partner set forth in Section 8.1
hereof, the General Partner shall have no right or power to do any of the
following:
A. do any act in contravention of this Agreement;
B. do any act which would make it impossible to carry on the
ordinary business of the Partnership, except to the extent that such act is
specifically permitted by the terms hereof;
C. possess Partnership property or assign rights in specific
Partnership property for other than Partnership purposes, except as
otherwise provided in this Agreement; or
D. do any act in contravention of applicable law.
8.3 TITLE HOLDER. To the extent allowable under applicable law,
title to all or any part of the properties of the Partnership may be held in the
name of the Partnership, a Property Partnership or the General Partner. Any
such title holder shall perform any and all of its respective functions to the
extent and upon such terms and conditions as may be determined from time to time
by the General Partner.
8.4 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall
not be entitled to any compensation for services rendered to the Partnership
solely in its capacity as General Partner except with respect to reimbursement
for (i) those costs and expenses constituting Administrative Expenses and
(ii) such other amounts for which reimbursement is provided in this Agreement.
8.5 STANDARD OF CONDUCT.
A. No Limited Partner shall be personally liable for any debt,
claim, demand, judgment or obligation of any kind of, against or with
respect to the Partnership by reason of its being a Limited Partner, nor
shall any Limited Partner be subject to any personal liability whatsoever,
in tort, contract or otherwise, to any Person in connection with the
property or the affairs of the Partnership.
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B. To the extent the General Partner or any officer, director, employee, agent
or shareholder of the General Partner performs its duties in accordance with the
standards provided by Section 2-405.1 of the Maryland General Corporation Law,
as it may be amended from time to time, or under any successor statute thereto,
such Person or Persons shall have no liability by reason of being or having been
the General Partner, or by reason of being an officer, director, employee, agent
or shareholder of the General Partner. To the maximum extent that the Maryland
General Corporation Law and the general laws of the State of Maryland, in effect
from time to time, permit limitation of the liability of directors and officers
of a corporation, the General Partner and its officers, directors, employees,
agents and shareholders shall not be liable to the Partnership or to any Partner
for money damages except to the extent that (i) the General Partner or its
officers, directors, employees, agents or shareholders actually received an
improper benefit or profit in money, property or services, in which case the
liability shall not exceed the amount of the benefit or profit in money,
property or services actually received; or (ii) a judgment or other final
adjudication adverse to the General Partner or one or more of its officers,
directors, employees, agents or shareholders is entered in a proceeding based on
a finding in the proceeding that the General Partner or one or more of its
officers, directors, employees, agents or shareholders action or failure to act
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. Neither the amendment nor repeal of
this Section 8.5.B, nor the adoption or amendment of any other provision of this
Agreement inconsistent with this Section 8.5.B, 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. In
the absence of any Maryland statute limiting the liability of the General
Partner or its directors or officers for money damages in a suit by or on behalf
of the Partnership or by any Partner, the General Partner and the officers,
directors, employees, agents and shareholders of the General Partner shall not
be liable to the Partnership or to any Partner for money damages except to the
extent that (i) the General Partner or one or more of its officers, directors,
employees, agents or shareholders actually received an improper benefit or
profit in money, property or services, in which case the liability shall not
exceed the amount of the benefit or profit in money, property or services
actually received; or (ii) a judgment or other final adjudication adverse to the
General Partner or one or more of its officers, directors, employees, agents or
shareholders is entered in a proceeding based on a finding in the proceeding
that the action of the General Partner or one or more of its officers,
directors, employees or shareholders action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
8.6 INDEMNIFICATION.
A. Subject to paragraphs 8.6.B, 8.6.C and 8.6.D, the Partnership
shall, to the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted and, without limiting the generality of the
foregoing, indemnify and pay, advance or reimburse reasonable expenses to any
director, officer, employee or agent
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of the General Partner and to any Partner, employee or agent of the
Partnership (each an "Indemnified Party").
B. As long as Inland qualifies as a REIT, the Partnership shall not
indemnify nor pay, advance or reimburse expenses to an Indemnified Party
unless: (i) the Indemnified Party has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interest of the Partnership or of the shareholders of the General Partner;
(ii) the Indemnified Party was acting on behalf of or performing services
on the part of the Partnership or Inland; (iii) such liability or loss was
not the result of negligence or misconduct on the part of the Indemnified
Party except that in the event the Indemnified Party is or was an
Independent Director of Inland, such liability or loss shall not have been
the result of gross negligence or willful misconduct; and (iv) such
indemnification or agreement to be held harmless is recoverable only out of
the Net Assets of the Partnership and not from the Partners.
C. As long as Inland qualifies as a REIT and notwithstanding
anything to the contrary in 8.6.B hereof, the Partnership shall not
indemnify an Indemnified Person for losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws by
such party unless one or more of the following conditions are met:
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
Indemnified Party; (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular
Indemnified Party; or (iii) a court of competent jurisdiction approves a
settlement of the claims and finds that indemnification of the settlement
and related costs should be made and the court considering the request has
been advised of the position of the SEC and the published opinions of any
state securities regulatory authority in which securities of the
Partnership were offered or sold as to indemnification for violations of
securities laws.
D. The Partnership may advance amounts to an Indemnified Party for
legal and other expenses and costs incurred as a result of any legal action
for which indemnification is being sought only in accordance with Section
2-418 of the Maryland General Corporation Law, as it may be amended from
time to time, or under any successor statute thereto, and, as long as
Inland qualifies as a REIT, only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect
to the performance of duties or services by the Indemnified Party for or on
behalf of the Partnership; (ii) the legal action is initiated by a third
party who is not a Partner or the legal action is initiated by a Partner
acting in his or her capacity as such and a court of competent jurisdiction
specifically approves such advancement; and (iii) the Indemnified Party
receiving such advances undertakes in writing to repay the advanced funds
to the Partnership, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
E. The Partnership shall have the power to purchase and maintain
insurance or provide similar protection on behalf of an Indemnified Party
against any liability
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asserted which was incurred in any such capacity with the Partnership or
arising out of such status; provided, however, that the Partnership shall
not incur the costs of any liability insurance which insures any person
against liability for which he, she or it could not be indemnified under
this Agreement. Nothing contained herein shall constitute a waiver by any
Indemnified Party of any right which he, she or it may have against any
party under federal or state securities laws. The Partnership shall also
have power to enter into any contract for indemnity and advancement of
expenses with an Indemnified Person who is not a director of the General
Partner to such further extent consistent with law.
8.7 OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED PARTIES.
The General Partner shall devote its full-time effort in furtherance of the
business of the Inland Group, it being expressly understood that the General
Partner may conduct its activities directly, through members of the Inland Group
as well as and through the Partnership, as the General Partner determines is
appropriate in its sole and absolute discretion. Without limiting the
foregoing, the General Partner, either directly or through other members of the
Inland Group other than the Partnership, may acquire, own, manage, develop,
improve, lease, invest in or otherwise deal with commercial real estate
including, without limitation, any retail establishment, shopping center or
retail project. Except as may otherwise be agreed to in writing, each Limited
Partner and its affiliates shall be free to engage in, to conduct or to
participate in any business or activity whatsoever, including, without
limitation, the acquisition, development, management and exploitation of real
and personal property (other than property of the Partnership), without any
accountability, liability or obligation whatsoever to the Partnership or to any
other Partner, even if such business or activity competes with or is enhanced by
the business of the Partnership. The General Partner, in the exercise of its
power and authority under this Agreement, may contract and otherwise deal with,
or otherwise obligate the Partnership to deal with, entities in which the
General Partner or any one or more of the officers, directors trustees or
shareholders of the General Partner may have an ownership or other financial
interest, whether direct or indirect.
8.8 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
A. The General Partner shall be protected in relying, acting or
refraining from acting on any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
B. The General Partner may exercise any of the powers granted or
perform any of the duties imposed by this Agreement either directly or
through agents. The General Partner may consult with counsel, accountants,
appraisers, management consultants, investments bankers and other
consultants selected by it, each of whom may serve as consultants for the
Partnership. An opinion by any consultant on a matter which the General
Partner believes to be within its professional or expert competence shall
be full and complete protection as to any action taken or omitted by the
General Partner based on the opinion and taken or omitted in good faith.
The General Partner
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shall not be responsible for the misconduct, negligence, acts or omissions
of any consultant or contractor of the Partnership or of the General
Partner, and shall assume no obligations other than to use due care in the
selection of all consultants and contractors.
C. No mortgagee, grantee, creditor or any other person dealing with
the Partnership shall be required to investigate the authority of the
General Partner or secure the approval of or confirmation by any Limited
Partner of any act of the General Partner in connection with the conduct of
the Partnership business.
D. The General Partner may retain such persons or entities as it
shall determine (including the General Partner or any Entity in which the
General Partner shall have an interest or with which it is affiliated) to
provide services to or on behalf of the Partnership. The General Partner
shall be entitled to reimbursement from the Partnership for its
out-of-pocket expenses (including, without limitation, amounts paid or
payable to the General Partner or any Entity in which the General Partner
shall have an interest or with which it is Affiliated) incurred in
connection with Partnership business. Such expenses shall be deemed to
include those expenses required in connection with the administration of
the Partnership such as the maintenance of Partnership books and records,
management of the Partnership property and assets and preparation of
information respecting the Partnership needed by the Partners in the
preparation of their individual tax returns.
ARTICLE 9. BANKING. The funds of the Partnership shall be kept in
accounts designated by the General Partner and all withdrawals therefrom shall
be made on such signature or signatures as shall be designated by the General
Partner.
ARTICLE 10. ACCOUNTING.
10.1 FISCAL YEAR. The fiscal and taxable year of the Partnership
shall end on the last day of December of each year, unless another fiscal year
end is selected by the General Partner.
10.2 BOOKS OF ACCOUNT. The Partnership books of account shall be
maintained at the principal office designated in Section 2.3 hereof or at such
other locations and by such person or persons as may be designated by the
General Partner. The Partnership shall pay the expense of maintaining its books
of account. Each Partner shall have, during reasonable business hours and upon
reasonable prior notice, access to the books of the Partnership and, in
addition, at its expense, shall have the right to copy such books. The General
Partner, at the expense of the Partnership, shall cause to be prepared and
distributed to the Partners annual financial data sufficient to reflect the
status and operations of the Partnership and its assets and to enable each
Partner to file its federal income tax return.
10.3 REPORTS. The General Partner shall cause to be submitted to the
Limited Partners promptly upon receipt of the same from the Accountants and in
no event later than April 1 of each year, copies of the consolidated Audited
Financial Statements for the
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Partnership and the Property Partnerships, together with the reports thereon,
and all supplementary schedules and information, prepared by the Accountants,
including all information necessary for the Limited Partners to prepare their
federal income tax returns. The Partnership shall also cause to be prepared
such reports and/or information as are necessary for the General Partner to
determine its qualification as a REIT and its compliance with the REIT
Requirements.
10.4 AUDITS. Not less frequently than annually, the books and records
of the Partnership shall be audited by the Accountants. The General Partner
shall, unless determined otherwise by the General Partner, engage the
Accountants to audit the books and records of the Property Partnerships and any
other consolidated subsidiary of the Partnership.
10.5 METHOD OF ACCOUNTING. Except for purposes of Article 6 hereof
and the maintenance of Capital Accounts, the Partnership books of account shall
be maintained and kept, and its income, gains, losses and deductions shall be
accounted for, in accordance with sound principles of accounting consistently
applied, or such other method of accounting as may be adopted hereafter by the
General Partner. All elections and options available to the Partnership for
federal or state income tax purposes shall be taken or rejected by the
Partnership in the sole discretion of the General Partner.
10.6 TAX ELECTION. All elections required or permitted to be made by
the Partnership under any applicable tax law shall be made by the General
Partner in its sole discretion.
10.7 TAX MATTERS PARTNER. The General Partner is hereby designated
the Tax Matters Partner (hereinafter referred to as the "TMP") of the
Partnership and shall have all the rights and obligations of the TMP under the
Code.
10.8 ADMINISTRATIVE ADJUSTMENTS. If the TMP receives notice of a
Final Partnership Administrative Adjustment (the "FPAA") or if a request for an
administrative adjustment made by the TMP is not allowed by the United States
Internal Revenue Service (the "IRS") and the IRS does not notify the TMP of the
beginning of an administrative proceeding with respect to the Partnership's
taxable year to which such request relates (or if the IRS so notifies the TMP
but fails to mail a timely notice of an FPAA), the TMP may, but shall not be
obligated to, petition a court for readjustment of partnership items. In the
case of notice of an FPAA, if the TMP determines that the United States District
Court or Claims Court is the most appropriate forum for such petition, the TMP
shall notify each person who was a Partner at any time during the Partnership's
taxable year to which the IRS notice relates of the approximate amount by which
the IRS notice relates of the approximate amount by which its tax liability
would be increased (based on such assumptions as the TMP may in good faith make)
if the treatment of partnership items on his return was made consistent with the
treatment of partnership items on the Partnership's return, as adjusted by the
FPAA. Each such person shall deposit with the TMP, for deposit with the IRS,
the approximate amount of his increased tax "liability" together with a written
agreement to make additional deposits if
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required to satisfy the jurisdictional requirements of the Court, within
thirty days after the TMP's notice to such person.
ARTICLE 11. TRANSFERS OF PARTNERSHIP INTERESTS.
11.1 GENERAL PARTNER.
A. Except as otherwise provided in this Agreement, the General
Partner may not withdraw from the Partnership or transfer or assign
all (but may assign less than all) of its GP Common Units in the
Partnership (whether by sale, statutory merger or consolidation,
liquidation or otherwise) without the unanimous consent of the Limited
Partners, which may be given or withheld by each Partner in its sole
and absolute discretion. Upon any transfer of a GP Common Unit in
accordance with the provisions of this Section 11.1.A, the transferee
shall become a substitute General Partner for all purposes herein, and
shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for
all duties of the transferor General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such
admission and to confirm the agreement of such transferee to be bound
by all the terms and provisions of this Agreement with respect to the
GP Common Units so acquired. It is a condition to any transfer
otherwise permitted hereunder that the transferee assumes, by
operation of law or express agreement, all of the obligations of the
transferor General Partner under this Agreement with respect to such
transferred GP Common Units, and no such transfer (other than pursuant
to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a
successor corporation by operation of law) shall relieve the
transferor General Partner of its obligations under this Agreement
without the consent of the Limited Partners, in their reasonable
discretion. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or otherwise
dissolves or terminates, or upon the incapacity of the General
Partner, all of the remaining Partners may elect to continue the
Partnership business by selecting a substitute General Partner in
accordance with the Act. Notwithstanding anything contained herein to
the contrary the Limited Partners shall not have any right whatsoever
to remove the General Partner from the Partnership.
B. Except as otherwise provided in this Agreement, neither the
General Partner nor the Partnership shall engage in any merger,
consolidation or other combination with or into another person or sale
of all or substantially all of its assets, liquidation or any
reclassification, recapitalization or change of outstanding Stock or
Units (a "Business Combination") unless (i) if the holders of the
Stock approve the Business Combination, the General Partner will not
consummate the transaction unless (a) the General Partner first
conducts a vote of holders of voting Units (including the General
Partner) on the matter; (b) the
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General Partner votes the Units held by it in the same proportion as
the holders of the Stock voted on the matter at the Stockholder vote;
and (c) the result of such vote of the Unit holders (including the
proportionate vote of the General Partner's Common Units) is that
had such vote been a vote of holders of Stock, the Business
Combination would have been approved (provided that this Section
11.1.B shall not be interpreted to require or enable the General
Partner to engage in a Business Combination which requires the
consent of the holders of the Stock if the General Partner did not
receive such required approval or prevent the General Partner from
engaging in a Business Combination if the consent of the holders of
the outstanding Stock of the General Partner is not required for
such Business Combination), and (ii) the Business Combination has
been approved by Limited Partners holding more than 50% of the
voting power in the Partnership held by Limited Partners or (iii)
except as provided in Section 11.1.C hereof, each holder of a Unit
possessing conversion rights under Section 3.2 of this Agreement
will either receive or will have the right to elect to receive for
each such Unit an amount of cash, securities or other property paid
to the holder of one share of the type of Stock into which such
Unit is convertible, if any, pursuant to the terms of the Business
Combination multiplied by the Conversion Factor; provided that, if
in connection with the Business Combination, a purchase, tender or
exchange offer shall have been made to and accepted by the holders
of a majority of the outstanding Stock, each holder of a Unit
possessing conversion rights under Section 3.2 of this Agreement
shall receive, or shall have the right to elect to receive, the
greatest amount of cash, securities or other property which such
holder would have received had it exercised its conversion rights
and received Stock in exchange for its Units immediately prior to
the expiration of such purchase, tender or exchange offer.
C. Notwithstanding Section 11.1.B hereof, the General partner
may engage in a Business Combination with another entity if:
(i) immediately after the Business Combination, substantially all of
the assets directly or indirectly owned by the surviving entity, other
than Units held by the General Partner, are owned directly or
indirectly by the Partnership or another limited partnership or
limited liability company which is the survivor of a Business
Combination with the Partnership (the "Surviving Entity"); (ii) the
Limited Partners own an interest in the Surviving Entity based on the
relative fair market value of the net assets of the Partnership and
the other net assets of the Surviving Entity prior to the consummation
of the Business Combination; (iii) the rights, preferences and
privileges (including, without limitation, any registration,
conversion, or redemption rights) of the Limited Partners in the
Surviving Entity are at least as favorable as those in effect
immediately prior to the consummation of such Business Combination and
as those generally applicable to limited partners or non-managing
members of the Surviving Entity holding a comparable class of
interest; and (iv) such rights of the Limited Partners include the
right to exchange their interests in the Surviving Entity for at least
one of: (a) the consideration available to such Limited Partner under
Section 11.1.B hereof or (b) if the ultimate controlling person of the
Surviving Entity has publicly traded common equity securities, such
common equity securities, with an exchange
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<PAGE>
ratio based on the relative fair market value of such securities and
Common Stock.
D. In connection with any transaction permitted by
Section 11.1.B or 11.1.C hereof, the relative fair market values shall
be reasonably determined by the General Partner as of the time of such
transaction and, to the extent applicable, shall be no less favorable
to the Limited Partners than the relative values reflected in the
terms of such transaction.
11.2 LIMITED PARTNERS.
A. Except as specifically set forth in this Agreement, no Limited
Partner or substituted Limited Partner shall, without the prior written
consent of the General Partner, which consent may be withheld in its sole
and absolute discretion, directly or indirectly, transfer, assign, sell,
offer, offer to sell, contract for sell, pledge, grant any option to
purchase, encumber or otherwise sell or dispose of (or announce any such
transfer, assignment, sale, offer, offer for sale, contract for sale,
pledge, grant, encumbrance or other sale or disposition) (a "Transfer") all
or any part of his interest in the Partnership, except (i) as otherwise
permitted by Section 12.2 hereof and for intervivos intra-family transfers
for estate planning purposes, and (ii) for pledges of LP Common Units by
Limited Partners to secure the repayment of a loan, provided that the
Limited Partner shall have (A) first obtained the written agreement of the
pledgee to exercise its Redemption Right with respect to any pledged LP
Common Units pursuant to Section 3.2.C hereof immediately upon taking any
action with respect to such LP Common Units and (B) submitted a copy of
such agreement and pledge to the General Partner. A Limited Partner shall
notify the General Partner of any Transfers of beneficial interest or other
interest which occurs without a transfer of record ownership, as well as
any pledge or other collateral transfer. No part of the interest of a
Limited Partner shall be subject to the claims of any creditor, any spouse
for alimony or support, or to legal process, or be voluntarily or
involuntarily alienated or encumbered, except as may be specifically
provided for in Section 11.2.A or Section 12.2 hereof. A Limited Partner
shall not be permitted to retire or withdraw from the Partnership except as
expressly permitted by this Agreement.
B. An assignee, legatee, distributee or other transferee (whether by
conveyance, operation of law or otherwise) (a "Transferee") of all or any
portion of a Limited Partner's interest in the Partnership shall be
entitled to receive distributions hereunder attributable to such interest
acquired by reason of such Transfer, from and after the effective date of
the Transfer of such interest; provided, however, anything in this
Agreement to the contrary notwithstanding, except as provided in
Section 11.2.A or Section 12.2 hereof, (i) no Transfer by a Limited Partner
shall be effective until such Transfer has been consented to by the General
Partner, (ii) no Transferee shall be considered a substituted Limited
Partner, (iii) the Partnership and the General Partner shall be entitled to
treat the transferor of such interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions which are made to
such
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<PAGE>
transferor until such time as the written instrument of Transfer has
been received by the General Partner and the "effective date" of the
Transfer has passed, and (iv) the General Partner shall have the right to
require any such transferor to have such transferor's Partnership Interest
redeemed in accordance with the provisions of Section 3.2 hereof. The
"effective date" of any Transfer shall be the last day of the month set
forth on the written instrument of Transfer or such other date consented to
in writing by the General Partner as the "effective date."
C. Notwithstanding anything to the contrary contained in Article 11
hereof, (a) no Transfer shall be effective to the extent that such
Transfer, by treating the Unit or Partnership Interest so transferred as if
it had been tendered for redemption and then acquired by the General
Partner for Common Stock in accordance with Section 3.2 hereof, would be
prohibited by or violate any provision of the Charter of the General
Partner (including those limiting the ownership of Common Stock in certain
instances) and (b) no Transfer of a Partnership Interest by any Partner
shall be made (i) to any Person or Entity that lacks the legal right, power
or capacity to own a Partnership Interest, (ii) in violation of applicable
law, (iii) if such Transfer would cause the General Partner to fail to
qualify as a REIT, (iv) if such Transfer would cause a termination of the
Partnership for federal income tax purposes (unless the General Partner
consents to such transfer), (v) if such Transfer would, in the opinion of
counsel to the Partnership, cause the Partnership or the Property
Partnerships (or any other Entity taxed as a partnership for federal income
tax purposes) (A) to cease to be classified and taxed as a partnership for
federal income tax purposes or (B) to be a "publicly traded partnership"
within the meaning of Section 7704 of the Code, (vi) if such Transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title 1 of ERISA, a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code), or (vii) if such Transfer would, in the
opinion of counsel to the Partnership, cause any portion of the assets of
the Partnership to constitute assets of any employee benefit plan pursuant
to Department of Labor Regulations Section 2510.3-101.
11.3 ADMISSION ADJUSTMENTS. The General Partner, when necessary,
shall cause this Agreement to be amended from time to time to reflect the
addition or withdrawal of Partners, including the corresponding adjustments to
Percentage Interests and Units required pursuant to Section 3.1 hereof.
ARTICLE 12. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.
12.1 NO PARTICIPATION IN MANAGEMENT. Except as expressly permitted
hereunder, the Limited Partners shall not take part in the management of, or
decisions regarding, the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership.
12.2 DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER. The death,
legal incompetency, insolvency, dissolution or Bankruptcy of a Limited Partner
shall not
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<PAGE>
dissolve or terminate the Partnership. Upon ten (10) Trading Days' notice
to the General Partner of the death or incapacity of an individual Limited
Partner, such individual Limited Partner's interest in the Partnership
shall be transferred either by will, the laws of intestacy or otherwise to the
legal representative or successor of such individual Limited Partner who shall
be bound in all respects by the terms of this Agreement, subject to the General
Partner's right to redeem such interest in accordance with the provisions of
Section 3.2 hereof.
12.3 NO WITHDRAWAL. No Limited Partner may withdraw from the
Partnership without the prior written consent of the General Partner.
12.4 DUTIES AND CONFLICTS. The General Partner recognizes that the
Limited Partners and their Affiliates have or may have other business interests,
activities and investments, some of which may be in conflict or competition with
the business of the Partnership, and that such persons are entitled to carry on
such other business interests, activities and investments. The Limited Partners
and their Affiliates may engage in or possess an interest in any other business
or venture of any kind, independently or with others, on their own behalf or on
behalf of other entities with which they are affiliated or associated, and such
persons may engage in any activities, whether or not competitive with the
Partnership, without any obligation to offer any interest in such activities to
the Partnership or to any Partner. Neither the Partnership nor any Partner
shall have any right, by virtue of this Agreement, in or to such activities, or
the income or profits derived therefrom, and the pursuit of such activities,
even if competitive with the business of the Partnership, shall not be deemed
wrongful or improper.
ARTICLE 13. LIQUIDATION AND DISSOLUTION OF PARTNERSHIP.
13.1 TERMINATION EVENTS. The Partnership shall be dissolved and its
affairs wound up in the manner hereinafter provided upon the occurrence of an
event described in Article 5 hereof.
13.2 METHOD OF LIQUIDATION. Upon the happening of any of the events
specified in Article 5 hereof, the General Partner (or if there be no General
Partner, a liquidating trustee selected by those Limited Partners holding in the
aggregate more than fifty percent (50%) of the Percentage Interests held by all
Limited Partners) shall immediately commence to wind up the Partnership's
affairs and shall liquidate the assets of the Partnership as promptly as
possible, unless the General Partner, or the liquidating trustee, shall
determine that an immediate sale of Partnership assets would cause undue loss to
the Partnership, in which event the liquidation may be deferred for a reasonable
time. The Partners shall continue to share distributions during the period of
liquidation in the same proportions as before dissolution. The proceeds from
liquidation of the Partnership, including repayment of any debts of Partners to
the Partnership, shall be applied in the order of priority as follows:
A. Debts of the Partnership, including repayment of principal and
interest on loans and advances made by the General Partner; then
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<PAGE>
B. To the establishment of any reserves deemed necessary or
appropriate by the General Partner, or by the person(s) winding up the
affairs of the Partnership in the event there is no remaining General
Partner of the Partnership, for any contingent or unforeseen liabilities or
obligations of the Partnership. Such reserves established hereunder shall
be held for the purpose of paying any such contingent or unforeseen
liabilities or obligations and, at the expiration of such period as the
General Partner, or such person(s) deems advisable, the balance of such
reserves shall be distributed in the manner provided hereinafter in this
Section 13.2 as though such reserves had been distributed contemporaneously
with the other funds distributed hereunder; then
C. To the Partners in accordance with the provisions of Sections 7.1
and 7.2 hereof.
13.3 DISTRIBUTION IN KIND. The General Partner may make distributions
pursuant to this Agreement in cash or in kind, as it determines is appropriate
in its sole discretion; provided that no in-kind distributions shall be made to
any Limited Partner other than the General Partner. In the event the General
Partner determines that it is necessary or desirable to make a distribution of
Partnership property in kind, the General Partner may transfer and convey such
property to the distributees as tenants in common, subject to any liabilities
attached thereto, so as to vest in them undivided interests in the whole of such
property in proportion to their respective rights to share in the proceeds of
the sale of such property (other than as a creditor) in accordance with the
provisions of Section 13.2 hereof.
13.4 DOCUMENTATION OF LIQUIDATION. Upon the completion of the
resolution and liquidation of the Partnership, the Partnership shall terminate
and the liquidating trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
13.5 LIABILITY OF THE LIQUIDATING TRUSTEE. The liquidating trustee
shall be indemnified and held harmless by the Partnership from and against any
and all claims, demands, liabilities, costs, damages and causes of action of any
nature whatsoever arising out of or incidental to the liquidating trustee's
taking of any action authorized under or within the scope of this Agreement;
provided, however, that the liquidating trustee shall not be entitled to
indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arose out of:
A. A matter entirely unrelated to the liquidating trustee's action
or conduct pursuant to the provisions of this Agreement; or
B. The proven misconduct or negligence of the liquidating trustee.
ARTICLE 14. POWER OF ATTORNEY. Each Limited Partner hereby irrevocably
constitutes and appoints the Secretary of the General Partner, with full power
of substitution, its true and lawful attorney, for him and in his name, place
and stead and for his use and benefit, to sign, swear to, acknowledge, file and
record:
39
<PAGE>
(i) this Agreement, and amendments to this Agreement;
(ii) any certificates, instruments and documents (including assumed
and fictitious name certificates) as may be required by, or may be
appropriate under, the laws of the State of Illinois or any other State or
jurisdiction in which the Partnership is doing or intends to do business,
in order to discharge the purposes of the Partnership or otherwise in
connection with the use of the name or names used by the Partnership;
(iii) any other instrument which may be required to be filed or
recorded by the Partnership on behalf of the Partners under the laws of any
State or by any governmental agency in order for the Partnership to conduct
its business;
(iv) any documents which may be required to effect the continuation
of the Partnership, the admission of a substitute or additional Partner, or
the dissolution and termination of the Partnership, provided such
continuation, admission or dissolution and termination is not in violation
of any provision of this Agreement; and
(v) any documents which may be required or desirable to have the
General Partner appointed, and act as, the "Tax Matters Partner" as
described in the Code.
The foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity of any
individual Limited Partner, and shall survive the delivery of any assignment by
a Limited Partner of the whole or any portion holding more than 50% of the
voting power in the Partnership of such affecting Limited Partners of his
interest in the Partnership.
ARTICLE 15. AMENDMENT OF AGREEMENT.
15.1 GENERAL. The General Partner, without the consent of the Limited
Partners, may amend this Agreement in any respect by executing a written
instrument setting forth the terms of such amendment; provided, however, that,
except as provided in Section 15.2 hereof, any amendment which (i) except as
provided in Section 7.1, alters or changes the distribution rights of any
Limited Partner under Article 7 hereof; (ii) alters or changes a Limited
Partner's Redemption Rights under Section 3.2 hereof or Conversion Rights under
Section 3.3 hereof; (iii) imposes on the Limited Partners any obligation to make
additional Capital Contributions; (iv) amends Section 8.5, 8.6 or 11.1 of this
Agreement shall require the approval of the affected Limited Partners holding
more than 50% of the voting power in the Partnership held by such affected
Limited Partners.
15.2 MERGER, ETC. OF GENERAL PARTNER.
Notwithstanding Section 15.1, in the event that the General Partner engages
in a Business Combination, the General Partner (or its successor or transferee)
may amend the provisions of this Agreement (including, without limitation, the
definition of Conversion Factor) in any respect in connection with such Business
Combination (regardless of whether the amendment alters or changes the
distributions to a Limited Partner or a Limited Partner's
40
<PAGE>
Redemption Rights) without obtaining the consent of any Limited Partner;
provided that the Business Combination and the effects of such amendments
satisfy the requirements set forth in Section 11.1.
ARTICLE 16. ARBITRATION.
16.1 GENERAL. Notwithstanding anything to the contrary contained in
this Agreement, all claims, disputes and controversies between the parties
hereto (including, without limitation, any claims, disputes and controversies
between the Partnership and any one or more of the Partners) arising out of or
in connection with this Agreement or the Partnership created hereby, or any act
or failure to act by the General Partner or any other Partner hereunder, shall
be resolved by binding arbitration in Chicago, Illinois by the American
Arbitration Association, in accordance with this Article 16.
16.2 PROCEDURES. Any arbitration called for by this Article 16 shall
be conducted in accordance with the following procedures:
A. The Partnership or any Partner (the "Requesting Party") may
demand arbitration pursuant to Section 16.1 hereof at any time by giving
written notice of such demand (the "Demand Notice") to all other Partners
and (if the Requesting Party is not the Partnership) to the Partnership
which Demand Notice shall describe in reasonable detail the nature of the
claim, dispute or controversy.
B. Within fifteen (15) days after the giving of a Demand Notice, the
American Arbitration Association shall select and designate in writing
three reputable, disinterested individuals willing to act as an arbitrator
of the claim, dispute or controversy in question.
C. The presentations of the parties hereto in the arbitration
proceeding shall be commenced and completed within sixty (60) days after
the selection of the arbitration panel pursuant to subsection B above, and
the arbitration panel shall render its decision (and specify in reasonable
detail its reasons therefor) in writing within thirty (30) days after the
completion of such presentations. Any decision concurred in by any two (2)
of the arbitrators shall constitute the decision of the arbitration panel,
and unanimity shall not be required.
D. The arbitration panel shall include in its decision a direction
that all of the attorneys' fees and costs of any party or parties and the
costs of such arbitration be paid by the losing party or parties in the
arbitration. On the application of a party before or after the initial
decision of the arbitration panel, and proof of its attorneys' fees and
costs, the arbitration panel shall order the other party to make any
payments directed pursuant to the preceding sentence.
16.3 BINDING CHARACTER. Any decision rendered by the arbitration
panel pursuant to this Section 16.3 shall be final and binding on the parties
hereto, and judgment thereon may be entered by any state or federal court of
competent jurisdiction.
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<PAGE>
16.4 EXCLUSIVITY. Arbitration shall be the exclusive method available
for resolution of claims, disputes and controversies described in Section 16.1
hereof, and the Partnership and its Partners stipulate that the provisions
hereof shall be a complete defense to any suit, action or proceeding in any
court or before any administrative or arbitration tribunal with respect to any
such claim, controversy or dispute. The provisions of this Section 16.4 shall
survive the dissolution of the Partnership.
16.5 NO ALTERATION OF AGREEMENT. Nothing contained herein shall be
deemed to give the arbitrators any authority, power or right to alter, change,
amend, modify, add to, or subtract from any of the provisions of this Agreement.
ARTICLE 17. MISCELLANEOUS.
17.1 NOTICES. Any notice, election or other communication provided
for or required by this Agreement shall be in writing and shall be deemed to
have been given when delivered by telecopy or other facsimile transmission
(confirmed by any of the methods that follow) or by hand, the first business day
after sent by overnight courier (such as Federal Express), or on the second
business day after deposit in the United States Postal Service, certified or
registered, return receipt requested, postage prepaid, properly addressed to the
Partner to whom such notice is intended to be given at the address for the
Partner set forth on the signature pages of this Agreement, or at such other
address as such person may have previously furnished in writing to the
Partnership and each Partner. A copy of all such notices also should be sent to
the General Partner and addressed as follows:
General Partner: Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, IL 60523
Attn: President
Fax No. (630) 218-4900
With a copy to: Wildman, Harrold, Allen & Dixon
Suite 2800
Chicago, IL 60606
Attn: Roger G. Fein, Esq.
Fax No. (312) 201-2555
17.2 SUCCESSORS AND ASSIGNS. Any person acquiring or claiming an
interest in the Partnership, in any manner whatsoever, shall be subject to and
bound by all of the
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<PAGE>
terms, conditions and obligations of this Agreement to which his
predecessor-in-interest was subject or bound, without regard to whether such
a person has executed a counterpart hereof or any other document contemplated
hereby. No person, including the legal representative, heir or legatee of a
deceased Partner, shall have any rights or obligations greater than those set
forth in this Agreement, and no person shall acquire an interest in the
Partnership or become a Partner thereof except as expressly permitted by and
pursuant to the terms of this Agreement. Subject to the foregoing, and the
provisions of Article 11 above, this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective successors,
assigns, heirs, legal representatives, executors and administrators.
17.3 DUPLICATE ORIGINALS. For the convenience of the Partners,
any number of counterparts hereof may be executed, and each such counterpart
shall be deemed to be an original instrument, and all of which taken together
shall constitute one agreement.
17.4 CONSTRUCTION. The titles of the Sections and subsections
herein have been inserted as a matter of convenience of reference only and
shall not control or affect the meaning or construction of any of the terms
or provisions herein.
17.5 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Illinois. Except to the extent the Act is inconsistent with
the provisions of this Agreement, the provisions of such Act shall apply to
the Partnership.
17.6 OTHER INSTRUMENTS. The parties hereto covenant and agree
that they will execute such other and further instruments and documents as,
in the opinion of the General Partner, are or may become necessary or
desirable to effectuate and carry out the Partnership as provided for by this
Agreement.
17.7 GENERAL PARTNER WITH INTEREST AS LIMITED PARTNER. Except as
set forth to the contrary in this Agreement, if the General Partner has an
interest as a Limited Partner in the Partnership, the General Partner shall,
with respect to such interest, enjoy all of the rights and be subject to all
of the obligations and duties of a Limited Partner.
17.8 GENDER. Whenever the context shall so require, all words
herein in any gender shall be deemed to include the masculine, feminine or
neuter gender, all singular words shall include the plural, and all plural
words shall include the singular.
17.9 PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any
prior understandings or written or oral agreements amongst the Partners, or
any of them, respecting the within subject matter and contains the entire
understanding amongst the Partners with respect thereto.
17.10 PURCHASE FOR INVESTMENT. Each Partner represents, warrants
and agrees that it has acquired and continues to hold its interest in the
Partnership for its own account for investment only and not for the purpose of,
or with a view toward, the resale or distribution of all or any part thereof,
nor with a view toward selling or otherwise distributing such interest or any
part thereof at any particular time or under any predetermined circumstances.
Each
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<PAGE>
Partner further represents and warrants that it is a sophisticated investor,
able and accustomed to handling sophisticated financial matters for itself,
particularly real estate investments, and that it has a sufficiently high net
worth that it does not anticipate a need for the funds it has invested in the
Partnership in what it understands to be a highly speculative and illiquid
investment.
17.11 WAIVER. No consent or waiver, express or implied, by any
Partner to or of any breach or default by any other Partner in the performance
by such other Partner of its obligations hereunder shall be deemed or construed
to be a consent to or waiver of any other breach or default in the performance
by such other Partner of the same or any other obligations of such Partner
hereunder. Failure on the part of any Partner to complain of any act or failure
to act on the part of any other Partner or to declare any other Partner in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Partner of its rights hereunder.
17.12 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid by a court of competent jurisdiction, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those to which it is held invalid by such court, shall not be affected thereby.
17.13 NOTICE FOR CERTAIN TRANSACTIONS. In the event of (a) a
dissolution or liquidation of the Partnership or the General Partner, (b) a
merger, consolidation or combination of the Partnership or the General Partner
with or into another Person (including the events set forth in Section 15.2
hereof), (c) the sale of all or substantially all of the assets of the
Partnership or the General Partner, or (d) the transfer by the General Partner
of all or any part of its interest in the Partnership, the General Partner shall
give written notice thereof to each Limited Partner at least twenty (20) Trading
Days prior to the effective date or, to the extent applicable, record date of
such transaction, whichever comes first.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
INLAND RETAIL REAL ESTATE TRUST, INC.
By:
--------------------------------------
Its:
-------------------------------------
LIMITED PARTNERS:
INLAND RETAIL REAL ESTATE ADVISORY SERVICES, INC.
2901 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
ATTN: PRESIDENT
By:
--------------------------------------
Its:
-------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
45
<PAGE>
EXHIBIT A
NAME OF PARTNERS AND NUMBER OF UNITS HELD BY EACH PARTNER UNDER THIS AGREEMENT
<TABLE>
<CAPTION>
GENERAL PARTNER
- ---------------
<S> <C>
Inland Retail Real Estate Trust, Inc. 20,000 GP Common Units
LIMITED PARTNERS
- ---------------
Inland Retail Real Estate Advisory 200 LP Common Units
Services, Inc.
</TABLE>
<PAGE>
EXHIBIT B
FORM OF NOTICE OF REDEMPTION
I, ____________________________________________, HEREBY
CERTIFY THAT I AM THE OWNER OF A TOTAL OF ________________________________
UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS") IN INLAND RETAIL REAL
ESTATE LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP (THE
"PARTNERSHIP").
PURSUANT TO SECTION 3.2 OF THE AGREEMENT OF LIMITED
PARTNERSHIP OF THE PARTNERSHIP (THE "PARTNERSHIP AGREEMENT"), I HEREBY NOTIFY
THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP, INLAND RETAIL
REAL ESTATE TRUST, INC., A MARYLAND CORPORATION (THE "GENERAL PARTNER") THAT
I AM EXERCISING MY ELECTION TO HAVE THE PARTNERSHIP REDEEM A TOTAL OF
__________OF MY UNITS FOR THE CONSIDERATION DESCRIBED IN SECTION 3.2.A OF THE
PARTNERSHIP AGREEMENT.
I HEREBY CERTIFY THAT I AM AWARE THAT UPON DELIVERY OF THIS
NOTICE OF REDEMPTION, THE GENERAL PARTNER SHALL HAVE THE OPTION, EXERCISABLE
IN ITS SOLE DISCRETION, TO ASSUME THE OBLIGATION OF THE PARTNERSHIP TO
ACQUIRE SUCH UNITS AND TO PAY THE CONSIDERATION SET FORTH IN SECTION 3.2.B OF
THE PARTNERSHIP AGREEMENT FOR SUCH UNITS, AND THAT IN THE EVENT THE GENERAL
PARTNER EXERCISES SUCH OPTION, (i) THE PARTNERSHIP SHALL HAVE NO FURTHER
OBLIGATION TO REDEEM SUCH UNITS, AND (ii) I WOULD BE OBLIGATED TO TREAT THE
TRANSACTION AS A SALE OF THE UNITS TO THE COMPANY FOR FEDERAL INCOME TAX
PURPOSES.
DATED ,
----------------------- ------
PRINT NAME
--------------------------
SIGNATURE
---------------------------
<PAGE>
EXHIBIT C
FORM OF NOTICE OF CONVERSION
I, ____________________________________________, HEREBY
CERTIFY THAT I AM THE OWNER OF A TOTAL OF ________________________________
UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS") IN INLAND RETAIL REAL
ESTATE LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP (THE
"PARTNERSHIP").
PURSUANT TO SECTION 3.3 OF THE AGREEMENT OF LIMITED
PARTNERSHIP OF THE PARTNERSHIP (THE "PARTNERSHIP AGREEMENT"), I HEREBY NOTIFY
THE GENERAL PARTNER OF THE PARTNERSHIP, INLAND RETAIL REAL ESTATE TRUST, INC.
(THE "GENERAL PARTNER"), THAT I AM EXERCISING MY ELECTION TO HAVE THE GENERAL
PARTNER CONVERT A TOTAL OF __________OF MY UNITS FOR SHARES OF COMMON STOCK
OF THE GENERAL PARTNER, BASED ON THE FORMULA FOR CONVERSION SET FORTH IN
SECTION 3.3.A OF THE PARTNERSHIP AGREEMENT.
I HEREBY CERTIFY THAT I AM AWARE THAT UPON DELIVERY OF THIS
NOTICE OF CONVERSION, (i) THE GENERAL PARTNER SHALL HAVE THE OPTION,
EXERCISABLE IN ITS SOLE DISCRETION, TO ACQUIRE SUCH UNITS FOR AN AMOUNT OF
CASH CALCULATED AS DESCRIBED IN SECTION 3.3.B OF THE PARTNERSHIP AGREEMENT IN
LIEU OF ISSUING SUCH SHARES OF COMMON STOCK, AND (ii) I AM OBLIGATED TO TREAT
THE TRANSACTION AS A SALE OF SUCH UNITS FOR FEDERAL INCOME TAX PURPOSES.
DATED ,
----------------------- ------
PRINT NAME
--------------------------
SIGNATURE
---------------------------
<PAGE>
EXHIBIT D
CAPITAL ACCOUNT OF EACH PARTNER
<TABLE>
<CAPTION>
GENERAL PARTNER
<S> <C>
Inland Retail Real Estate Trust, Inc. $200,000.00
LIMITED PARTNERS
Inland Retail Real Estate Advisory $2,000.00
Services, Inc.
</TABLE>
<PAGE>
EXHIBIT 4.2
SPECIMEN STOCK CERTIFICATE
<PAGE>
SPECIMEN STOCK CERTIFICATE
Non-Negotiable
INCORPORATED UNDER THE LAWS OF MARYLAND
No. ______ Shares ______
INLAND RETAIL REAL ESTATE TRUST, INC.
AUTHORIZED COMMON STOCK 100,000,000 SHARES, $.01 PAR VALUE PER SHARE
This certifies that ______________is the owner of ___________ full paid and
non-assessable SHARES OF THE COMMON STOCK OF INLAND RETAIL REAL ESTATE TRUST,
INC. transferable on the books of the Corporation in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof the said Corporation has caused this Certificate to be signed
by its duly authorized officers and sealed with this Seal of the Corporation,
this ____day of ____________A.D. 19___
- ------------------------------- ------------------------------
Secretary President
<PAGE>
REVERSE SIDE OF CERTIFICATE
FOR VALUE RECEIVED, _________________ HEREBY SELL, ASSIGN AND NOTICE THE
TRANSFER UNTO__________________________________________ SIGNATURE TO
________________________ SHARES REPRESENTED BY THE WITHIN THIS ASSIGNMENT
CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT MUST CORRESPOND
________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE WITH THE NAME AS
BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF WRITTEN UPON THE
SUBSTITUTION IN THE PREMISES. FACE OF THE
CERTIFICATE IN
DATED: EVERY
--------------------- PARTICULAR,
IN PRESENCE OF WITHOUT
ALTERATION OR
- --------------------------- ------------------------- ENLARGEMENT, OR
ANY CHANGE
WHATEVER.
RESTRICTIONS RELATING TO QUALIFICATIONS
AS A REAL ESTATE INVESTMENT TRUST
The securities represented by this certificate are subject to
restrictions on transfer for the purpose of the Company's maintenance of its
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended. Except as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may (i) Beneficially Own shares of
Equity Stock in excess of 9.8% (or such greater percentage as may be
determined by the Board of Directors of the Company) of the number or value
of the outstanding Equity Stock of the Company, (ii) Beneficially Own Equity
Stock that would result in the Equity Stock being Beneficially Owned by fewer
than 100 Persons (determined without reference to any rules of attribution),
(iii) Beneficially Own Equity Stock that would result in the Company being
"closely held" under Section 856(h) of the Code, or (iv) Constructively Own
Equity Stock that would cause the Company to Constructively Own 10% or more
of the membership interests in a tenant of the Company's real property within
the meaning of Section 856(d)(2)(B) of the Code. Any Person who purports or
proposes to Beneficially Own or Constructively Own shares of Equity Stock in
violation of the above limitations is in violation of the restrictions on
transfer and any securities so transferred shall be designated as Excess
Stock and held in trust by the Company. Any Person who purports or proposes
to Beneficially Own or Constructively Own shares of Equity Stock in violation
of the above limitations must notify the Company in writing immediately, in
the case of a purported Transfer, and at least 15 days prior to a proposed
Transfer. All capitalized terms in this legend have the meanings defined in
the Articles of Incorporation of the Company, a copy of which, including the
restrictions on transfer, will be sent without charge to each stockholder who
so requests. If the restrictions on transfer are violated, the securities
represented hereby will be designated and treated as shares of Excess Stock
which will be held in trust by the Company with consequent loss of voting and
divided rights and the right to realize any further appreciation in value.
2
<PAGE>
EXHIBIT 5
FORM OF LEGAL OPINION OF
BROWN & WOOD LLP
<PAGE>
BROWN & WOOD LLP
815 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20006-4004
TELEPHONE: 202-973-0600
FACSIMILE: 202-223-0485
September __, 1998
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Re: Inland Retail Real Estate Trust, Inc.
Common Stock Offering
-----------------------------
Ladies and Gentlemen:
You have requested our opinion as Maryland counsel to Inland Retail Real
Estate Trust, Inc., a corporation organized under the laws of Maryland
("Company"), in connection with the offering by the Company to the public of
55,250,000 shares of the Company's Common Stock, $0.01 par value per share
("Shares").
We have reviewed the Registration Statement on Form S-11 (the "Registration
Statement") and the prospectus included therein ("Prospectus") relating to the
Company's issuance of the Shares, and in connection therewith, have examined and
relied upon the originals or copies of such records, agreements, documents and
other instruments, the Company's Charter, the Bylaws of the Company, the minutes
of the meetings of the board of directors of the Company to date relating to the
authorization and issuance of the Shares, and such other records and matters of
law as we have deemed relevant.
In our examinations, we have assumed, without independent verification, the
genuineness of all signatures (whether original or photocopy), the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals, and the conformity to original documents of all documents
submitted to us as certified or photocopies. We have assumed, without
independent verification, the accuracy of the relevant facts stated therein.
With respect to the issuance of any Shares, we have assumed that the Shares
will be issued, and the certificates evidencing the same will be duly delivered,
in accordance with the terms of the Registration Statement and against receipt
of the consideration stipulated therefor.
<PAGE>
Inland Retail Real Estate Trust, Inc.
September __, 1998
Page 2
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and paid for in accordance with the foregoing
assumptions, will be validly issued, fully paid and non-assessable.
Members of our firm are qualified to practice law in the state of Maryland.
Accordingly, we express no opinion as to the applicability or effect of any
laws, orders or judgments of any state or jurisdiction other than the
substantive laws of the State of Maryland. Further, our opinion is based solely
upon existing laws, rules and regulations, and we undertake no obligation to
advise you of any changes that may be brought to our attention after the date
hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus.
The foregoing opinion is being furnished to, and is solely for the benefit of,
the addressee named above and except with our prior written consent, is not to
be used, circulated, quoted, published or otherwise referred to or disseminated
for any other purpose or relied upon by any person or entity other than said
addressee.
Very truly yours,
<PAGE>
EXHIBIT 8
FORM OF
LEGAL OPINION
OF
WILDMAN, HARROLD, ALLEN & DIXON
<PAGE>
[Letterhead of Wildman, Harrold, Allen & Dixon]
September __, 1998
Board of Directors
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60521
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration (the
"Registration") under the Securities Act of 1933, as amended (the "Act") of
55,250,000 shares, par value $ .01 per share, of Inland Retail Real Estate
Trust, Inc., a Maryland corporation (the "Company"). In connection with the
Registration we have been asked to provide opinions on certain federal income
tax matters related to the Company. The capitalized terms used in this
letter and not otherwise defined herein shall have the meaning ascribed to
them in the latest dated Prospectus of the Company as of the date hereof
included in the Company's Registration Statement on Form S-11, as amended
(the "Registration Statement"), filed by the Company under the Act with the
United States Securities and Exchange Commission (the "SEC").
For purposes of this opinion letter, we have examined and relied upon
the following documents:
1. A copy of the Prospectus;
2. A copy of the Bylaws, as amended to date;
3. A copy of the Articles of Incorporation, as amended to date;
4. A copy of the form of Subscription Agreement;
5. The Representation Letter of even date delivered to us by the Company;
<PAGE>
Board of Directors
September __, 1998
Page 2
6. Copies of the leases for the Properties described in the Prospectus as
the "Initial Properties" as supplied to us by the Company; and
7. Such other additional instruments and documents, representations of
the Company and of certain other persons, and such matters of law, all
as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies, the genuineness of signatures and the capacity of each
party executing a document to so act. For purposes of opinions contained
herein, we have assumed that:
(i) the documents shown to us are complete and no modifications to any
thereof exists;
(ii) the documents shown to us as certified or photostatic copies of
original documents conform to the original documents;
(iii) the documents listed above that have been reviewed in proposed form
will be executed in substantially the same form as the proposed documents that
we have reviewed; and
(iv) all of the representations and statements set forth in the documents
listed above, including, without limitation, the factual assumptions and
representations of the Company set forth in the section of the Prospectus
entitled "Federal Income Tax Considerations" are true and correct, and that all
obligations imposed by any such documents on the parties thereto have been and
will be performed or satisfied in accordance with their terms.
Our opinions are based upon the facts described in the Prospectus and upon
facts as they have been represented to us or determined by us as of this date.
Any alterations of such facts may adversely affect our opinions. For purposes
of our opinions, we have relied upon the representations made by the officers
and directors of the Company as set forth in the Prospectus or elsewhere.
Further, our opinions are based upon existing statutory law and currently
applicable Treasury Department Regulations promulgated or proposed under the
Internal Revenue Code of 1986, as amended (the "Code"), current published
administrative positions of the Internal Revenue Service (the "Service")
contained in Revenue Rulings and Revenue Procedures, and judicial decisions, all
of which are subject to change either prospectively or retroactively, which
changes could cause this opinion to no longer be valid.
We hereby confirm to you the opinions and statements attributed to us in
the section of the Prospectus entitled "Federal Income Tax Considerations,"
subject to all
<PAGE>
Board of Directors
September __, 1998
Page 3
the statements, representations and assumptions accompanying such opinions
and statements. Please note that the Prospectus further states that the
Company's qualification and taxation as a REIT and its ability to maintain
its REIT status will depend upon its ability (based on its actual operating
results) to meet the REIT Requirements, and Wildman, Harrold, Allen & Dixon
will not review compliance with the REIT Requirements on a continuing basis
after the initial effectiveness date of the Registration Statement or issue
any opinions in the future unless expressly requested to do so.
You should note that the opinions contained herein have no binding effect
or official status of any kind. Thus, in the absence of a ruling from the
Service, there can be no assurance that the Service will not challenge the
conclusions or propriety of any of our opinions, nor can there be assurance that
if challenged, the Company will prevail on such issues. In addition, the
federal income tax laws are uncertain as to many of the tax matters material to
an investment in the Company and, therefore, it is not possible to predict with
certainty future legal developments, including how courts will decide various
issues if litigated. Accordingly, there can be no assurance of the outcome of
the issues on which we are opining.
We hereby consent to the filing of this opinion with the SEC as an exhibit
to the Registration Statement and the references to us under the headings
"Prospectus Summary -- Risks Factors and Conflicts of Interest -- Tax Risks," in
paragraph 8 under "Conflicts of Interest," "Federal Income Tax Considerations"
and "Legal Matters."
This opinion may not be relied upon by anyone other than the parties set
forth herein and may not be provided to any party other than those set forth
herein without the express written consent of the undersigned.
Very truly yours,
WILDMAN, HARROLD, ALLEN & DIXON
<PAGE>
EXHIBIT 10.1
FORM OF
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the ____day of __________,
1998, by and among INLAND RETAIL REAL ESTATE TRUST, INC., a Maryland corporation
(the "Company"), INLAND SECURITIES CORPORATION, an Illinois Corporation (the
"Dealer Manager"), and LASALLE NATIONAL BANK, N.A., CHICAGO, ILLINOIS (the
"Escrow Agent"). Unless otherwise defined herein, capitalized terms used herein
shall have the same meaning as in the Company's Registration Statement on Form
S-11.
1. The Company does hereby open this escrow and Escrow Agent's sole
concern and duties shall be as specifically set forth herein:
1.1 From time to time during the course of this escrow, in connection
with the Company's offering (the "Offering") of up to 50,000,000 shares of
Common Stock on a "best efforts" basis (the "Shares") (exclusive of Shares
offered and sold pursuant to the Company's Distribution Reinvestment
Program), Escrow Agent will receive from subscribers deposits to be held in
escrow in accordance with the terms hereof. All such funds received by
Escrow Agent shall be placed into an interest-bearing account entitled
"Inland Retail Real Estate Trust, Inc." (the "Escrow Account").
2. All deposits from each subscriber shall be accompanied by a
subscription agreement, stating among other things, subscriber name, current
address and investment amount.
3. Checks deposited in the Escrow Account from the various subscribers
shall be made payable to "LNB, Escrow Agent for IRRET."
4. All parties understand and are aware that all funds received during
the course of the escrow and deposited in the Escrow Account must clear the
normal banking channels prior to the release of any funds.
5. The Company understands that it is not entitled to any funds received
into escrow in the event of cancellation of the Offering and in such event,
deposits shall be returned to the subscribers.
6. Subscribers named in any subscription for Shares clearly understand
that this is an impound escrow between the Company, the Dealer Manager and the
Escrow Agent and that they are not a party to this escrow.
7. All documents, including any instrument necessary for the negotiation
or other transfer of escrow assets, deposited simultaneously with the execution
of this Agreement are approved by the Company, and the Escrow Agent shall not be
obligated to inquire as to the form, manner of execution or validity of these
documents or any document hereafter deposited pursuant to the provisions hereof,
nor shall the Escrow Agent be obligated to inquire as to the identity, authority
or rights of the persons executing the same. The Escrow Agent shall be
<PAGE>
liable under this Agreement only for its failure to exercise due care in the
performance of its duties expressly set forth in this Agreement. The Escrow
Agent shall have a lien on all securities, monies and documents deposited in
this escrow by each subscriber to secure Escrow Agent's reasonable
compensation and expenses and for judgments, attorneys' fees and other
liabilities which the Escrow Agent may incur or sustain by reason of this
escrow, and the undersigned agrees to pay to Escrow Agent, upon demand,
amounts to satisfy all such liabilities, fees and expenses. In case of
conflicting demands upon it, the Escrow Agent may withhold performance of
this escrow until such time as the conflicting demands shall have been
withdrawn or the rights of the respective parties shall have been settled by
court adjudication, arbitration, joint order or otherwise.
8. Until the termination of the Offering, the Company shall notify the
Escrow Agent of the Company's acceptance or rejection of each subscription
agreement as promptly as practicable, but in any event within ten (10) days of
its receipt, and of any subscription which is rescinded within five (5) days of
such rescission. If a subscription is rejected by the Company, the subscriber's
check and subscription agreement will be returned by the Escrow Agent to the
subscriber, without interest or deduction, as promptly as practicable, but in
any event within ten (10) days after receipt. If a subscription is rescinded,
the Escrow Agent shall return to the subscriber the subscriber's check (or an
equal amount of funds) and subscription agreement, without interest or
deduction, within seven (7) days of being notified by the Company of such
rescission. In the event the check of a subscriber whose subscription has been
rescinded has been negotiated (and if the funds represented thereby have been
disbursed to the Company), the Company shall deposit with the Escrow Agent an
amount of funds equal to the amount necessary to be returned to the subscriber
(or the Escrow Agent may deduct such amount from any funds due to the Company
under this Agreement), along with the subscriber's subscription agreement. The
Escrow Agent shall not be liable for the failure to return a rejected or
rescinded subscription if the Company fails to notify the Escrow Agent of such
rejection of rescission.
9. Commencing with the date the Securities and Exchange Commission
declares the Company's Registration Statement on Form S-11 effective (the
"Effective Date"), and ending on the Termination Date (the "Offering Period"),
the Escrow Agent shall (i) disburse to the Company on a weekly basis any funds
received by the Escrow Agent for accepted subscriptions (but not those funds of
a subscriber whose subscription has been rejected or rescinded of which the
Escrow Agent has been notified by the Company), or otherwise in accordance with
the Company's written request; and (ii) invest any funds held in the escrow
subject to paragraph 10 hereof, in such instruments as the Company may direct.
Upon termination of the Offering, which shall occur not later than 12 months
after the Effective Date, provided however that, subject to requalification in
certain states, the Company may extend the Offering Period from time to time,
but in no event more than two years after the Effective Date (the "Termination
Date"), all amounts theretofore undistributed shall be distributed to the
Company, and this escrow shall close and be consummated in its entirety.
10. The funds deposited herein shall be invested in federally insured bank
accounts (E.G., savings accounts), short-term certificates of deposit issued by
a bank, short-term
2
<PAGE>
securities issued or guaranteed by the United States government and any other
investments permitted under Rule 15c2-4 of the Securities Exchange Act of
1934, as amended, at the direction of the Company. The interest on such
investments shall, on a monthly basis while subscribers' deposits remain in
escrow and, if all conditions herein are met, when such deposits are
disbursed to the Company, be disbursed by the Escrow Agent to the Company in
accordance with paragraph 9 hereof.
11. The Company agrees to disburse to the Dealer Manager any funds due to
it for the Offering in accordance with the terms and conditions of the Dealer
Manager Agreement dated _________________, 1998 between the Company and the
Dealer Manager, provided that the Escrow Agent has disbursed to the Company the
funds due to the Company for the related subscriptions. The Dealer Manager
shall assist the Company in connection with the Company's compliance with this
Agreement. The Dealer Manager shall not have any lien on or security interest
in any securities, monies or documents deposited in this escrow.
12. Any notices which are required or desired to be given hereunder to the
parties hereto shall be in writing and may be given by mailing the same to the
address indicated below (or to such other address as either of the parties may
have theretofore substituted therefor by written notification to the other party
hereto), by registered or certified United States mail, postage prepaid. For all
purposes hereof, any notice so mailed by the Escrow Agent shall be treated as
though served upon the party to whom it was mailed at the time it is deposited
in the United States mail by the Escrow Agent whether or not such party
thereafter actually receives such notice. Notices to the Escrow Agent shall be
in writing and shall not be deemed to be given until actually received by the
Escrow Agent's trust department. Whenever under the terms hereof the time for
giving a notice or performing an act falls upon a Saturday, Sunday or bank
holiday, such time shall be extended to the Escrow Agent's next business day.
13. The Escrow Agent, when acting as the Escrow Agent undertakes to
perform only such duties as are expressly set forth herein and the Escrow Agent
shall not be subject to, nor obliged to recognize, any other agreement between,
or direction or instruction of, the Company even though reference thereto may be
made herein; provided, however, this Agreement may be amended at any time or
times by an instrument in writing signed by the Company, the Dealer Manager and
Escrow Agent. In the event the Escrow Agent becomes involved in or is threatened
with litigation by reason hereof, it is hereby authorized to and may deposit
with the clerk of a court of competent jurisdiction any and all funds held by it
pursuant hereto, and thereupon the Escrow Agent shall stand fully relieved and
discharged of any further duties hereunder.
14. If any property subject hereto is at any time attached, garnished
or levied upon, under any court order, or in case the payment, assignment,
transfer, conveyance or delivery of any such property shall be stayed or
enjoined by any court order, or in any case any order, judgment or decree
shall be made or entered by any court affecting such property, or any part
thereof, then in any of such events, the Escrow Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ, judgment
or decree, which it is advised by legal counsel of its own choosing is
binding upon it, and if it complies with any such order,
3
<PAGE>
writ, judgment or decree, it shall not be liable to any of the parties hereto
or to any other person, firm or corporation by reason of such compliance,
even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
15. This Agreement shall be construed, enforced and administered in
accordance with the internal laws, as opposed to the conflicts of laws
provisions, of the State of Illinois.
16. The Escrow Agent shall be entitled to reasonable fees in connection
with this Escrow, which fees shall be payable by the Company.
17. The Escrow Agent may resign by giving five days written notice by
registered or first class mail sent to the undersigned at its address herein set
forth; and, thereafter, shall deliver all remaining deposits in said escrow upon
the written and signed order of the undersigned. If no such notice is received
by the Escrow Agent within 30 days after mailing such notice it is
unconditionally and irrevocably authorized and empowered to send any and all
items deposited hereunder by registered mail to the respective depositors
thereof or, at its sole option, to deliver such deposited items to the
respective depositors.
18. Any notice required to be given hereunder by any of the parties hereto
shall be addressed as follows:
If to the Company:
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attention: Ms. Roberta S. Matlin, Vice President
If to the Dealer Manager:
Inland Securities Corporation
2901 Butterfield Road
Oak Brook, Illinois 60523
Attention: Ms. Brenda G. Gujral, President
4
<PAGE>
If to Escrow Agent:
LaSalle National Bank, N.A
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Corporate Trust Department
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INLAND RETAIL REAL ESTATE TRUST, INC.
By:
-------------------------------------
Title:
----------------------------------
INLAND SECURITIES CORPORATION
By:
-------------------------------------
Title:
----------------------------------
LASALLE NATIONAL BANK, N.A.
CHICAGO, IL
By:
-------------------------------------
Title:
----------------------------------
5
Z<PAGE>
EXHIBIT 10.2
FORM OF
ADVISORY AGREEMENT
<PAGE>
ADVISORY AGREEMENT
This ADVISORY AGREEMENT (this "Agreement") is made as of _______________,
1998 between Inland Retail Real Estate Trust, Inc., a Maryland corporation (the
"Company"), and Inland Retail Real Estate Advisory Services, Inc., an Illinois
corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Company intends to qualify as a "real estate investment trust"
(a "REIT') as defined in Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to make investments of the type permitted
to qualified REITs under the Code and not inconsistent with the Articles of
Incorporation of the Company, as the same may be amended from time to time (the
"Articles of Incorporation"), and the By-Laws of the Company, as the same may be
amended from time to time; and
WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice and assistance of the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
and subject to the supervision of the Board of Directors of the Company (the
"Board of Directors"), as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:
(a) "Acquisition Expenses" means expenses related to the Company's
selection, evaluation and acquisition of, and investment in, properties,
whether or not acquired or made, including but not limited to legal fees
and expenses, travel and communications expenses, cost of appraisals and
surveys, non-refundable option payments on property not acquired,
accounting fees and expenses, computer use related expenses, architectural
and engineering reports, environmental and asbestos audits, title insurance
and escrow fees, loan fees or points or any fee of a similar nature,
however designated, and personnel and miscellaneous expenses related to the
selection and acquisition of properties. Acquisition Expenses will accrue
and be paid on Properties purchased with the Gross Offering Proceeds,
proceeds of Shares sold via the Company's Distribution Reinvestment Program
and proceeds received from the issuance and exercise of the Soliciting
Dealer Warrants issued by the Company in connection with the Offering, as
well as on the entire purchase price of all Properties including any
acquisition financing related thereto.
(b) "Advisor Asset Management Fee" means an amount equal to 1% of the
Average Invested Assets.
<PAGE>
(c) "Affiliate" means, with respect to any other Person: (i) any
Person directly or indirectly owning, controlling or holding, with the
power to vote 10% or more of the outstanding voting securities of such
other Person; (ii) any Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held, with the
power to vote, by such other Person; (iii) any Person directly or
indirectly controlling, controlled by or under common control with such
other Person; (iv) any executive officer, director, trustee or general
partner of such other Person; and (v) any legal entity for which such
Person acts as an executive officer, director, trustee or general partner.
(d) "Affiliated Directors" means those Directors of the Company who
are affiliated with the Company or its Affiliates.
(e) "Average Invested Assets" means, for any period, the average of
the aggregate Book Value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month
during such period.
(f) "Board of Directors" means the board of directors of the Company.
(g) "Book Value" of an asset means the value of such asset on the
books of the Company, before allowance for depreciation or amortization.
(h) "Company Fixed Assets" means the real estate, together with the
buildings, leasehold interests, improvements, equipment, furniture,
fixtures and personal property associated therewith, used by the Company in
the conduct of its business.
(i) "Competitive Real Estate Commission" means the real estate or
brokerage commission paid for the purchase or sale of a Property which is
reasonable, customary and competitive in light of the size, type and
location of such Property.
(j) "Contract Price for the Property" means the amount actually paid
or allocated to the purchase, development, construction or improvement of a
Property exclusive of Acquisition Expenses.
(k) "Cumulative Return" means a cumulative, non-compounded return,
equal to 7% per annum on Invested Capital commencing upon acceptance of the
investor's subscription.
(l) "Current Return" means a non-cumulative, non-compounded return,
equal to 7% per annum on Invested Capital.
2
<PAGE>
(m) "Fiscal Year" means any period for which any income tax return is
submitted by the Company to the Internal Revenue Service and which is
treated by the Internal Revenue Service as a reporting period.
(n) "Gross Dollars Invested in Properties" means the amount actually
paid or allocated to the purchase, development, construction or improvement
of Properties acquired by the Company.
(o) "Gross Offering Proceeds" means the total proceeds from the sale
of the 50,000,000 Shares offered on "best efforts" basis during the public
offering period before deductions for Organization and Offering Expenses.
For purposes of calculating Gross Offering Proceeds, the purchase price for
all Shares, including those for which volume discounts apply, shall be
deemed to be $10 per Share. Unless specifically included, Gross Offering
Proceeds does not include the total proceeds from the sale of up to
4,000,000 Shares under the Company's Distribution Reinvestment Program
during the public offering period, the purchase price for which shall be
$9.50 per Share; nor the total proceeds from the issuance and exercise of
the Soliciting Dealer Warrants.
(p) "Gross Revenues From Properties" means all cash receipts derived
from the operation of Company Fixed Assets.
(q) "Incentive Advisory Fee" means an amount equal to 15% of the net
proceeds from the sale of a Property after the Stockholders have first
received: (i) their Cumulative Return; and (ii) a return of their Invested
Capital.
(r) "Independent Directors" means the Directors of the Company who:
(i) are not affiliated, directly or indirectly, with the Company or the
Advisor, whether by ownership of, ownership interest in, employment by, any
material business or professional relationship with, or as an officer or
director of the Company, the Advisor or any of their Affiliates; (ii) do
not serve as a director or trustee for more than two other REITs organized
by the Company or the Advisor or advised by the Advisor; and (iii) perform
no other services for the Company, except as Directors. For this purpose,
an indirect relationship shall include circumstances in which a member of
the immediate family of a Director has one of the foregoing relationships
with the Advisor or the Company or any of their Affiliates. For purposes
of determining whether or not the business or professional relationship is
material, the aggregate gross revenue derived by the prospective
Independent Director from the Company, the Sponsor and the Advisor and
their Affiliates shall be deemed material PER SE if it exceeds five percent
of the prospective Independent Director's: (i) annual gross revenue,
derived from all sources, during either of the last two years; or (ii) net
worth, on a fair market value basis.
(s) "Invested Capital" means the original issue price paid for the
Shares reduced by prior distributions from the sale or financing of the
Company's Properties.
3
<PAGE>
(t) "IREAI" means Inland Real Estate Acquisitions, Inc.
(u) "IREAS" means Inland Real Estate Advisory Services, Inc.
(v) "IREC" means Inland Real Estate Corporation, a REIT.
(w) "IREIC" means Inland Real Estate Investment Corporation, which is
a wholly-owned subsidiary of The Inland Group, Inc. The Advisor is a
wholly owned subsidiary of IREIC. IREIC is the Sponsor of the Company and
of IREC.
(x) "Management Agent" means an entity which provides property
rental, leasing, operation and management services to the Company. The
Management Agent is Inland Southeast Property Management Corp., an
Affiliate of the Advisor, or anyone which succeeds it in such capacity.
(y) "Net Income" means, for any period, total revenues applicable to
such period, less the expenses applicable to such period other than
additions to or allowances for reserves for depreciation, amortization or
bad debts or other similar non-cash reserves; provided, however, that Net
Income shall not include the gain from the sale of the Company's assets.
(z) "Offering" means the offering of Shares of the Company pursuant
to the Prospectus.
(aa) "Organization and Offering Expenses" means all those expenses
incurred by and to be paid from the assets of the Company in connection
with and in preparing the Company for registration and subsequently
offering and distributing Shares to the public, including, but not limited
to, total underwriting and brokerage discounts and commissions (including
fees and expenses of underwriters and their accountants and attorneys paid
by the Company), expenses for printing, engraving, mailing, salaries of the
Company's employees while engaged in sales activity, charges of transfer
agents, registrars, trustees, escrow holders, depositaries, experts,
expenses of qualification of the sale of the securities under federal and
state laws, including taxes and fees, and accountants' and attorneys' fees
and expenses.
(bb) "Person" means any individual, corporation, business trust,
estate, trust, partnership, limited liability company, association, two or
more persons having a joint or common interest, or any other legal or
commercial entity.
(cc) "Primary Geographical Area of Investment" of the Company means
the states east of the Mississippi River in the United States.
(dd) "Property" or "Properties" means any, or all, respectively, of
the real property and improvements thereon owned or to be owned by the
Company, directly or indirectly.
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(ee) "Property Disposition Fee" means a real estate disposition fee,
payable (under certain conditions) to the Advisor and its Affiliates upon
the sale of the Company's Property in an amount equal to the lesser of:
(i) 3% of the contracted for sales price of the Property; or (ii) 50% of
the commission paid to third parties which is reasonable, customary and
competitive in light of the size, type and location of such Property.
(ff) "Property Management Fee" means any fee paid to an Affiliate or
third party as compensation for management of the Company's Properties.
The Property Management Fee shall be equal to not more than 90% of the fee
which would be payable to an unrelated party providing such services, which
fee shall initially be 4.5% of the gross revenues from the Properties.
(gg) "Prospectus" means the final prospectus of the Company in
connection with the initial registration of Shares filed with the
Securities and Exchange Commission on Form S-11, as amended and
supplemented.
(hh) "Real Property" means improved and unimproved land, improvements,
furniture and fixtures located on or used in connection with, land and any
interest in any of the foregoing, including an interest in air and
subterranean or mineral rights.
(ii) "Retail Center" means real estate primarily improved for use as
retail establishments, principally a multi-tenant Neighborhood Center or
Community Center (but also including a Regional Center or single-user
retail facilities) or improved with other commercial facilities which
provide goods or services. The terms "Neighborhood Center," "Community
Center," "Regional Center" and "Super Regional Center" shall have the
meanings ascribed to them in the Prospectus.
(jj) "Shares" means the shares of common stock, par value $0.01 per
share, of the Company, and "Share" means one of those Shares.
(kk) "Sponsor" means IREIC.
(ll) "Stockholders" means holders of Shares.
(mm) "Total Operating Expenses" means the aggregate expenses of every
character paid or incurred by the Company as determined under generally
accepted accounting principles, including Advisor Asset Management Fees,
but excluding:
(i) the expenses of raising capital such as Organization
and Offering Expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and other
such expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the
Shares;
(ii) interest payments;
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(iii) taxes;
(iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves;
(v) the Incentive Advisory Fee payable to the Advisor; and
(vi) Acquisition Expenses, real estate commissions on resale
of Real Property and other expenses connected with the acquisition,
disposition and ownership of real estate interests, mortgage loans or
other property (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair and improvement of Real Property).
Any capitalized terms in this Agreement which are not defined in this
Agreement, but which are defined in the Prospectus, shall have the meanings
ascribed to them in the Prospectus.
2. DUTIES OF ADVISOR. The Advisor shall consult with the Company and
shall, at the request of the Board of Directors or the officers of the Company,
furnish advice and recommendations with respect to all aspects of the business
and affairs of the Company. In general, the Advisor shall inform the Board of
Directors of factors which come to its attention which would influence the
policies of the Company. Subject to the supervision of the Board of Directors
and consistent with the provisions of the Articles of Incorporation, the Advisor
shall use its best efforts to:
(a) Present to the Company a continuing and suitable real estate
investment program and opportunities to make investments in Real Properties
consistent with the investment policies of the Company and the investment
program adopted by the Board of Directors and in effect at the time and
furnish the Company with advice with respect to the making, acquisition,
holding and disposition of investments and commitments therefor. In
presenting investment opportunities hereunder, the Advisor shall comply
with, and be subject to, the provisions of that certain Property
Acquisition Service Agreement, dated ____________, 1998, among Inland Real
Estate Acquisitions, Inc. ("IREAI"), the Advisor, the Company, Inland Real
Estate Advisory Services, Inc. ("IREAS") and Inland Real Estate Corporation
("IREC") (the "Property Acquisition Service Agreement"), as the same may be
amended from time to time. To the extent possible, the resolution of
conflicting investment opportunities between the Company, IREC and other
investment entities advised or managed by the Advisor and its Affiliates
will, as a general rule, be resolved by giving priority to the geographical
location of the prospective investment opportunity (the "Proposed
Property"). Subject to the exception described below, the Property
Acquisition Service Agreement grants the Company the first opportunity
to purchase any Proposed Property in the Company's Primary Geographical
Area of Investment which is placed under contract by IREAI, the Advisor
or its Affiliates, provided the Company is able to close the purchase of
the Proposed Property within 60 days. Similarly, IREC is granted the
first opportunity to purchase any Proposed
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Property in its primary geographic area of investment (a 400 mile radius
of the headquarters in Oak Brook, Illinois, of The Inland Group, Inc.)
placed under contract by IREAI, IREAS or its Affiliates, provided it is
able to close the purchase of the Proposed Property within 60 days. In
the event the Proposed Property is located in both the Company's and
IREC's primary geographic area of investment and both have funds available
to make the purchase, the Proposed Property will first be offered to IREC.
If IREC does not purchase the Proposed Property, it will then be offered
to the Company.
The Property Acquisition Service Agreement also provides that if
(i) the Proposed Property is outside the primary geographical area of
investment of both the Company and IREC, (ii) the Company, IREC and any
other real estate investment program sponsored by IREIC have funds
available to make the purchase and (iii) the Proposed Property meets each
of their respective acquisition criteria, then the Proposed Property
will (x) first be offered to the IREC, (y) if IREC does not purchase the
Proposed Property, it will then be offered to the Company, and (z) if the
Company does not purchase the Proposed Property, it will then be offered to
such other real estate investment program sponsored by IREIC.
Other factors which may be considered in connection with evaluating
the suitability of the Proposed Property for investment include: (i) the
effect of the acquisition on the diversification of each entity's
portfolio; (ii) the amount of funds available for investment; (iii) cash
flow; and (iv) the estimated income tax effects of the purchase and
subsequent disposition. The Independent Directors of the Company must, by
a majority vote, approve all actions by the Advisor or its Affiliates which
present potential conflicts with the Company.
(b) Manage the Company's day-to-day investment operations, subject to
the final paragraph of this Section 2, to effect the investment program
adopted by the Board of Directors and perform or supervise the performance
of such other administrative functions necessary in connection with the
management of the Company as may be agreed upon by the Advisor and the
Company;
(c) Serve as the Company's investment advisor, subject to the final
paragraph of this Section 2, in connection with policy decisions to be made
by the Board of Directors and, as requested, furnish reports to the Board
of Directors and provide research, economic and statistical data in
connection with the Company's investments and investment policies;
(d) On behalf of the Company, investigate, select and conduct
relations with lenders, consultants, accountants, brokers, property
managers, attorneys, underwriters, appraisers, insurers, corporate
fiduciaries, banks, builders and developers, sellers and buyers of
investments and persons acting in any other capacity specified by the
Company from time to time, and enter into contracts with, retain and
supervise services
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performed by such parties in connection with investments which have been
or may be acquired or disposed of by the Company;
(e) Cooperate with the Management Agent in connection with property
management services and other activities relating to the Company's assets
as the Advisor shall deem appropriate in the particular circumstances,
subject to the requirement that the Advisor or the Management Agent, as the
case may be, qualifies as an "independent contractor" as that phrase is
used in connection with applicable laws, rules and regulations affecting
REITs that own Real Property;
(f) Upon request of the Company, act, or obtain the services of
others to act, as attorney-in-fact or agent of the Company in making,
acquiring and disposing of investments, disbursing, and collecting the
funds, paying the debts and fulfilling the obligations of the Company and
handling, prosecuting and settling any claims of the Company, including
foreclosing and otherwise enforcing mortgage and other liens and security
interests securing investments;
(g) Assist in negotiations on behalf of the Company with investment
banking firms and other institutions or investors for public or private
sales of securities of the Company or for other financing on behalf of the
Company, but in no event in such a way that the Advisor shall be acting as
a broker, dealer, underwriter or investment advisor in securities of or for
the Company;
(h) Maintain, with respect to any Real Property and to the extent
available, title insurance or other assurance of title and customary fire,
casualty and public liability insurance;
(i) Upon request of the Board of Directors, and subject to the final
paragraph of this Section 2, invest and reinvest any money of the Company;
(j) Supervise the preparation and filing and distribution of returns
and reports to governmental agencies and to investors and act on behalf of
the Company in connection with investor relations;
(k) Provide office space, equipment and personnel as required for the
performance of the foregoing services as Advisor;
(l) Advise the Company of the operating results of the Company
properties, to cause the Manager to prepare on a timely basis, and to
review, for such properties operating budgets, maintenance and improvement
schedules, one, three and five year projections of operating results and
such other reports as may be appropriate;
(m) As requested by the Company, make reports to the Company of its
performance of the foregoing services and furnish advice and
recommendations with respect to other aspects of the business of the
Company;
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(n) Prepare on behalf of the Company all reports and returns required
by the Securities and Exchange Commission, Internal Revenue Service and
other state or federal governmental agencies;
(o) Undertake and perform all services or other activities necessary
and proper to carry out the investment objectives of the Company; and
(p) Undertake communications with Stockholders in accordance with
applicable law and the Articles of Incorporation, provided, however, that
Affiliates of the Advisor have no obligations to the Company other than as
expressly stated herein, and the Advisor and its Affiliates have no
obligations to present to the Company any specific investment opportunity
except as described in the Prospectus.
In providing advice and services as provided in subparagraphs (a) through (p)
above of this Section 2, the Advisor shall not (i) engage in any activity which
would require it to be registered as an "Investment Advisor," as that term is
defined in the Investment Advisors Act of 1940 OR in any state securities law or
(ii) cause the Company to make such investments as would cause the Company to
become an "Investment Company," as that term is defined in the Investment
Company Act of 1940.
3. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor are not,
and shall not be deemed to be, partners or joint venturers with each other.
4. RECORDS. The Advisor shall maintain appropriate books of account and
records relating to services performed hereunder, which shall be accessible for
inspection by the Company at any time during ordinary business hours.
5. REIT QUALIFICATIONS. Notwithstanding any other provision of this
Agreement to the contrary, the Advisor shall refrain from any action which, in
its reasonable judgment or in any judgment of the Board of Directors of which
the Advisor has written notice, would adversely affect the qualification of the
Company as a REIT under the Code or which would violate any law, rule or
regulation of any governmental body or agency having jurisdiction over the
Company or its securities, or which would otherwise not be permitted by the
Articles of Incorporation. If any such action is ordered by the Board of
Directors, the Advisor shall promptly notify the Board of Directors of the
Advisor's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Articles of Incorporation and
shall refrain from taking such action pending further clarification or
instruction from the Board of Directors.
6. BANK ACCOUNTS. At the direction of the Board of Directors, the
Advisor may establish and maintain bank accounts in the name of the Company, and
may collect and deposit into and disburse from such accounts moneys on behalf of
the Company, upon such terms and conditions as the Board of Directors may
approve, provided that no funds in any such account shall be commingled with
funds of the Advisor. The Advisor shall from time to time, as the Company may
require, render appropriate accountings of such collections, deposits and
disbursements to the Board of Directors and to the auditors of the Company.
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7. FIDELITY BOND. The Advisor shall not be required to obtain or
maintain a fidelity bond in connection with the performance of its services
hereunder.
8. INFORMATION FURNISHED ADVISOR. The Board of Directors will keep the
Advisor informed in writing concerning the investment and financing policies of
the Company. The Board of Directors shall notify the Advisor promptly in
writing of its intention to make any investments or to sell or dispose of any
existing investments. The Company shall furnish the Advisor with a certified
copy of all financial statements, a signed copy of each report prepared by
independent certified public accountants, and such other information with regard
to its affairs as the Advisor may reasonably request.
9. COMPENSATION. The Advisor and its Affiliates shall be paid for
services rendered by the Advisor under this Agreement as follows:
(a) Acquisition Expenses, for the expenses attendant to Property
acquisitions, in an aggregate amount not in excess of 0.5% of (i) the Gross
Offering Proceeds, (ii) the gross proceeds from the sale of up to 4,000,000
Shares pursuant to the Company's Distribution Reinvestment Program, and
(iii) the gross proceeds from the issuance and exercise of the Soliciting
Dealer Warrants, PROVIDED THAT the Acquisition Expense respecting any
specific Property acquired by the Company shall not exceed 6% of the gross
purchase price of that Property;
(b) An Advisor Asset Management Fee of not more than 1% of the
Average Invested Assets. This fee will be payable quarterly in an amount
equal to one-fourth of 1% of the Average Invested Assets of the Company as
of the last day of the immediately preceding quarter. For any year in
which the Company qualifies as a REIT, the Advisor may be required to
reimburse the Company certain sums as described in Section 14;
(c) Reimbursement for the cost to the Advisor and its Affiliates for:
(i) the cost to the Advisor or its Affiliates of goods and services used
for and by the Company and obtained from unaffiliated parties; and
(ii) administrative services related thereto. "Administrative Services"
include ministerial services such as typing, record keeping, preparation
and dissemination of Company reports, preparation and maintenance of
records regarding Stockholders, record keeping and administration of the
Company's Distribution Reinvestment and Share Repurchase Programs,
preparation and dissemination of responses to Stockholder inquiries and
other communications with Stockholders and any other record keeping
required for Company purposes. Such reimbursements are subject to
limitations imposed by Sections 10(b) and (c) hereof;
(d) An Incentive Advisory Fee equal to 15% of the remaining proceeds
from the sale of Real Properties after the Stockholders have first
received: (i) their Cumulative Return; and (ii) the return of their
Invested Capital. At such time as the business of the Advisor is acquired
by or consolidated into the Company pursuant to Section 12 hereof, the
Incentive Advisory Fee shall also terminate;
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(e) A Property Disposition Fee, payable upon the sale of a Real
Property equal to the lesser of: (i) 3% of the contracted for sales price
of the Real Property or (ii) 50% of the commission paid to third parties
which is reasonable, customary and competitive in light of the size, type
and location of such property ("Competitive Real Estate Commission"). The
amount paid to the Advisor, when added to the sums paid to unaffiliated
parties, shall not exceed the lesser of the Competitive Real Estate
Commission or an amount equal to 6% of the contracted for sales price.
Payment of such Property Disposition Fee shall be made only if the Advisor
provides a substantial amount of services in connection with the sale of
the particular parcel(s) of Real Property; and
(f) The compensation and reimbursements paid by the Company to the
Advisor and its Affiliates shall be approved by a majority of the Directors
(including a majority of the Independent Directors), as being fair and
reasonable to the Company and not less favorable to the Company than would
be available from an unaffiliated source.
10. COMPENSATION FOR ADDITIONAL SERVICES, CERTAIN LIMITATIONS.
(a) If the Company shall request the Advisor or its Affiliates to
render services for the Company other than those required to be rendered by
the Advisor hereunder, such additional services, if performed, will be
compensated separately on terms to be agreed upon between such party and
the Company from time to time in accordance with this Section. The rate of
compensation for such services and any reimbursements to be paid by the
Company to the Advisor and its Affiliates shall be approved by a majority
of the Board of Directors, including a majority of the Independent
Directors, as being fair and reasonable to the Company and not less
favorable to the Company than would be available from an unaffiliated
source.
(b) In extraordinary circumstances fully justified to the official or
agency administering the appropriate state securities laws, the Advisor and
its Affiliates may provide other goods and services to the Company if all
of the following criteria are met: (i) the goods or services must be
necessary to the prudent operation of the Company; (ii) the compensation,
price or fee must be equal to the lesser of 90% of the compensation, price
or fee the Company would be required to pay to independent parties who are
rendering comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location, or 90% of the
compensation, price or fee charged by the Advisor or its Affiliates for
rendering comparable services or selling or leasing comparable goods on
competitive terms; and (iii) if at least 95% of gross revenues attributable
to the business of rendering such services or selling or leasing such goods
are derived from persons other than Affiliates, the compensation, price or
fee charged by an unaffiliated person who is rendering comparable services
or selling or leasing comparable goods must be on competitive terms in the
same geographic location. Extraordinary circumstances shall be presumed
only when there is an emergency situation requiring immediate action by the
Advisor or its Affiliates and
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the goods or services are not immediately available from unaffiliated
parties. Services which may be performed in such extraordinary
circumstances include emergency maintenance of Company properties,
janitorial and other related services due to strikes or lock-outs,
emergency tenant evictions and repair services which require immediate
action, as well as operating and re-leasing properties with respect to
which the leases are in default or have been terminated.
(c) Permitted reimbursements shall include salaries and related
salary expenses for non-supervisory services which could be performed
directly for the Company by independent parties such as legal, accounting,
transfer agent, data processing and duplication.
The Advisor believes that the employees of the Advisor and its Affiliates
who may perform services for the Company for which reimbursement is allowed
pursuant to Sections 10(b) or 10(c), will have the experience and educational
background, in their respective fields of expertise, appropriate for the
performance of any such services.
11. STATEMENTS. The Advisor shall furnish to the Company not later than
the 10th day of each calendar quarter, beginning with the second calendar
quarter of the term of this Agreement, a statement showing the computation of
any Advisor Asset Management Fee payable to it during such quarter under
Section 9 hereof. The Advisor shall furnish to the Company not later than the
30th day following the end of each Fiscal Year, a statement showing a
computation of: (i) the Incentive Advisory Fee, if any, payable in respect of
such Fiscal Year under Section 9 hereof; and (ii) the fees or other compensation
payable to the Advisor or an Affiliate of the Advisor with respect to such
Fiscal Year under Sections 9 and 10 hereof. The final settlement or
compensation payable under Sections 9 and 10 hereof for each Fiscal Year shall
be subject to adjustments in accordance with, and upon completion of, the annual
audit of the Company's financial statements.
12. BUSINESS COMBINATION OF THE COMPANY AND THE ADVISOR. The Company
shall have the option at any time after three years from the initial date of
effectiveness of the initial final Prospectus, upon prior written notice,
during the term of this Agreement without any consent of the Advisor or its
Board of Directors or shareholders to cause the business conducted by the
Advisor (including all of its assets) to be acquired by or consolidated into
the Company. In such event, the Advisor and/or its respective shareholders
will receive in connection with such an acquisition and in exchange for
terminating this Agreement and the release or waiver of all fees payable
under the provisions of this Agreement until its stated termination, but not
paid, a determinable number of Shares. The Company will be obligated to pay
any fees accrued under this Agreement for services rendered through the
closing of such acquisition.
The number of Shares to be issued by the Company to the Advisor shall be
determined as follows. The Company shall first send notice (the "Election
Notice") to the Advisor of its election to proceed with such a transaction.
Next, the net income of the Advisor, for the six month period immediately
preceding the month in which the Election Notice is delivered, as determined
by an independent audit conducted in accordance with generally accepted
auditing standards, shall be annualized. The Advisor shall bear the cost of
any such audit. Such amount shall then be multiplied by ninety percent (90%)
and then divided by the "Funds from Operations per Weighted Average Share" of
the Company. "Funds from Operations per Weighted Average Share" shall be
equal to the annualized Funds from Operations (I.E., four times the Funds
from Operations for the quarter immediately preceding the delivery of the
Election Notice) per weighted average Share for the Company for such quarter,
all based upon the quarterly report of the Company delivered to Stockholders
for such quarter. The resulting quotient shall constitute the number of
Shares to be issued by the Company to the Advisor or its shareholders, with
delivery thereof and the closing of the transaction to occur within 90 days
of delivery of the Election Notice. Any such transaction will occur, if at
all, only if the Board obtains a fairness opinion from a recognized financial
advisor or institution providing valuation services to the effect that the
consideration to be paid therefor is fair, from a financial point of view, to
the Stockholders of the Company.
The Company shall not terminate this Agreement solely for the purpose of
avoiding such a business combination, such as in anticipation of the listing
of the Shares on a national stock exchange or their inclusion in a national
market system.
13. EXPENSES OF THE COMPANY. The Company shall pay all of its expenses
and shall reimburse the Advisor for its expenses as provided in Sections 9
and 10 hereof and,
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without limiting the generality of the foregoing, it is agreed that the
following expenses of the Company shall be paid by the Company:
(a) To the extent the Advisor is not expressly required to pay such
expenses pursuant to this Agreement, salaries and other employment expenses
of the personnel employed by the Company, Directors' fees and expenses
incurred in attending Directors meetings, travel and other expenses
incurred by Directors, officers and employees of the Company and the cost
of Directors' liability insurance;
(b) The cost of borrowed moneys;
(c) All taxes applicable to the Company;
(d) Legal, accounting, auditing, underwriting, brokerage, listing,
registration and other expenses and taxes incurred in connection with the
organization or termination of the Company, the issuance, distribution,
transfer, registration and stock exchange or quotation system listing of
the Company's securities;
(e) Fees and expenses paid to advisors, independent contractors, the
Management Agent, consultants, managers and other agents employed directly
by the Company or by the Advisor at the Company's request for the account
of the Company or by Affiliates of the Advisor, as provided above;
(f) Expenses in connection with the acquisition, disposition, leasing
and ownership of investments, including to the extent not paid by others,
but not limited to, legal fees and other expenses of professional services,
maintenance, repair and improvement of property and brokerage and sales
commissions, expenses of maintaining and managing Real Property equity
interests (including the fees and charges of the Management Agent);
(g) All insurance costs incurred in connection with the Company;
(h) Expenses connected with payments of dividends or interest or
distributions in cash or in any form made or caused to be made by the Board
of Directors to holders of securities of the Company;
(i) All expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities and in
complying with the continuous reporting and other requirements of
governmental bodies or agencies, including the cost of printing and mailing
certificates for securities and proxy solicitation materials and reports to
holders of the Company's securities;
(j) Transfer agent and registrar's fees and charges; and
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(k) Expenses relating to any office or office facilities maintained
by the Company separate from the office or offices of the Advisor.
14. REIMBURSEMENT BY ADVISOR. The Advisor shall be obligated to reimburse
the Company in the following circumstances:
(a) On or before the 15th day after the completion of the annual
audit of the Company's financial statements for each Fiscal Year, the
Advisor will reimburse the Company for the amounts, if any, (i) by which
the Total Operating Expenses (including the Advisor Asset Management Fee)
of the Company for such Fiscal Year exceeded the greater of: (a) 2% of the
total of the Company's Average Invested Assets for such Fiscal Year; or
(b) 25% of the Net Income for such Fiscal Year; PLUS (ii) equal to any
deficit between the total amount of distributions to Stockholders for such
Fiscal Year and the Current Return; provided, however, that the Company may
instead permit such reimbursements to be effected by a reduction in the
amount of the monthly payments of compensation under Section 9(a) hereof
during the balance of the Fiscal Year next following the Fiscal Year with
respect to which such reimbursement is to be made; and provided, further,
that only so much of such excess specified in clause (i) of this paragraph
(a) need be reimbursed as the Board of Directors, including a majority of
the Independent Directors of the Company, shall determine should
justifiably be reimbursed in light of such unanticipated, unusual or
non-recurring factors as may have occurred within 60 days after the end of
an fiscal quarter of the Company for which Total Operating Expenses (for
the 12 months then ended) exceeded 2% of Average Invested Assets or 25% of
Net Income, whichever is greater, and there shall be sent to the
Stockholders a written disclosure of such fact, together with an
explanation of the factors the Independent Directors considered in arriving
at the conclusion that such higher Total Operating Expenses were justified.
(b) If the aggregate of all Organization and Offering Expenses
attendant to the Offering (including Selling Commissions and the Marketing
Contribution and Due Diligence Expense Allowance) should exceed 15% of the
Gross Offering Proceeds OR if the aggregate of all Organization and
Offering Expenses (excluding any Selling Commissions) should exceed 5.5% of
the Gross Offering Proceeds, the Advisor shall pay directly and/or cause
its Affiliates to pay directly any such excess Organization and Offering
Expenses incurred by the Company and the Company will have no liability for
such excess expenses.
15. OTHER ACTIVITIES OF THE ADVISOR. Nothing herein contained shall
prevent the Advisor or an Affiliate of the Advisor from engaging in any other
business or activity including the rendering of services and investment advice
with respect to real estate investment opportunities to any other person or
entity and the management of other investments (including the investments of the
Advisor and its Affiliates).
Directors, officers, employees and agents of the Advisor or of Affiliates
of the Advisor may serve as Directors, trustees, officers, employees or agents
of the Company, but shall
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receive no compensation (other than reimbursement for expenses) from the
Company for such service.
16. TERM; TERMINATION OF AGREEMENT. This Agreement shall have an initial
term of one year and, thereafter, will continue in force for successive one-year
renewals with the mutual consent of the parties including an affirmative vote of
a majority of the Independent Directors. Each extension shall be executed in
writing by both parties hereto before the expiration of this Agreement or of any
extension thereof.
Notwithstanding any other provision of the Agreement to the contrary,
either the Company or the Advisor may terminate this Agreement, or any extension
hereof, or the parties by mutual consent or a majority of the Independent
Directors may do so, in each case upon 60 days written notice without cause or
penalty. In the event of the termination of the Agreement, the Advisor will
cooperate with the Company and take all reasonable steps requested to assist the
Board of Directors in making an orderly transition of the advisory function.
This Agreement shall terminate upon the consummation of a business
combination involving the Advisor and the Company as described in Section 12.
If this Agreement is terminated pursuant to this Section, such termination
shall be without any further liability or obligation of either party to the
other, except as provided in Section 19.
If this Agreement is terminated for any reason other than a business
combination involving the Advisor and the Company as described in Section 12,
all obligations of the Advisor and its Affiliates to offer Property to the
Company for purchase, as described in Section 2(a), shall also terminate.
17. ASSIGNMENTS. The Company may terminate this Agreement in the event of
its assignment by the Advisor except an assignment to a successor organization
which acquires substantially all of the property and carries on the affairs of
the Advisor, provided that following such assignment the persons who controlled
the operations of the Advisor immediately prior thereto all control the
operations of the successor organization, including the performance of its
duties under this Agreement; however, if at any time subsequent to such
assignment such persons shall cease to control the operations of the successor
organization, the Company may thereupon terminate this Agreement. This
Agreement shall not be assignable by the Company without the consent of the
Advisor, except in the case of assignment by the Company to a corporation, trust
or other organization which is a successor to the Company. Any assignment of
this Agreement shall bind the assignee hereunder in the same manner as the
assignor is bound hereunder.
18. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Company, this
Agreement shall be terminated immediately upon written notice of termination
from the Board of Directors to the Advisor if any of the following events
occurs:
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(a) The Advisor violates any provisions of this Agreement and after
notice of such violation shall not cure such default within 30 days; or
(b) A court of competent jurisdiction enters a decree or order for
relief in respect of the Advisor in any involuntary case under the
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appoints a receiver liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Advisor or for any substantial
part of its property or orders the winding up or liquidation of the
Advisor's affairs; or
(c) The Advisor commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, or consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Advisor or for any substantial part of its
property, or makes any general assignment for the benefit of creditors, or
fails generally to pay its debts as they become due.
The Advisor agrees that if any of the events specified in subsections (b)
and (c) of this Section 18 occur, it will give written notice thereof to the
Company within seven days after the occurrence of such event.
19. ACTION UPON TERMINATION. The Advisor shall not be entitled to
compensation after the date of termination of this Agreement for further
services hereunder, but shall be paid all compensation accruing to the date of
termination. Subject to the provisions of Section 12, the Advisor shall
forthwith upon a termination caused by factors other than the listing for
trading of the Shares on a national stock exchange or market:
(a) Pay over to the Company all moneys collected and held for the
account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(b) Deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money
held by it, covering the period following the date of the last accounting
furnished to the Board of Directors;
(c) Deliver to the Board of Directors all property and documents of
the Company then in the custody of the Advisor; and
(d) Cooperate with the Company and take all reasonable steps
requested by the Company to assist the Board of Directors in making an
orderly transition of the Advisory function.
20. CHANGE OF NAME. The Company recognizes that the name and mark
"Inland" have established prestige and goodwill and have acquired valuable
secondary meanings in the real estate and related industries and in the mind of
the public. The Company desires to
16
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associate itself with and benefit from the "Inland" name, and in
consideration of the grant by the Advisor and its Affiliates of a perpetual
royalty-free license to the Company (which license has been authorized),
subject to the conditions set forth in this Section 20, to use the name and
mark "Inland" in connection with a real estate investment trust throughout
the United States, its territories and possessions, the Company agrees that:
(a) The value of the "Inland" name cannot be reasonably and
adequately compensated for in damages in action at law and unauthorized use
of the "Inland" name will cause irreparable injury and damage to the
Advisor and its Affiliates. The Advisor or its Affiliates shall be
entitled as a matter of right to injunctive relief to prevent the use of
the "Inland" name by the Company in the event of the circumstances
described in Subsection (d) below.
(b) The Company agrees to use the "Inland" name and mark in a manner
which will protect the right of the Advisor and its Affiliates therein and
such use shall be as licensee for the account and benefit of the Advisor
and its Affiliates. To the extent any rights in the name or mark "Inland"
are deemed to accrue to the Company, the Company hereby assigns any and all
such rights to the Advisor and its Affiliates at such time as they may be
deemed to accrue.
(c) Nothing contained in this Agreement shall be construed an
assignment or grant to the Company of any right, title or interest in or to
the name or mark "Inland" or any other trademarks, trade names or related
service marks, insignias, logos, designs and color schemes, it being
understood that all rights relating thereto are reserved by the Advisor and
its Affiliates, except for the license hereunder to the Company of the
rights to use the name or mark as specifically and expressly provided
herein. The Company agrees to cooperate fully and in good faith with the
Advisor and its Affiliates, at the expense of the Advisor and its
Affiliates, in securing and preserving the rights of the Advisor and its
Affiliates in and to the name and mark "Inland" and to assist the Advisor
and its Affiliates in executing and causing to be recorded such documents
as may be necessary or desirable to evidence, protect and implement the
rights of the Advisor and its Affiliates pursuant to this Agreement.
(d) At such time as the Advisor is no longer providing services to
the Company pursuant to this Agreement for some reason other than the
consummation of a business combination described in Section 12, the Board
of Directors will upon the request of the Advisor and its Affiliates,
promptly cause the name of the Company to be changed in perpetuity to a
name which does not include any reference to the name "Inland" or any
successor thereof. Without limiting the generality of the foregoing, upon
termination of this Agreement by either party for some reason other than
the consummation of a business combination described in Section 12, the
Board of Directors will promptly cause the name of the Company to be
changed in perpetuity to a name which does not include any references to
the name "Inland" or any successor thereof.
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<PAGE>
21. AMENDMENTS. This Agreement shall not be amended, changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise provided herein.
22. SUCCESSORS AND ASSIGNS. This Agreement shall bind any successors or
assigns of the parties hereto as herein provided.
23. GOVERNING LAW. The provisions of this Agreement shall be governed,
construed and interpreted in accordance with the laws of the State of Illinois
as at the time in effect.
24. LIABILITY AND INDEMNIFICATION.
(a) The Company shall, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and, without
limiting the generality of the foregoing, in accordance with Section 2-418
of the General Corporation Law of Maryland, indemnify and pay or reimburse
reasonable expenses to the Advisor and its Affiliates, provided, that:
(i) the Advisor or other party seeking indemnification has determined, in
good faith, that the course of conduct which caused the loss or liability
was in the best interests of the Company; (ii) the Advisor or other person
seeking indemnification was acting on behalf of or performing services on
the part of the Company; (iii) such liability or loss was not the result of
negligence or misconduct on the part of the indemnified party; and
(iv) such indemnification or agreement to be held harmless is recoverable
only out of the assets of the Company and not from the Stockholders
thereof.
(b) The Company shall not indemnify the Advisor or its Affiliates for
losses, liabilities or expenses arising from or out of an alleged violation
of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication
on the merits of each count involving alleged securities law violations as
to the particular indemnitee; (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee; or (iii) a court of competent jurisdiction approves
a settlement of the claims and finds that indemnification of the settlement
and related costs should be made and the court considering the request has
been advised of the position of the Securities and Exchange Commission and
the published opinions of any state securities regulatory authority in
which securities of the Company were offered and sold with respect to the
availability or propriety of indemnification for securities law violations.
(c) The Company may advance amounts to persons entitled to
indemnification hereunder for legal and other expenses and costs incurred
as a result of any legal action for which indemnification is being sought
only if all of the following conditions are satisfied: (i) the legal
action relates to acts or omissions with respect to the performance of
duties or services by the indemnified part for or on behalf of the Company;
(ii) the legal action is initiated by a third party and a court of
competent
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<PAGE>
jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the
advanced funds to the Company, together with the applicable legal rate
of interest thereon, in any case(s) in which such party is found not to
be entitled to indemnification.
25. NOTICES. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is accepted by the party to
whom it is given and shall be given by being delivered at the following
addresses of the parties hereto:
The Company and/or the Board of Directors:
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attention: Ms. Roberta S. Matlin, Vice President
The Advisor:
Inland Retail Real Estate Advisory Services, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attention: President
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 25.
26. CONFLICTS OF INTEREST AND FIDUCIARY DUTIES TO THE COMPANY AND TO THE
COMPANY'S STOCKHOLDERS. The Company and the Advisor recognize that their
relationship is subject to various conflicts of interest as set forth in the
Prospectus. The Advisor, on behalf of itself and its Affiliates, acknowledges
that the Advisor and its Affiliates have fiduciary duties to the Company and to
the Company's Stockholders. The Advisor, on behalf of itself and its
Affiliates, represents and agrees (i) that the Advisor and its Affiliates will
endeavor to balance the interests of the Company with the interests of the
Advisor and its Affiliates in making any determination where a conflict of
interest exists between the Company and the Advisor or its Affiliates; and
(ii) that the actions and decisions of the Advisor and its Affiliates under this
Agreement (including but not limited to actions and decisions in connection with
the purchase of Properties for the Company) will be made in the manner most
favorable to the Company
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<PAGE>
and to the Company's Stockholders, so as not to breach their respective
fiduciary duties to the Company and to the Company's Stockholders.
27. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
COMPANY:
Inland Retail Real Estate Trust, Inc.
By:
----------------------------------------------
Title:
-------------------------------------------
ADVISOR:
Inland Retail Real Estate Advisory Services, Inc.
By:
----------------------------------------------
Title:
-------------------------------------------
20
<PAGE>
EXHIBIT 10.3
FORM OF
MASTER MANAGEMENT AGREEMENT,
INCLUDING THE FORM OF
MANAGEMENT AGREEMENT
FOR EACH PROPERTY
<PAGE>
MASTER MANAGEMENT AGREEMENT
This Master Management Agreement (this "Agreement") is entered into as
of the _______ day of ____________, 1998, by and between Inland Retail Real
Estate Trust, Inc., a Maryland corporation (the "Company") and Inland
Southeast Property Management Corp., a Delaware corporation (the "Agent").
WITNESSETH
WHEREAS, the Company intends to qualify as a "real estate investment
trust" (a "REIT") as defined in Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to make investments of the
type permitted to qualified REITs under the Code and not inconsistent with
the Articles of Incorporation of the Company, as amended (the "Articles") and
the Bylaws of the Company, as amended (such investments being referred to
herein collectively as the "Properties" and individually as a "Property"); and
WHEREAS, the Company desires to avail itself of the services,
experiences, sources of information, advice and assistance of the Agent and
to have the Agent manage the Properties and undertake the duties and
responsibilities hereinafter set forth; and
WHEREAS, the Agent is willing to undertake and render such services, on
the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto agree as follows:
1. The Company will hire the Agent to manage each of its Properties.
The engagement of the Agent by the Company for each Property shall be
pursuant to the terms of a separate Management Agreement in the form of
Exhibit A attached hereto (the "Form Agreement").
2. The Agent will manage each of the Properties acquired by the
Company, according to the terms of the Form Agreement.
3. The initial term of the Management Agreement with respect to each
Property shall commence on the date of acquisition of such Property by the
Company and shall end on December 31st of the year in which such acquisition
occurred, with the three successive three year renewal periods occurring
immediately thereafter.
4. The parties may mutually agree to vary the terms of the Form
Agreement for any or all of the Properties or to not enter into a Form
Agreement with respect to any Property.
5. The Company shall have the option at any time after three years
from the initial date of effectiveness of the initial final Prospectus of the
Company for its initial public
<PAGE>
offering, upon prior written notice, during the term of this Agreement
without any consent of the Management Agent or its Board of Directors or
shareholders to cause the business conducted by the Management Agent
(including all of its assets) to be acquired by or consolidated into the
Company. In such event, the Management Agent and/or its respective
shareholders will receive in connection with such an acquisition and in
exchange for terminating this Agreement and all Management Agreements entered
into pursuant hereto and the release or waiver of all fees payable under the
provisions of this Agreement and all Management Agreements entered into
pursuant hereto until its and their stated terminations, but not paid, a
determinable number of shares of common stock of the Company (the "Shares").
The Company will be obligated to pay any fees accrued under this Agreement
and all Management Agreements entered into pursuant hereto for services
rendered through the closing of such acquisition.
The number of Shares to be issued by the Company to the Management Agent
or its shareholders, as the case may be, shall be determined as follows. The
Company shall first send notice (the "Election Notice") to the Management
Agent of its election to proceed with such a transaction. Next, the net
income of the Management Agent for the six month period immediately preceding
the month in which the Election Notice is delivered, as determined by an
independent audit conducted in accordance with generally accepted auditing
standards, shall be annualized. The Management Agent shall bear the cost of
any such audit. Such amount shall then be multiplied by ninety percent (90%)
and then divided by the "Funds from Operations per Weighted Average Share" of
the Company. "Funds from Operations per Weighted Average Share" shall be
equal to the annualized Funds from Operations (I.E., four times the Funds
from Operations for the quarter immediately preceding the delivery of the
Election Notice) per weighted average Share of the Company for such quarter,
all based upon the quarterly report of the Company delivered to its
Stockholders for such quarter. The resulting quotient shall constitute the
number of Shares to be issued by the Company to the Management Agent or its
shareholders, with delivery thereof and the closing of the transaction to
occur within 90 days of delivery of the Election Notice. Any such
transaction will occur, if at all, only if the Board of Directors of the
Company obtains a fairness opinion from a recognized financial advisor or
institution providing valuation services to the effect that the consideration
to be paid therefor is fair, from a financial point of view, to the
Stockholders of the Company.
The Company shall not terminate this Agreement solely for the purpose of
avoiding such a business combination, such as in anticipation of the listing
of the Shares on a national stock exchange or their inclusion in a national
market system.
6. This Agreement may not be assigned by either party without the prior
written consent of the other party. This Agreement shall be effective as of
the date hereof and shall remain in effect until the earlier to occur of
(A) the event described in paragraph 5 hereof, or (B) December 31, 2020.
7. All notices required or permitted to be given hereunder shall be in
writing and shall be delivered at the following addresses of the parties
thereto:
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<PAGE>
THE COMPANY:
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, IL 60523
Attn: President
THE AGENT:
Inland Southeast Property Management Corp.
4812 South Tamiami Trail
Sarasota, FL 34231
Attn: Steven D. Sanders
With a copy to:
Inland Southeast Property Management Corp.
2901 Butterfield Road
Oak Brook, IL 60523
Attn: Scott Carr
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
THE COMPANY:
Inland Retail Real Estate Trust, Inc.
By:________________________________________
Its:_______________________________________
THE AGENT:
Inland Southeast Property Management Corp.
By:________________________________________
Its:_______________________________________
3
<PAGE>
CONSENT OF SHAREHOLDERS
The undersigned, being all of the shareholders of Inland Southeast Property
Management Corp. (the "Agent") hereby consent to the Agent entering into the
foregoing Master Management Agreement, and specifically agree to the provisions
of paragraph 5 thereof, as of the date of the Master Management Agreement.
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
4
<PAGE>
EXHIBIT A
MANAGEMENT AGREEMENT
IN CONSIDERATION of the mutual covenants and agreements herein contained,
Inland Retail Real Estate Limited Partnership, an Illinois limited partnership
("OWNER") and Inland Southeast Property Management Corp., a Delaware corporation
("AGENT"), agree as follows:
1. OWNER hereby employs the AGENT exclusively to rent, lease, operate and
manage the property commonly known as __________________ Shopping Center and
located in _______________, _______________, and legally described on
Exhibit "A" attached hereto and made a part hereof (the "Premises"), upon the
terms and conditions hereinafter set forth, for a term beginning on the ____ day
of _____________, 199_ and ending on the 31st day of December, 199_ and
thereafter for three successive three year renewal periods, with the first such
three year renewal period commencing on January 1st of __________ and ending on
December 31st of ___________, unless on or before thirty (30) days prior to the
date last above mentioned or on or before thirty (30) days prior to the
expiration of any such renewal period, AGENT shall notify OWNER in writing that
it elects to terminate this Agreement, in which case this Agreement shall be
thereby terminated on said last mentioned date. In addition, and
notwithstanding the foregoing, OWNER may terminate this Agreement at any time
upon delivery of written notice to AGENT not less than thirty (30) days prior to
the effective date of termination, in the event of (and only in the event of) a
showing by OWNER of willful misconduct, gross negligence, or deliberate
malfeasance by AGENT in the performance of AGENT'S duties hereunder. In the
event this Agreement is terminated for any reason prior to the expiration of its
original term or any renewal term, the OWNER shall
<PAGE>
indemnify, protect, defend, save and hold the AGENT and all of its
shareholders, officers, directors, employees, agents, successors and assigns
(collectively, "Indemnified Parties") harmless from and against any and all
claims, causes of action, demands, suits, proceedings, loss, judgments,
damage, awards, liens, fines, costs, attorney's fees and expenses, of every
kind and nature whatsoever (collectively, "Losses"), which may be imposed on
or incurred by the AGENT by reason of the willful misconduct, gross
negligence and/or unlawful acts (such unlawfulness having been adjudicated by
a court of proper jurisdiction) of OWNER.
2. THE AGENT AGREES:
2.1 To accept the management of the Premises, to the extent, for the
period, and upon the terms herein provided and agrees to furnish the
services of its organization for the rental, leasing, operation and
management of the Premises, and, without limiting the generality of the
foregoing, the AGENT agrees to be responsible for those specific duties and
functions set forth in Section 3 hereof. AGENT shall be entitled at all
times to manage the Premises in accordance with the AGENT'S standard
operating policies and procedures, except to the extent that any specific
provisions contained herein are to the contrary, in which case AGENT shall
manage the Premises consistent with such specific provisions. AGENT agrees
to use its best efforts to maintain the highest occupancy at the highest
rents for each space comprising the Premises.
2.2 To render monthly reports for the Premises to the OWNER, to the
attention of the individual and address as directed by the OWNER from time
to time, and to remit to the OWNER the excess of Gross Income (as defined
in Section 3.3 hereof) over expenses paid per Section 3.4 hereof ("Net
Proceeds") for each month on
2
<PAGE>
or before the 15th day of the following month. AGENT will remit the Net
Proceeds to the OWNER at the address as stated in Section 6.1 hereof. The
reports to be submitted shall consist of the AGENT'S Consolidated Cash
Report and Budget Variance Report, (samples of which are attached as
"Exhibit B") and such other monthly, quarterly and annual reports as are
customary in commercial property management relationships and as reasonably
requested by OWNER in writing from time to time.
2.3 In case the expenses paid per Section 3.4 hereof shall be in
excess of the Gross Income for any monthly period, AGENT shall notify OWNER
of same and OWNER agrees to pay such excess immediately upon request from
the AGENT, but nothing herein contained shall obligate the AGENT to advance
its own funds on behalf of the OWNER. All advances by AGENT on behalf of
OWNER shall be paid to AGENT by OWNER within ten (10) days after request.
2.4 To prepare annualized budgets for operation of the Premises and
submit same to the OWNER for approval. Such budgets shall be for planning
and informational purposes only, and the AGENT shall have no liability to
the OWNER for any failure to meet any such budget. However, AGENT will use
its best efforts to operate the Premises within the approved budget. The
parties acknowledge that the first such annual budget has been prepared and
approved for the year commencing _______________, 199_ and ending on
______________, 199_. Notwithstanding the period covered by the first
annual budget, all subsequent annual budgets shall cover the period from
January 1st of each year through December 31st of such year. The proposed
annual budget for each calendar year shall be submitted by AGENT to the
OWNER by December 1st of the year preceding the year for which it applies.
3
<PAGE>
OWNER shall notify AGENT within fifteen (15) days as to whether OWNER has
approved the proposed annual budget or not. If the OWNER disapproves the
proposed budget, the OWNER shall notify the AGENT of what, specifically,
OWNER disapproves of, and the OWNER and AGENT shall make the necessary
amendments to the annual budget. During the time OWNER and AGENT are
preparing these amendments, AGENT will continue to operate the Premises
according to the last approved budget. The OWNER'S approval of the annual
budget shall constitute approval for the AGENT to expend sums for all
budgeted expenditures, without the necessity to obtain additional approval
of the OWNER under any other expenditure limitations as set forth elsewhere
in this Agreement.
3. THE OWNER AGREES:
And does hereby give the AGENT the following exclusive authority and powers
(all of which shall be exercised in the name of AGENT, as agent for the OWNER)
and the OWNER agrees to assume all expenses in connection therewith:
3.1 To advertise the Premises or any part thereof and to display
signs thereon, as permitted by law; and to rent the same; to pay all
expenses of leasing the Premises, including but not limited to, newspaper
and other advertising, signage, banners, brochures, referral commissions,
leasing commissions, finder's fees and salaries, bonuses and other
compensation of leasing personnel responsible for the leasing of the
Premises; to cause references of prospective tenants to be investigated, it
being understood and agreed by the parties hereto that the AGENT does not
guarantee the credit worthiness or collectibility of accounts receivable
from tenants, users or lessees; and to negotiate new leases and renewals
and cancellations of existing leases
4
<PAGE>
which shall be subject to the AGENT obtaining OWNER'S approval. The AGENT
may collect from tenants all or any of the following: a late rent
administrative charge, a non-negotiable check charge, credit report fee, a
subleasing administrative charge and/or broker's commission and need not
account for such charges and/or commission to the OWNER; to terminate
tenancies and to sign and serve in the name of the OWNER of the Premises
such notices as are deemed necessary by the AGENT; to institute and
prosecute actions to evict tenants and to recover possession of the
Premises or portions thereof; with the OWNER'S authorization, to sue for
in the name of the OWNER of the Premises and recover rent and other sums
due; and to settle, compromise, and release such actions or suits, or
reinstate such tenancies. All expenses of litigation including, but not
limited to, attorneys' fees, filing fees, and court costs which AGENT
shall incur in connection with the collecting of rent and other sums, or
to recover possession of the Premises or any portion thereof shall be
deemed to be an operational expense of the Premises. AGENT and OWNER
shall concur on the selection of the attorney to handle such litigation.
3.2 To hire, supervise, discharge, and pay all labor required for the
operation and maintenance of the Premises including but not limited to on
site personnel, managers, assistant managers, leasing consultants,
engineers, janitors, maintenance supervisors and other employees required
for the operation and maintenance of the Premises, including personnel
spending a portion of their working hours (to be charged on a pro rata
basis) at the Premises (all of whom shall be deemed employees of the
Premises, not of the AGENT). All expenses of such employment shall be
deemed operational expenses of the Premises. To make or cause to be made
all
5
<PAGE>
ordinary repairs and replacements necessary to preserve the Premises in
its present condition and for the operating efficiency thereof and all
alterations required to comply with lease requirements, and to do
decorating on the Premises; to negotiate and enter into, as AGENT of the
OWNER of the Premises, contracts for all items on budgets that have been
approved by OWNER, any emergency services or repairs for items not
exceeding $5,000.00, appropriate service agreements and labor agreements
for normal operation of the Premises, which have terms not to exceed three
(3) years, and agreements for all budgeted maintenance, minor alterations,
and utility services, including, but not limited to, electricity, gas,
fuel, water, telephone, window washing, scavenger service, landscaping,
snow removal, pest exterminating, decorating and legal services in
connection with the leases and service agreements relating to the Premises,
and other services or such of them as the AGENT may consider appropriate;
and to purchase supplies and pay all bills. AGENT shall use its best
efforts to obtain the foregoing services and utilities for the Premises at
the most economical costs and terms available to AGENT. The OWNER hereby
appoints AGENT as OWNER'S authorized agent for the purpose of executing, as
managing agent for said OWNER, all such contracts. In addition, the OWNER
agrees to specifically assume in writing all obligations under all such
contracts so entered into by the AGENT, on behalf of the OWNER of the
Premises, upon the termination of this Agreement and the OWNER shall
indemnify, protect, save, defend and hold the AGENT and all of its
shareholders, officers, directors, employees, agents, successors and
assigns harmless from and against any and all claims, causes of action,
demands, suits, proceedings, loss, judgments, damage, awards, liens, fines,
costs, attorney's fees and expenses, of every
6
<PAGE>
kind and nature whatsoever, resulting from, arising out of or in any way
related to such contracts and which relate to or concern matters occurring
after termination of this Agreement, but excluding matters arising out of
AGENT's willful misconduct, gross negligence and/or unlawful acts. AGENT
shall secure the approval of, and execution of appropriate contracts by,
the OWNER for any non-budgeted and non-emergency/contingency capital items,
alterations or other expenditures in excess of $5,000.00 for any one item,
securing for each item at least three (3) written bids, if practicable, or
providing evidence satisfactory to OWNER that the contract amount is lower
than industry standard pricing, from responsible contractors. AGENT shall
have the right from time to time during the term hereof, to contract with
and make purchases from subsidiaries and affiliates of the AGENT, provided
that contract rates and prices are competitive with other available
sources. The AGENT may at any time and from time to time request and
receive the prior written authorization of the OWNER of the Premises of
any one or more purchases or other expenditures, notwithstanding that
the AGENT may otherwise be authorized hereunder to make such purchases or
expenditures.
3.3 To collect rents and/or assessments and other items, including
but not limited to tenant payments for real estate taxes, property
liability and other insurance, damages and repairs, common area
maintenance, tax reduction fees and all other tenant reimbursements,
administrative charges, proceeds of rental interruption insurance, parking
fees, income from coin operated machines and other miscellaneous income,
due or to become due (all such items being referred to herein as "Gross
Income") and give receipts therefor and to deposit all such Gross Income
collected hereunder in the
7
<PAGE>
AGENT'S custodial account which the AGENT will open and maintain, in a
state or national bank of the AGENT'S choice and whose deposits are
insured by the Federal Deposit Insurance Corporation, exclusively for
the Premises and any other properties owned by OWNER (or any entity that
is owned or controlled by the general partner of the OWNER) and managed
by AGENT. OWNER agrees that AGENT shall be authorized to maintain a
reasonable minimum balance (to be determined jointly from time to time)
in such account. AGENT may endorse any and all checks received in
connection with the operation of the Premises and drawn to the order of
the OWNER and the OWNER shall, upon request, furnish the AGENT'S depository
with an appropriate authorization for the AGENT to make such endorsement.
3.4 To pay all expenses of the Premises from the Gross Income
collected in accordance with 3.3 above, from the AGENT'S custodial account.
It is understood that the Gross Income will be used first to pay the
compensation to the AGENT as contained in Paragraph 5 below, then
operational expenses and then any mortgage indebtedness, including real
estate tax and insurance impounds, but only as directed by the OWNER in
writing and only if sufficient Gross Income is available for such payments.
3.5 Nothing in this Agreement shall be interpreted in such a manner
as to obligate the AGENT to pay from Gross Income, any expenses incurred by
OWNER prior to the commencement of this Agreement, except to the extent the
OWNER advances additional funds to pay such expenses.
3.6 To collect and handle tenants' security deposits, including the
right to apply such security deposits to unpaid rent, and to comply, on
behalf of the OWNER of
8
<PAGE>
the Premises, with applicable state or local laws concerning security
deposits and interest thereon, if any.
3.7 The AGENT shall not be required to advance any monies for the
care or management of the Premises, and the OWNER agrees to advance all
monies necessary therefor. If the AGENT shall elect to advance any money
in connection with the Premises, the OWNER agrees to reimburse the AGENT
forthwith and hereby authorizes the AGENT to deduct such advances from any
monies due the OWNER.
3.8 In connection with any insured losses or damages, to handle all
steps necessary regarding any such claim; provided that the AGENT will not
make any adjustments or settlements in excess of $10,000.00 without the
OWNER'S prior written consent.
3.9 Notwithstanding anything to the contrary contained in this
Agreement, OWNER acknowledges and agrees that any or all of the duties of
AGENT as contained herein may be delegated by AGENT and performed by a
person or entity ("Subagent") with whom AGENT contracts for the purpose of
performing such duties. OWNER specifically grants AGENT the authority to
enter into such a contract with a Subagent; provided that OWNER shall have
no liability or responsibility to any such Subagent for the payment of the
Subagent's fee or for reimbursement to the Subagent of its expenses or to
indemnify the Subagent in any manner for any matter; and provided further
that AGENT shall require such Subagent to agree, in the written agreement
setting forth the duties and obligations of such Subagent, to indemnify the
OWNER for all loss, damage or claims incurred by OWNER as a result of the
willful misconduct, gross negligence and/or unlawful acts of the Subagent.
9
<PAGE>
4. THE OWNER FURTHER AGREES:
4.1 To indemnify, defend, protect, save and hold the AGENT and all of
its shareholders, officers, directors, employees, agents, successors and
assigns (collectively, "Indemnified Parties") harmless from any and all
claims, causes of action, demands, suits, proceedings, loss, judgments,
damage, awards, liens, fines, costs, attorney's fees and expenses, of every
kind and nature whatsoever (collectively, "Losses") in connection with or
in any way related to the Premises and from liability for damage to the
Premises and injuries to or death of any person whomsoever, and damage to
property; provided, however, that such indemnification shall not extend to
any such Losses arising out of the willful misconduct, gross negligence
and/or unlawful acts (such unlawfulness having been adjudicated by a court
of proper jurisdiction) of AGENT or any of the other Indemnified Parties.
OWNER agrees to procure and carry at its own expense Public Liability
Insurance, Fire and Extended Coverage Insurance, Burglary and Theft
Insurance, Rental Interruption Insurance, Flood Insurance (if appropriate)
and Boiler Insurance (if appropriate) naming the OWNER and the AGENT as
insureds and adequate to protect their interests and in form, substance,
and amounts reasonably satisfactory to the AGENT, and to furnish to the
AGENT certificates and policies evidencing the existence of such insurance.
The premiums for all such insurance maintained by the OWNER shall be paid
by either the OWNER directly or, provided sufficient Gross Income is
available, by the AGENT from such Gross Income. Unless the OWNER shall
provide such insurance and furnish such certificate and policy within ten
(10) days from the date of this Agreement, the AGENT may, in its sole
discretion, but shall not be obligated to, place said insurance and charge
the cost thereof
10
<PAGE>
to the account of the OWNER. All such insurance policies shall provide
that the AGENT shall receive thirty (30) days' written notice prior to
cancellation of the policy. AGENT shall not be liable for any error of
judgment or for any mistake of fact or law, or for any thing which it may
do or refrain from doing, except in cases of willful misconduct, gross
negligence and/or unlawful acts (such unlawfulness having been
adjudicated by a court of proper jurisdiction).
4.2 OWNER hereby warrants and represents to AGENT that to the best of
OWNER'S knowledge, neither the Premises, nor any part thereof, has
previously been or is presently being used to treat, deposit, store,
dispose of or place any hazardous substance, that may subject AGENT to
liability or claims under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C.A. Section 9607) or any
constitutional provision, statute, ordinance, law, or regulation of any
governmental body or of any order or ruling of any public authority or
official thereof, having or claiming to have jurisdiction thereover.
Furthermore, OWNER agrees to indemnify, protect, defend, save and hold the
AGENT and all of its shareholders, officers, directors, employees, agents,
successors and assigns harmless from any and all claims, causes of action,
demands, suits, proceedings, loss, judgments, damage, awards, liens, fines,
costs, attorney's fees and expenses, of every kind and nature whatsoever,
involving, concerning or in any way related to any past, current or future
allegations regarding treatment, depositing, storage, disposal or placement
by any party other than AGENT of hazardous substances on the Premises.
4.3 To give adequate advance written notice to the AGENT if the OWNER
desires that the AGENT make payment, out of Gross Income, to the extent
funds are
11
<PAGE>
available after the payment of the AGENT'S compensation as contained in
Paragraph 5 and all operational expenses, of mortgage indebtedness,
general taxes, special assessments, or fire, boiler or any other
insurance premiums. In no event shall the AGENT be required to advance
its own money in payment of any such indebtedness, taxes, assessments or
premiums.
5. THE OWNER AGREES TO PAY THE AGENT, AS A MONTHLY MANAGEMENT FEE
HEREUNDER, an amount no greater than four and one half percent (4 1/2%) of Gross
Income for the month for which the payment is made, which shall be deducted
monthly by the AGENT and retained by the AGENT from Gross Income prior to
payment to OWNER of Net Proceeds. Such Management Fee shall be compensation for
those services specified herein. Any services beyond those specified herein,
such as sales brokerage, construction management, loan origination and
servicing, property tax reduction and risk management services, shall be
performed by AGENT and compensated by OWNER only if the parties agree on the
scope of such work and provided that the compensation to be paid therefor will
not exceed 90% of that which would be paid to unrelated parties providing such
services and provided further that all such compensation must be approved by a
majority of the independent directors of OWNER. OWNER acknowledges and agrees
that AGENT may pay or assign all or any portion of its Management Fee to a
Subagent as described in Section 3.9 hereof.
5.1 AGENT shall retain all administrative charges actually collected
from tenants in connection with annual common area maintenance
reconciliations and tenant chargebacks for same.
12
<PAGE>
6. IT IS MUTUALLY AGREED THAT:
6.1 OWNER shall designate one (1) person to serve as OWNER'S
Representative in all dealings with AGENT hereunder. Whenever the
notification and reporting to OWNER or the approval, consent or other
action of OWNER is called for hereunder, any such notification and
reporting if sent to or specified in writing to the OWNER'S Representative,
and any such approval, consent or action if executed by OWNER'S
Representative, shall be binding on OWNER. The OWNER'S Representative
shall be:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Roberta S. Matlin 2901 Butterfield Road
Oak Brook, Illinois 60523
</TABLE>
The OWNER'S Representative may be changed at the discretion of the OWNER,
at any time and from time to time, and shall be effective upon AGENT'S receipt
of written notice of the new OWNER'S Representative.
6.2 The OWNER expressly withholds from the AGENT any power or
authority to make any structural changes in any building or to make any
other major alterations or additions in or to any such building or
equipment therein, or to incur any expense chargeable to the OWNER, other
than expenses related to exercising the express powers above vested in the
AGENT without the prior written direction of the OWNER'S Representative,
except such emergency repairs as may be required to ensure the safety of
persons or property or which are immediately necessary for the preservation
and safety of the Premises or the safety of the tenants and occupants
thereof or are required to avoid the suspension of any necessary service to
the
13
<PAGE>
Premises. The person identified above as the OWNER'S Representative
(and any designated successor or successors to such OWNER'S Representative)
shall be the OWNER'S exclusive representative for all purposes hereof, and
the AGENT shall have the absolute right to rely upon all decisions,
approvals and directions of such person. Such representative shall have
the right to designate a successor representative by written notice to the
AGENT.
6.3 The AGENT shall be responsible for notifying OWNER in the event
it receives notice that any building on the Premises or any equipment
therein does not comply with the requirements of any statute, ordinance,
law or regulation of any governmental body or of any public authority or
official thereof having or claiming to have jurisdiction thereover. AGENT
shall promptly forward to the OWNER any complaints, warnings, notices or
summonses received by it relating to such matters. The OWNER represents
that to the best of its knowledge the Premises and such equipment comply
with all such requirements and authorizes the AGENT to disclose the OWNER
of the Premises to any such officials and agrees to indemnify, protect,
defend, save and hold the AGENT and the other Indemnified Parties harmless
of and from any and all Losses which may be imposed on them or any of them
by reason of the failure of OWNER to correct any present or future
violation or alleged violation of any and all present or future laws,
ordinances, statutes, or regulations of any public authority or official
thereof, having or claiming to have jurisdiction thereover, of which it has
actual notice.
6.4 In the event it is alleged or charged that any building on the
Premises or any equipment therein or any act or failure to act by the OWNER
with respect to the
14
<PAGE>
Premises or the sale, rental, or other disposition thereof fails to comply
with, or is in violation of, any of the requirements of any constitutional
provision, statute, ordinance, law, or regulation of any governmental body
or any order or ruling of any public authority or official thereof having
or claiming to have jurisdiction thereover, and the AGENT, in its sole and
absolute discretion, considers that the action or position of the OWNER,
with respect thereto may result in damage or liability to the AGENT, the
AGENT shall have the right to cancel this Agreement at any time by written
notice to the OWNER of its election so to do, which cancellation shall be
effective upon the service of such notice. Such notice may be served
personally or by registered mail, on or to the person named to receive
the AGENT'S monthly statement at the address designated for such person
as provided in Paragraph 6.1 above, and if served by mail shall be deemed
to have been served when deposited in the mails. Such cancellation shall
not release the indemnities of the OWNER set forth in this Agreement,
including, but not limited to, those set forth in Paragraphs 1, 3.2, 4.1,
4.2 and 6.3 above and shall not terminate any liability or obligation of
the OWNER to the AGENT for any payment, reimbursement, or other sum of
money then due and payable to the AGENT hereunder.
6.5 All personnel expenses, including but not limited to, wages,
salaries, insurance, fringe benefits, employment related taxes and other
governmental charges, shall be charges incurred in connection with the
Premises for purposes of Paragraph 3.4 hereof, to the extent such expenses
are apportioned by the AGENT to services rendered for the benefit of the
Premises. The number and classification of employees serving the Premises
shall be as determined by the AGENT to be appropriate for the proper
15
<PAGE>
operation of the Premises; provided that the OWNER may request changes in
the number and/or classifications of employees, and the AGENT shall make
such changes unless in its judgment the resulting level of operation and/or
maintenance of the Premises will be inadequate. The AGENT shall honor any
collective bargaining contract covering employment at the Premises which is
in effect upon the date of execution of this Agreement; provided that the
AGENT shall not assume or otherwise become a party to such contract for any
purpose whatsoever and all personnel subject to such contract shall be
considered the employees of the Premises and not the AGENT.
7. The OWNER shall pay or reimburse the AGENT for any sums of money due
it under this Agreement for services and advances prior to termination of this
Agreement. All provisions of this Agreement that require the OWNER to have
insured, or to protect, defend, save, hold and indemnify or to reimburse the
AGENT shall survive any expiration or termination of this Agreement and, if
AGENT is or becomes involved in any claim, proceeding or litigation by reason of
having been the AGENT of the OWNER, such provisions shall apply as if this
Agreement were still in effect. The parties understand and agree that the AGENT
may withhold funds for sixty (60) days after the end of the month in which this
Agreement is terminated to pay bills previously incurred but not yet invoiced
and to close accounts. Should the funds withheld be insufficient to meet the
obligation of the AGENT to pay bills previously incurred, the OWNER will upon
demand advance sufficient funds to the AGENT to ensure fulfillment of AGENT'S
obligation to do so, within ten (10) days of receipt of notice and an
itemization of such unpaid bills.
8. Nothing contained herein shall be construed as creating any rights in
third parties who are not the parties to this Agreement, nor shall anything
contained herein be
16
<PAGE>
construed to impose any liability upon OWNER or AGENT for the performance by
the OWNER or AGENT under any other agreement they have entered into or may in
the future enter into, without the express written consent of the other having
been obtained. Nothing contained in this Agreement shall be deemed or construed
to create a partnership or joint venture between OWNER and AGENT or to cause
either party to be responsible in any way for the debts or obligations of the
other or any other party (but nothing contained herein shall affect AGENT'S
responsibility to transmit payments for the account of OWNER as provided
herein), it being the intention of the parties that the only relationship
hereunder is that of AGENT and principal.
9. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited or invalid under such
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. This Agreement, its validity,
performance and enforcement shall be construed in accordance with, and governed
by, the laws of the State in which the Premises are located.
10. This Agreement shall be binding upon the successors and assigns of the
AGENT and the heirs, administrators, executors, successors, and assignees of the
OWNER. This Agreement contains the entire Agreement of the parties relating to
the subject matter hereof, and there are no understandings, representations or
undertakings by either party except as herein contained. This Agreement may be
modified solely by a written agreement executed by both parties hereto.
17
<PAGE>
11. If any party hereto defaults under the terms or conditions of this
Agreement, the defaulting party shall pay the non-defaulting party's court costs
and attorney's fees incurred in the enforcement of any provision of this
Agreement.
12. The failure of either party to this Agreement to, in any one or more
instances, insist upon the performance of any of the terms, covenants or
conditions of this Agreement, or to exercise any rights or privileges conferred
in this Agreement, shall not be construed as thereafter waiving any such terms,
covenants, conditions, rights or privileges, but the same shall continue in full
force and effect as if no such forbearance or waiver had occurred.
13. This Agreement is deemed to have been drafted jointly by the parties,
and any uncertainty or ambiguity shall not be construed for or against either
party as an attribution of drafting to either party.
14. All notices given under this Agreement shall be sent by certified
mail, return receipt requested, sent by facsimile transmission, or hand
delivered at:
<TABLE>
<CAPTION>
FOR OWNER: FOR AGENT:
<S> <C>
Inland Retail Real Estate Inland Southeast Property Management Corp.
Limited Partnership ATTN: Steve Sanders, President
ATTN: Roberta S. Matlin 4812 Tamiami Trail
2901 Butterfield Road Sarasota, Florida 34231
Oak Brook, Illinois 60523 Fax: 941/929-0244
Fax: 630/218-4935
</TABLE>
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed or caused to be affixed
their respective signatures this ____ day of _______________, 199_.
AGENT: OWNER:
INLAND SOUTHEAST PROPERTY INLAND RETAIL REAL ESTATE
MANAGEMENT CORP. LIMITED PARTNERSHIP
By: BY: INLAND RETAIL REAL ESTATE TRUST,
----------------------------- INC., its general partner
----------------------------- By:
--------------------------------
Its:
----------------------------
19
<PAGE>
EXHIBIT "A"
Legal Description for:
<PAGE>
EXHIBIT "B"
COMMERCIAL PROPERTY MANAGEMENT SYSTEM
BUDGET VARIANCE REPORT
SAMPLE REPORT
<TABLE>
<CAPTION>
MONTH-TO-DATE YEAR-TO-DATE
------------- ------------
MONTH-TO-DATE:
YEAR TO DATE: ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%) ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%)
---------- ---------- ------------ -------- ---------- ---------- ------------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
- ------
- ------
1001 Gross Unit Rent
1002 Add'l Unit Rent
TOTAL GROSS POSSIBLE
1011 Vacancy Loss
1012 Marketing Concessions
1013 Offices/Models/Shop
Unpaid
NET RENT COLLECTIONS
1024/1025 Damages & Late Charge
1031 Vending Income
1033/1035 Miscellaneous Income
NET OPERATIONAL INCOME
EXPENSE
- -------
- -------
1400 Repair & Maintenance
1500 Salaries
1600 Health & Welfare Payments
2100 Security Deposit - Interest
2200 Fees
2300 Capital Expenditure -
Appliance
2400 Capital Expenditure -
Common
2500 Capital Expenditure -
Carpeting
2600 Landscaping & Snow Removal
2700 Painting & Decorating
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTH-TO-DATE YEAR-TO-DATE
------------- ------------
MONTH-TO-DATE:
YEAR TO DATE: ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%) ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%)
---------- ---------- ------------ -------- ---------- ---------- ------------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
2800 Marketing
2900 Elevators
3000 Rentals
3100 Pool
3200 Scavenger
3300 Telephone/Answering
Service
3500 Supplies
3600 Electricity
3700 Water
3800 Gas, Fuel & Oil
3900 Exterminating
REPORT TOTAL
4000 Miscellaneous Expenses
4100 Management Fee
TOTAL OPERATIONAL EXPENSES
1200 Insurance
1300 Real Estate Tax
TOTAL EXPENSE
NET BEFORE DEBT
1100 Debt Service
3400 Ground Rent
NET BEFORE S/D ACTIVITY
1023 Security Deposit Income
1701 Security Deposit - Rent
1801 Security Deposit - Damage
1901 Security Deposit - Returns
2001 Security Deposit - Transfers
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MONTH-TO-DATE YEAR-TO-DATE
------------- ------------
MONTH-TO-DATE:
YEAR TO DATE: ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%) ACTUAL ($) BUDGET ($) VARIANCE ($) VAR. (%)
---------- ---------- ------------ -------- ---------- ---------- ------------ --------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SECURITY DEPOSITS
**CASH FLOW AFTER S/D ACTIVITY
1030 Upgrade Income
4500 Upgrade Expenses
4200 Pship Level Debt
1060 Owner Advances
5001 Owner Distributions
1032/1036 Non-Operating Income
4600 Non-Operating Expense
NET, NET CASH FLOW
REPORT TOTAL
END OF REPORT
</TABLE>
3
<PAGE>
COMMERCIAL PROPERTY MANAGEMENT SYSTEM
CONSOLIDATED CASH REPORT
SAMPLE REPORT
<TABLE>
<CAPTION>
% OF YEAR TO DATE % OF
ACCT # ACCOUNT DESCRIPTION ACTUAL GROSS POS. PER UNIT ACTUAL GROSS POS. PER UNIT
- ------ ------------------- ------ ---------- -------- ------------ ---------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
INCOME
- ------
- ------
1001 Gross Unit Rent
1002 Add'l Unit Rent
-----------------------
TOTAL GROSS POSSIBLE
-----------------------
1011 Vacancy Loss
1012 Marketing Concessions
1013 Offices/Models/Shop
Unpaid
NET RENT COLLECTIONS
1024/1025 Damages & Late Charge
1031 Vending Income
1033/1035 Miscellaneous Income
NET OPERATIONAL INCOME
----------------------
----------------------
EXPENSE
- -------
- -------
1400 Repair & Maintenance
1500 Salaries
1600 Health & Welfare Payments
2100 Security Deposit -
Interest
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
% OF YEAR TO DATE % OF
ACCT # ACCOUNT DESCRIPTION ACTUAL GROSS POS. PER UNIT ACTUAL GROSS POS. PER UNIT
------ ------------------- ------ ---------- -------- ------------ ---------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
2200 Fees
2300 Capital Expenditure -
Appliances
2400 Capital Expenditure -
Common
2500 Capital Expenditure -
Carpeting
2600 Landscaping & Snow Removal
2700 Painting & Decorating
2800 Marketing
2900 Elevators
3000 Rentals
3100 Pool
3200 Scavenger
3300 Telephone/Answering
Service
3500 Supplies
3600 Electricity
3700 Water
3800 Gas, Fuel & Oil
3900 Exterminating
4000 Miscellaneous Expense
4100 Management Fee
----------------------------
TOTAL OPERATIONAL EXPENSES
----------------------------
----------------------------
1200 Insurance
1300 Real Estate Tax
TOTAL EXPENSE
----------------------------
----------------------------
NET BEFORE DEBT
1100 Debt Service
3400 Ground Rent
---------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
% OF YEAR TO DATE % OF
ACCT # ACCOUNT DESCRIPTION ACTUAL GROSS POS. PER UNIT ACTUAL GROSS POS. PER UNIT
------ ------------------- ------ ---------- -------- ------------ ---------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
NET BEFORE S/D ACTIVITY
1023 Security Deposit Income
1701 Security Deposit - Rent
1801 Security Deposit - Damage
1901 Security Deposit - Returns
2001 Security Deposit -
Transfers
NET SECURITY DEPOSITS
**CASH FLOW AFTER S/D ACTIVITY
------------------------------
------------------------------
1030 Upgrade Income
4500 Upgrade Expenses
4200 Pship Level Debt
1060 Owner Advances
5001 Owner Distributions
1032 & 1036 Non-operating Income
4600 Non-operating Expense
NET, NET CASH FLOW
-------------------------
-------------------------
REPORT TOTAL
END OF REPORT
</TABLE>
6
<PAGE>
EXHIBIT 10.4
FORM OF
PROPERTY ACQUISITION SERVICE AGREEMENT
<PAGE>
PROPERTY ACQUISITION SERVICE AGREEMENT
THIS PROPERTY ACQUISITION SERVICE AGREEMENT (this "Agreement") is
entered into as of the _____ day of __________, 1998, by and among Inland
Real Estate Acquisitions, Inc., an Illinois corporation ("Acquisitions"),
Inland Real Estate Corporation, a Maryland corporation ("REIT I"), Inland
Real Estate Advisory Services, Inc., an Illinois corporation ("REIT I
Advisor"), Inland Retail Real Estate Trust, Inc., a Maryland corporation
("REIT II") and Inland Retail Real Estate Advisory Services, Inc., an
Illinois corporation ("REIT II Advisor"). REIT I Advisor and REIT II Advisor
are sometimes referred to herein individually as an "Advisor" and
collectively, as the "Advisors". REIT I and REIT II are sometimes referred
to herein individually as a "Company" and collectively, as the "Companies".
Acquisitions, REIT I, REIT I Advisor, REIT II and REIT II Advisor are
sometimes referred to herein individually as a "Party" and collectively, as
the "Parties".
WHEREAS, REIT II intends to commence a public offering of its shares of
common stock, par value $0.01 per share, soon after a registration statement
it will file with the Securities and Exchange Commission is declared
effective; a prospectus will be included as part of that registration
statement; such prospectus, while in draft form, the latest draft form
thereof, and then in its final form, as it may be amended or supplemented
from time to time, is hereinafter referred to as the "REIT II Prospectus"; and
WHEREAS, REIT II was formed in September 1998 to acquire and manage a
diversified portfolio of real estate primarily (i) improved for use as retail
establishments, principally multi-tenant shopping centers, or (ii) improved
with other commercial facilities which provide goods or services
(collectively, the "REIT II's Primary Criteria for Investment"); such real
estate will be located mainly in the states east of the Mississippi River in
the United States (the "REIT II's Primary Geographical Area of Investment");
REIT II may also acquire, among other properties, single-user retail
properties located anywhere throughout the United States if they are leased
on a Triple-Net Lease Basis by Creditworthy Tenants (each as defined in the
REIT II Prospectus); and
WHEREAS, REIT II may enter into sale and leaseback transactions,
pursuant to which REIT II will purchase a Property (as defined in the REIT II
Prospectus) from a Person (as defined in the REIT II Prospectus) and lease
the Property to such Person; and
WHEREAS, REIT II Advisor and REIT II have entered into a certain
advisory agreement (the "REIT II Advisory Agreement"), dated __________ __,
1998; and
WHEREAS, under the terms of the REIT II Advisory Agreement, REIT II Advisor
generally has responsibility for the day-to-day operations of REIT II,
administers REIT II's bookkeeping and accounting functions, serves as REIT II's
consultant in connection with policy decisions to be made by the directors of
REIT II (the "REIT II Directors"),
<PAGE>
manages or causes to be managed by another party REIT II's properties and
renders other services as the REIT II Directors deem appropriate; REIT II
Advisor is subject to the supervision of the REIT II Directors and has only such
functions as are delegated to it by the REIT II Directors; and
WHEREAS, REIT I has offered for sale shares of its common stock, par value
$0.01 per share, pursuant to several previous and its latest prospectus dated as
of April 7, 1998 (as it may be amended or supplemented from time to time, the
"REIT I Prospectus" and together with the REIT II Prospectus, the
"Prospectuses"); and
WHEREAS, REIT I was formed in 1994 to primarily invest in (i) Neighborhood
Retail Centers (as defined in the REIT I Prospectus) located mainly within a
150-mile radius of REIT I's headquarters in Oak Brook, Illinois, which types of
investments and area were expanded in 1998 to include Community Centers (as
defined in the REIT I Prospectus) and an area within a 400-mile radius of such
headquarters (the "REIT I's Primary Geographical Area of Investment"), and (ii)
single-user retail properties located anywhere throughout the United States if
they are leased on a triple-net lease basis by creditworthy tenants
(collectively, the "REIT I's Primary Criteria for Investment"); and
WHEREAS, REIT I Advisor and REIT I have entered into a certain advisory
agreement (the "REIT I Advisory Agreement"), dated October 14, 1994 (as
amended); and
WHEREAS, under the terms of the REIT I Advisory Agreement, REIT I Advisor
generally has responsibility for the day-to-day operations of REIT I,
administers the REIT I's bookkeeping and accounting functions, serves as the
REIT I's consultant in connection with policy decisions to be made by the
directors of REIT I (the "REIT I Directors" and together with the REIT II
Directors, the "Directors"), manages or causes to be managed by another party
the REIT I's properties and renders other services as the REIT I Directors deem
appropriate; REIT I Advisor is subject to the supervision of the REIT I
Directors and has only such functions as are delegated to it by the REIT I
Directors; and
WHEREAS, Acquisitions seeks properties for REIT I and REIT II, and may do
so for other real estate investment programs sponsored by Inland Real Estate
Investment Corporation ("IREIC" as defined in the REIT II Prospectus), and,
among other things, does due diligence in connection therewith, and negotiates
the terms of such acquisitions; and
WHEREAS, REIT I, REIT I Advisor, REIT II, REIT II Advisor and Acquisitions
are all Affiliates (as defined in the REIT II Prospectus);
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows:
2
<PAGE>
1. INCORPORATION OF RECITALS. By this reference, the recitals set
forth above are hereby incorporated into this Agreement to the same extent as if
set forth fully herein.
2. GENERAL SERVICES. During the term of this Agreement, Acquisitions
shall continually present to each Company suitable opportunities to make
investments in real properties consistent with the investment policies of such
Company, the amount of funds each Company has available for investment, and the
investment program adopted by the Directors of such Company and in effect at the
time. Towards this end, Acquisitions shall (i) search for, (ii) identify, (iii)
examine and evaluate the potential value, the financial condition, the business
history, the demographics of the surrounding area, the proposed purchase price
and the geographic and market diversification of, (iv) negotiate with proposed
sellers for the purchase of, on behalf of each of the Companies, and (v) in some
cases, enter into contracts to purchase, real properties that meet (a) REIT I's
Primary Criteria for Investment (a "Proposed REIT I Property"), and/or (b) the
REIT II's Primary Criteria for Investment (a "Proposed REIT II Property" and
collectively with the Proposed REIT I Properties, the "Proposed Properties",
each of which, a "Proposed Property").
3. EVALUATION OF PROPOSED PROPERTIES. In evaluating Proposed Properties,
Acquisitions shall consider a number of factors, including a Proposed
Property's: (i) geographic location and type; (ii) construction quality and
condition; (iii) current and projected cash flow; (iv) potential for capital
appreciation; (v) rent roll, including the potential for rent increases; (vi)
potential for economic growth in the tax and regulatory environment of the
community in which the Proposed Property is located; (vii) potential for
expanding the physical layout of the Proposed Property and/or the number of
sites; (viii) occupancy and demand by tenants for properties of a similar type
in the same geographic vicinity; (ix) prospects for liquidity through sale,
financing or refinancing of the Proposed Property; (x) competition from existing
properties and the potential for the construction of new properties in the area;
and (xi) treatment under applicable federal, state and local tax and other laws
and regulations.
4. ENVIRONMENTAL REPORTS. In evaluating any Proposed Property for
purchase, Acquisitions shall require the seller to provide a current Phase I
environmental report and, if necessary, a Phase II environmental report, with
respect to such Proposed Property.
5. APPRAISALS. All acquisitions of Proposed Properties to be made by
either Company shall be supported by an appraisal prepared by a competent,
independent appraiser who is a member-in-good standing of the Appraisal
Institute (as defined in the REIT II Prospectus) prior to the purchase of such
Proposed Property.
6. PURCHASE OF PROPERTY. Acquisitions may purchase Proposed Properties
in its own name, assume loans in connection therewith and temporarily hold title
thereto for the purpose of facilitating acquisition or financing by either of
the Companies.
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7. PROCESS FOR RESOLVING CONFLICTING OPPORTUNITIES. To the extent
possible, the resolution of conflicting investment opportunities between REIT I
and the REIT II shall, as a general rule, be resolved by giving priority to the
investment entity whose primary geographic area of investment is the area where
the Proposed Property is located. REIT I shall have the first opportunity to
purchase a Proposed Property in REIT I's Primary Geographic Area of Investment
placed under contract by Acquisitions, REIT I Advisor or its Affiliates,
provided it is able to close the purchase of the Proposed REIT I Property within
60 days. Subject to the limitation in the following sentence, REIT II shall
have the first opportunity to purchase a Proposed Property in REIT II's Primary
Geographical Area of Investment placed under contract by Acquisitions, REIT II
Advisor or its Affiliates, provided REIT II is able to close the purchase of
such Proposed REIT II Property within 60 days. However, in the event a Proposed
Property is located in both REIT I's and REIT II's Primary Geographical Area of
Investment, and both REIT I and REIT II have funds available to make the
purchase, the Proposed Property will first be offered to REIT I. If REIT I does
not purchase the Proposed Property, it will then be offered to REIT II.
However, if (i) the Proposed Property is outside the Primary Geographical
Area of Investment of both REIT I and REIT II, (ii) REIT I, REIT II and any
other real estate investment program sponsored by IREIC have funds available to
make the purchase and (iii) the Proposed Property meets each of their
respective acquisition criteria, then the Proposed Property will (x) first be
offered to REIT I, (y) if REIT I does not purchase the Proposed Property, it
will then be offered to REIT II, and (z) if REIT II does not purchase the
Proposed Property, it will then be offered to such other real estate investment
program.
Other factors which may be considered in connection with evaluating the
suitability of the Proposed Property for investment by a particular Company
include: (i) the effect of the acquisition on the diversification of each
Company's portfolio; (ii) the amount of funds available for investment;
(iii) cash flow; and (iv) the estimated income tax effects of the purchase and
subsequent disposition. The Independent Directors of each of the Companies,
respectively, must, by a majority vote, approve all actions by their respective
Advisors or its Affiliates which present potential conflicts with such Company.
8. BOARD APPROVAL. Any transfer of a Proposed Property from
Acquisitions to either of the Companies must be approved by a majority of such
Company's Directors, in each case including a majority of such Company's
Independent Directors (as defined in the REIT I Prospectus and the REIT II
Prospectus, as applicable).
9. PURCHASE PRICE. The Purchase Price of any Proposed Property
acquired by a Company from Acquisitions: (i) may not exceed its fair market
value as determined by a competent independent appraiser who is a member in good
standing of the Appraisal Institute (as defined in the REIT II Prospectus); and
(ii) must be approved by a majority of the Directors of such Company (including
a majority of the Independent Directors) not interested in the transaction as
being fair and reasonable to
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such Company and generally at a price to such Company no greater than the cost
of the Proposed Property to Acquisitions (including the Contract Price for the
Property, as hereinafter defined, and the Acquisition Expenses, as hereinafter
defined); provided that if the price to such Company is in excess of such cost,
substantial justification for such excess must exist and such excess must be
reasonable. In no event may the cost of the Proposed Property to such Company
exceed its appraised value as of the date of such Company's acquisition thereof.
10. NO PARTNERSHIP OR JOINT VENTURE. The Parties to this Agreement are
not, and shall not be deemed to be, partners or joint venturers with each other.
11. RECORDS. Acquisitions shall maintain appropriate books of account and
records relating to services performed hereunder, which shall be accessible for
inspection by either Company at any time during ordinary business hours.
12. REIT QUALIFICATIONS. Notwithstanding any other provision of this
Agreement to the contrary, Acquisitions shall refrain from any action which, in
its reasonable judgment or in any judgment of the Directors of either Company of
which Acquisitions has written notice, would adversely affect the qualification
of such Company as a REIT under the Code (each as defined in the REIT II
Prospectus) or which would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over such Company or its
securities, or which would otherwise not be permitted by the articles of
incorporation of such Company. If any such action is ordered by the Directors
of either Company, Acquisitions shall promptly notify such Directors of
Acquisition's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or such articles of incorporation and
shall refrain from taking such action pending further clarification or
instruction from such Directors.
13. BANK ACCOUNTS. At the direction of the Directors of either Company,
Acquisitions may establish and maintain bank accounts in the name of such
Company, and may collect and deposit into and disburse from such accounts moneys
on behalf of such Company, upon such terms and conditions as such Directors may
approve, provided that no funds in any such account shall be commingled with
funds of Acquisitions. Acquisitions shall from time to time, as such Company may
require, render appropriate accountings of such collections, deposits and
disbursements to the Directors and to the auditors of such Company.
14. FIDELITY BOND. Acquisitions shall not be required to obtain or
maintain a fidelity bond in connection with the performance of its services
hereunder.
15. INFORMATION FURNISHED ACQUISITIONS. The Directors of each Company
will keep Acquisitions informed in writing concerning the investment and
financing policies of such Company, and the amount of funds it has available for
investment. Such Directors shall notify Acquisitions promptly in writing of its
intention to make any investments or to sell or dispose of any existing
investments. Each Company shall furnish Acquisitions with a certified copy of
all financial statements, a signed copy of
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each report prepared by independent certified public accountants, and such other
information with regard to its affairs as Acquisitions may reasonably request.
16. COMPENSATION. Acquisitions shall be paid for services rendered by
Acquisitions under this Agreement as follows:
(a) each Company shall reimburse Acquisitions in full for all Acquisition
Expenses (as defined below) incurred by Acquisitions on behalf of such Company
in connection with its performance of its duties under this Agreement; PROVIDED,
HOWEVER, the total of all Acquisition Expenses paid by a Company in connection
with the purchase of a Proposed Property by such Company may not exceed an
amount equal to 6% of the Contract Price for the Property (as defined below);
(b) "Acquisition Expenses" means expenses related to the selection,
evaluation and acquisition of, and investment in, properties, whether or not
acquired or made, including but not limited to legal fees and expenses, travel
and communications expenses, cost of appraisals and surveys, non-refundable
option payments on property not acquired, accounting fees and expenses, computer
use related expenses, architectural and engineering reports, environmental and
asbestos audits, title insurance and escrow fees, loan fees or points or any fee
of a similar nature, however designated, and personnel and miscellaneous
expenses related to the selection and acquisition of properties; and
(c) "Contract Price for the Property" means the amount actually paid or
allocated to the purchase of a Proposed Property exclusive of Acquisition
Expenses.
17. BUSINESS COMBINATION OF EITHER COMPANY AND ITS ADVISOR. If the
business conducted by an Advisor to a Company is acquired by or consolidated
into the Company for which it serves as Advisor, this Agreement will terminate
as to Acquisitions and the Company and the Advisor involved in that business
combination. However, this Agreement shall continue in effect as to Acquisitions
and the Company and the Advisor whose business has not been so acquired or
consolidated.
18. EXPENSES OF THE COMPANIES. Each Company shall pay all of its own
expenses and shall reimburse Acquisitions for its expenses as provided in
Section 16 hereof.
19. OTHER ACTIVITIES OF ACQUISITIONS. Nothing herein contained shall
prevent Acquisitions from engaging in any other business or activity including
the rendering of services with respect to real estate investment opportunities
to any other person or entity. Directors, officers, employees and agents of
Acquisitions may serve as Directors, trustees, officers, employees or agents of
the Companies, but shall receive no compensation (other than reimbursement for
expenses) from such Company for such service.
20. TERM; TERMINATION OF AGREEMENT. This Agreement shall have an initial
term of one year and, thereafter, will continue in force for successive one-year
renewals
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with the mutual consent of the Parties including an affirmative vote of a
majority of the Independent Directors of each of the Companies. Each extension
shall be executed in writing by each Party hereto before the expiration of the
term of this Agreement or of any extension thereof.
Notwithstanding any other provision of this Agreement to the contrary, the
Parties, by mutual consent, may terminate this Agreement, or any extension
hereof, upon 60 days written notice without cause or penalty. In the event of
the termination of this Agreement, Acquisitions will cooperate with the other
Parties, and take all reasonable steps requested to assist such Parties in
making an orderly transition of the acquisition function.
If this Agreement is terminated pursuant to this Section, such termination
shall be without any further liability or obligation of any of the terminating
Parties to each other.
If this Agreement is terminated because of a business combination as
described in Section 17, all obligations of Acquisitions to offer Proposed
Properties to the Company involved in such business combination for purchase
shall also terminate.
21. ASSIGNMENTS. No Party may assign this Agreement without the written
consent of each other Party hereto; except in the case of assignment by a Party
to a corporation, trust or other organization which is a successor to such
Party. Any assignment of this Agreement shall bind the assignee hereunder in
the same manner as the assignor is bound hereunder.
22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Companies, this
Agreement shall be terminated immediately upon written notice of termination
from each Board of Directors of the Companies to Acquisitions if any of the
following events occurs:
(a) Acquisitions violates any provisions of this Agreement and after
notice of such violation shall not cure such default within 30 days; or
(b) A court of competent jurisdiction enters a decree or order for
relief in respect of Acquisitions in any involuntary case under the
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appoints a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Acquisitions or for any substantial
part of its property or orders the winding up or liquidation of
Acquisition's affairs; or
(c) Acquisitions commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, or consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of Acquisitions or
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for any substantial part of its property, or makes any general assignment
for the benefit of creditors, or fails generally to pay its debts as they
become due.
Acquisitions agrees that if any of the events specified in subsections (b)
and (c) of this Section 22 occur, it will give written notice thereof to each
Company within seven days after the occurrence of such event.
23. ACTION UPON TERMINATION. Acquisitions shall not be entitled to
compensation after the date of termination of this Agreement for further
services hereunder, but shall be paid all compensation accruing to the date of
termination. Subject to the provisions of Section 17, Acquisitions shall
forthwith upon a termination:
(a) Pay over to each Company all moneys collected and held for the
account of such Company pursuant to this Agreement;
(b) Deliver to the Board of Directors of each Company a full
accounting, including a statement showing all payments collected by it and
a statement of all money held by it;
(c) Deliver to the Board of Directors of each Company all property
and documents of the Company then in the custody of Acquisitions; and
(d) Cooperate with each Company and take all reasonable steps
requested by such Company to assist its Board of Directors in making an
orderly transition of the acquisition function.
24. AMENDMENTS. This Agreement shall not be amended, changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by each Party hereto, or their respective successors or assigns, or
otherwise provided herein.
25. SUCCESSORS AND ASSIGNS. This Agreement shall bind any successors or
assigns of the Parties hereto as herein provided.
26. GOVERNING LAW. The provisions of this Agreement shall be governed,
construed and interpreted in accordance with the laws of the State of Illinois
as at the time in effect.
27. NOTICES. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is accepted by the Party to
whom it is given and shall be given by being delivered at the following
addresses of the Parties hereto:
Inland Real Estate Acquisitions, Inc.;
Inland Real Estate Corporation;
Inland Real Estate Advisory Services, Inc.; and
Inland Retail Real Estate Advisory Services, Inc.
2901 Butterfield Road
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Oak Brook, Illinois 60523
Attention: President
Inland Retail Real Estate Trust, Inc.
2901 Butterfield Road
Oak Brook, Illinois 60523
Attention: Ms. Roberta S. Matlin, Vice President
with a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive - Ste. 2800
Chicago, Illinois 60606
Attention: Roger G. Fein
Any Party may at any time give notice in writing to the other Parties of a
change of its address for the purpose of this Section 27.
28. CONFLICTS OF INTEREST AND FIDUCIARY DUTIES TO THE COMPANIES AND TO
THEIR RESPECTIVE STOCKHOLDERS. The Parties hereto recognize that their
relationship is subject to various conflicts of interest as set forth in the
Prospectuses. Acquisitions, on behalf of itself and its Affiliates, acknowledges
that Acquisitions and its Affiliates have fiduciary duties to the Companies and
to their respective Stockholders. Acquisitions, on behalf of itself and its
Affiliates, represents and agrees (i) that Acquisitions and its Affiliates will
endeavor to balance the interests of such Companies with the interests of
Acquisitions and its Affiliates in making any determination where a conflict of
interest exists between a Company and Acquisitions or its Affiliates; and
(ii) that the actions and decisions of Acquisitions and its Affiliates under
this Agreement (including but not limited to actions and decisions in connection
with the purchase of Proposed Properties for such Company) will be made in the
manner most favorable to such Company and to such Company's Stockholders, so as
not to breach their respective fiduciary duties to such Company and to such
Company's Stockholders.
29. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
Inland Real Estate Acquisitions, Inc.
By:_________________________________
Title:______________________________
Inland Real Estate Corporation
By:_________________________________
Title:______________________________
Inland Real Estate Advisory Services, Inc.
By:_________________________________
Title:______________________________
Inland Retail Real Estate Trust, Inc.
By:_________________________________
Title:______________________________
Inland Retail Real Estate Advisory Services, Inc.
By:_________________________________
Title:______________________________
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EXHIBIT 10.5
FORM OF
INDEPENDENT DIRECTOR STOCK OPTION PLAN
<PAGE>
INLAND RETAIL REAL ESTATE TRUST, INC.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE:
Inland Retail Real Estate Trust, Inc., a Maryland corporation (the
"Corporation"), hereby adopts this Independent Director Stock Option Plan (the
"Plan"). The purpose of the Plan is to foster and promote the long-term
financial success of the Corporation by attracting and retaining outstanding
non-employee directors by enabling them to participate in the Corporation's
growth through the granting of Options (as defined in Article II) which entitle
them to purchase shares of the Corporation's common stock, par value $0.01 per
share ("Common Stock").
1.2 PARTICIPATION:
Only directors of the Corporation who at the time an Option is granted are
"Non-Employee Directors" as such term is defined in Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934 or any similar rule which
may subsequently be in effect (the "Independent Directors") shall receive an
Option under the Plan.
1.3 SHARES SUBJECT TO THE PLAN:
Shares of Common Stock to be issued upon exercise of Options granted under
the Plan may be in whole or in part from authorized but unissued shares or
treasury shares of the Corporation's Common Stock. A maximum of 75,000 shares
of Common Stock (the "Plan Maximum") may be issued for all purposes under the
Plan (subject to adjustment pursuant to Section 3.2), and the Corporation shall
reserve 75,000 authorized but unissued shares of Common Stock as of the date
this Plan is established for issuance upon exercise of Options granted under the
Plan. Any shares of Common Stock reserved for issuance under Options which for
any reason are canceled or terminated without having been exercised shall not be
counted in determining whether the Plan Maximum has been reached. Options for
fractional shares shall not be granted.
1.4 GENDER AND NUMBER:
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender, the singular
shall include the plural, and the plural shall include the singular.
<PAGE>
ARTICLE II
STOCK OPTION AWARDS
2.1 AWARD OF STOCK OPTIONS:
Effective on the later of (i) the date on which an Independent Director
becomes a member of the Board of Directors of the Corporation or (ii) the date
this Plan is adopted by the Corporation, each Independent Director who satisfies
the conditions set forth in Section 1.2 will automatically be awarded a stock
option (an "Initial Option") under the Plan to purchase 3,000 (subject to
adjustment pursuant to Section 3.2) shares of Common Stock. Effective on the
date of each Annual Meeting of Stockholders of the Corporation (an "Annual
Meeting"), commencing with the Corporation's Annual Meeting in 1999, each
Independent Director then in office who satisfies the conditions set forth in
Section 1.2 will automatically be awarded a stock option (a "Subsequent Option"
or the "Subsequent Options", collectively with the "Initial Options" referred to
herein as an "Option" or "Options") to purchase 500 (subject to adjustment
pursuant to Section 3.2) shares of Common Stock. The Options are not intended
to qualify as "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended.
2.2 STOCK OPTION CERTIFICATES:
The award of an Option shall be evidenced by a certificate executed by an
officer of the Corporation.
2.3 OPTION PRICE:
The purchase price of a share of Common Stock (the "Option Price") under
each Initial Option granted shall be the Fair Market Value (as defined in
Section 3.5) of a share of Common Stock on the date of the grant, which, for
purposes of the Plan, until the earlier of (i) the termination of the
Corporation's initial public offering (the "IPO") of shares of Common Stock
which is anticipated to commence in 1998 or (ii) the same month and day as such
commencement date of the IPO but in the year 2000 (the "Initial Offering
Period"), shall be $9.05. The Option Price under each Subsequent Option granted
on the date of any Annual Meeting shall be the Fair Market Value of a share of
Common Stock on the last business day preceding the date of the Annual Meeting,
provided, however, that during the Initial Offering Period the Option Price
shall be $9.05 per share.
2.4 EXERCISE AND TERM OF OPTIONS:
(a) Options may be exercised by the delivery of written notice of exercise
and payment of the aggregate Option Price for the shares of Common Stock to be
purchased to the Secretary of the Corporation. The Option Price may be paid in
cash (including check, bank draft or money order) or, unless in the opinion of
counsel to the Corporation doing so may result in a possible violation of law,
by delivery of shares of Common Stock already owned by the Independent Director,
valued at Fair Market Value on the date of the exercise. As soon as
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practicable after receipt of each notice and full payment, the Corporation shall
deliver to the Independent Director a certificate or certificates representing
the purchased shares of Common Stock. An Independent Director shall have none
of the rights of a shareholder until a certificate or certificates for shares of
Common Stock underlying the Option(s) exercised are issued and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such certificate or certificates are issued.
(b) Each certificate for Shares issued upon exercise of an Option, unless
at the time of exercise such shares of Common Stock are registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES
SHALL BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby no longer need be subject to such restrictions.
Each certificate for Shares issued upon exercise of an Option shall also
bear any legends required by the Corporation's Articles of Incorporation and the
transferability of the certificate and the shares of Common Stock represented
thereby shall be subject to the restrictions contained in the Corporation's
Articles of Incorporation.
(c) An Independent Director's Initial Option shall (subject to
Section 3.1) become exercisable as follows: (i) 1,000 shares on the date of
grant, (ii) an additional 1,000 shares on the first anniversary of the date of
grant, and (iii) an additional 1,000 shares on the second anniversary of the
date of grant and shall continue to be exercisable until the first to occur of
(i) the tenth anniversary of the date of grant, (ii) the removal for cause of
the Independent Director as an Independent Director, or (iii) three months
following the date the Independent Director ceases to be an Independent Director
for any other reason except death or disability. Each of an Independent
Director's Subsequent Options shall (subject to Section 3.1) become fully
exercisable on the second anniversary of the date on which the Subsequent
Option(s) was granted and shall continue to be exercisable until the first to
occur of (i) the tenth anniversary of the date of grant, (ii) the removal for
cause of the Independent Director as an Independent Director, or (iii) three
months following the date the Independent Director ceases to be an Independent
Director for any other reason except death or disability. Notwithstanding the
foregoing, Options granted under this Plan shall continue to be exercisable in
the case of death or disability for a period of one year after death or the
disabling event, provided that the death
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<PAGE>
or disabling event occurs while the person is an Independent Director and prior
to his or her removal for cause, resignation or ceasing to be an Independent
Director for any other reason and the Option is otherwise exercisable on the
date of the death or disabling event; PROVIDED, HOWEVER, if the Option is
exercised within the first six months after it becomes exercisable, any shares
of Common Stock issued pursuant to such exercise may not be sold until the six
month anniversary of the date of the grant of the Option. An Independent
Director is removed "for cause" for gross negligence or willful misconduct in
the execution of his duties; or for conviction of, or entry of a plea of guilty
or nolo contendere to, any felony or any act of fraud, embezzlement,
misappropriation, or a crime involving moral turpitude.
(d) Notwithstanding any other terms or provisions herein to the contrary,
no Option may be exercised if, in the opinion of the Corporation's counsel, such
exercise would jeopardize the Corporation's status as a real estate investment
trust under the Code.
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 NONTRANSFERABILITY; BENEFICIARIES:
No Option awarded under the Plan shall be transferable by the Independent
Director otherwise than by will or, if the Independent Director dies intestate,
by the laws of descent and distribution. All Options exercised during the
Independent Director's lifetime shall be exercised only by the Independent
Director or his legal representative. Any transfer contrary to this Section 3.1
will nullify the Option. Notwithstanding any other provisions of this Plan,
Options granted under this Plan shall continue to be exercisable in the case of
death or disability for a period of one year after death or the disabling event,
provided that the death or disabling event occurs while the person is an
Independent Director and prior to his or her removal for cause, resignation or
ceasing to be an Independent Director for any other reason and the Option is
exercisable on the date of the Independent Director's death or disabling event;
PROVIDED, HOWEVER, if the Option is exercised within the first six months after
it becomes exercisable, any shares of Common Stock issued on such exercise may
not be sold until the six month anniversary of the date of the grant of the
Option. Each Independent Director may name, from time to time, any beneficiary
or beneficiaries (who may be named contingently or successively) who may
exercise such Options. Each designation will revoke all prior designations by
such Independent Director, must be in writing and will be effective only when
filed with the Secretary of the Corporation during his lifetime.
3.2 ADJUSTMENT UPON CERTAIN CHANGES:
(a) If the outstanding shares of Common Stock are (i) increased,
decreased, or (ii) changed into, or exchanged for, a different number or kind of
shares or securities of the Corporation, through a reorganization or merger in
which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to an Option. A
corresponding adjustment to the
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<PAGE>
consideration payable with respect to all Options granted prior to any such
change shall also be made. Any such adjustment, however, shall be made without
change in the total payment, if any, applicable to the portion of the Option not
exercised but with a corresponding adjustment in the Option Price for each share
of Common Stock.
(b) Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation with one or more
corporations as a result of which the Corporation is not the surviving
corporation, or upon sale of all or substantially all of the Corporation's
property, the Plan shall terminate, and any outstanding Options shall terminate
and be forfeited. However, holders of Options may exercise any Options that are
otherwise exercisable immediately prior to the dissolution, liquidation,
consolidation or merger. Notwithstanding the foregoing, the Board of Directors
may provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
Options theretofore granted or the substitution by such corporation for such
Options of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (ii) for the continuance of the Plan by such successor
corporation in which event the Plan and the Options shall continue in the manner
and under the terms so provided; or (iii) for the payment in cash or shares of
Common Stock in lieu of and in complete satisfaction of such Options.
3.3 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN:
The Board of Directors may suspend or terminate the Plan or any portion
thereof at any time and may amend it from time to time in such respects as the
Board of Directors may deem advisable in order that any Options thereunder shall
conform to or otherwise reflect any change in applicable laws or regulations, or
to permit the Corporation or the Independent Directors to enjoy the benefits of
any change in applicable laws or regulations, or in any other respect the Board
of Directors may deem to be in the best interests of the Corporation; provided,
however, that no such amendment shall, without stockholder approval to the
extent required by law, or any agreement or the rules of any stock exchange upon
which the shares of Common Stock may be listed or of any national market system
on which shares of Common Stock may be traded: (a) except as provided in
Section 3.2, materially increase the number of shares of Common Stock which may
be issued under the Plan; (b) materially modify the requirements as to
eligibility for participation in the Plan; (c) materially increase the benefits
accruing to Independent Directors under the Plan; or (d) extend the termination
date of the Plan. No such amendment, suspension or termination shall:
(x) impair the rights of Independent Directors under any outstanding Option
without the consent of the Independent Directors affected thereby; or (y) make
any change that would disqualify the Plan, or any other plan of the Corporation
intended to be so qualified, from the exemption provided by Rule 16b-3.
3.4 TAX WITHHOLDING:
(a) The Corporation shall have the power to withhold, or require an
Independent Director to remit to the Corporation, an amount sufficient to
satisfy any withholding or other
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tax due from the Corporation with respect to any amount payable and/or shares of
Common Stock issuable under the Plan, and the Corporation may defer such payment
or issuance unless indemnified to its satisfaction.
(b) Subject to the consent of the Board of Directors of the Corporation,
due to the exercise of an Option, an Independent Director may make an
irrevocable election (an "Election") to: (a) have shares of Common Stock
otherwise issuable hereunder withheld; or (b) tender back to the Corporation
shares of Common Stock received; or (c) deliver back to the Corporation
previously acquired shares of Common Stock of the Corporation having a Fair
Market Value sufficient to satisfy all or part of the Independent Director's
estimated tax obligations associated with the transaction. Such Election must
be made by an Independent Director prior to the date on which the relevant tax
obligation arises. The Board of Directors of the Corporation may disapprove of
any Election, may suspend or terminate the right to make Elections, or may
provide with respect to any Option under this Plan that the right to make
Elections shall not apply to such Option.
3.5 DEFINITION OF FAIR MARKET VALUE:
"Fair Market Value" on any date shall mean the average of the Closing Price
(as defined below) per Share for the five consecutive Trading Days (as defined
below) ending on such date. The "Closing Price" on any date shall mean the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by The Nasdaq Stock Market, Inc. ("Nasdaq") or, if Nasdaq is no longer
in use, the principal automated quotation system that may then be in use or, if
the shares of Common Stock are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in the shares of Common Stock selected by the Board or, if there
is no professional market maker making a market in the shares of Common Stock,
the average of the last ten (10) sales pursuant to the IPO if the Offering has
not concluded, or, if the IPO has concluded, the average of the last ten (10)
purchases by the Corporation pursuant to its Share Repurchase Program (the
"SRP"), and if there are fewer than ten (10) of such purchases under the SRP,
then the average of such lesser number of purchases, or, if the SRP is not then
in existence, the price at which the Corporation is then offering shares of
Common Stock to the public if the Corporation is then engaged in a public
offering of shares of Common Stock, or if the Corporation is not then offering
shares of Common Stock to the public, the price per share at which a Stockholder
may purchase shares of Common Stock pursuant to the Corporation's Distribution
Reinvestment Program (the "DRP") if such DRP is then in existence, or if the DRP
is not then in existence, the fair market value of a share of Common Stock as
determined by the Corporation, in its sole discretion. "Trading Day" shall mean
a day on which the principal national securities exchange or national automated
quotation system on which the
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shares of Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange or national automated
quotation system, shall mean any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of Illinois are authorized or obligated
by law or executive order to close.
3.6 PLAN NOT EXCLUSIVE:
The adoption of the Plan shall not preclude the adoption by appropriate
means of any other stock option or other incentive plan for Independent
Directors or other Directors of the Corporation.
3.7 LISTING, REGISTRATION AND LEGAL COMPLIANCE:
Each Option shall be subject to the requirement that if at any time counsel
to the Corporation shall determine that the listing, registration or
qualification thereof or of any shares of Common Stock or other property subject
thereto upon any securities exchange or under any foreign, federal or state
securities or other law or regulation, or the consent or approval of any
governmental body or the taking of any other action to comply with or otherwise,
with respect to any such law or regulation, is necessary or desirable as a
condition to or in connection with the award of such Option or the issue,
delivery or purchase of shares of Common Stock or other property thereunder, no
such Option may be exercised or paid in shares of Common Stock or other property
unless such listing, registration, qualification, consent, approval or other
action shall have been effected or obtained free of any conditions not
acceptable to the Corporation, and the holder of the award will supply the
Corporation with such certificates, representations and information as the
Corporation shall request and shall otherwise cooperate with the Corporation in
effecting or obtaining such listing, registration, qualification, consent,
approval or other action. The Corporation may at any time impose any
limitations upon the exercise, delivery or payment of any Option which, in the
opinion of the Board of Directors of the Corporation, are necessary or desirable
in order to cause the Plan or any other plan of the Corporation to comply with
Rule 16b-3. If the Corporation, as part of an offering of securities or
otherwise, finds it desirable because of foreign, federal or state legal or
regulatory requirements to reduce the period during which Options may be
exercised, the Board of Directors of the Corporation may, without the holders'
consent, so reduce such period on not less than 15 days written notice to the
holders thereof.
3.8 RIGHTS OF INDEPENDENT DIRECTORS:
Nothing in the Plan shall confer upon any Independent Director any right to
serve as an Independent Director for any period of time or to continue serving
at his present or any other rate of compensation.
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3.9 NO OBLIGATION TO EXERCISE OPTION:
The granting of an Option shall impose no obligation upon the Independent
Director to exercise such Option.
3.10 REQUIREMENTS OF LAW; GOVERNING LAW:
The granting of Options under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required. The Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the
laws of the State of Illinois. The provisions of this Plan shall be interpreted
so as to comply with the conditions or requirements of Rule 16b-3, unless a
contrary interpretation of any such provision is otherwise required by
applicable law.
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EXHIBIT 23.1
CONSENT OF
KPMG Peat Marwick LLP
<PAGE>
The Board of Directors
Inland Retail Real Estate Trust, Inc.:
We consent to the use of our report dated April 30, 1998 related to the
Historical Summary of Gross Income and Direct Operating Expenses of Lake
Walden Square for the year ended December 31, 1997, our report dated April
30, 1998 related to the Historical Summary of Gross Income and Direct
Operating Expenses of Lake Olympia Square for the year ended December 31,
1997, our report dated June 29, 1998 related to the Historical Summary of
Gross Income and Direct Operating Expenses of The Landings for the year ended
December 31, 1997, and our report dated September 18, 1998 related to the
Balance Sheet of Inland Retail Real Estate Trust, Inc., included in the
Registration Statement on Form S-11 filed by Inland Retail Real Estate Trust,
Inc.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
September 24, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF
BROWN & WOOD LLP
<PAGE>
Exhibit 23.2
CONSENT OF BROWN & WOOD LLP
Brown & Wood LLP hereby consents to the reference of our name under the
heading "Legal Matters" in this Prospectus constituting a part of this
Registration Statement on Form S-11.
/s/ BROWN & WOOD LLP
Washington, D.C.
September 22, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF WILDMAN, HARROLD, ALLEN & DIXON
<PAGE>
WILDMAN, HARROLD, ALLEN & DIXON
CONSENT OF WILDMAN, HARROLD, ALLEN & DIXON
Wildman, Harrold, Allen & Dixon hereby consents to the reference of our name
under the headings "Prospectus Summary--Risk Factors and Conflicts of
Interest--Tax Risks," in paragraph 8 under "Conflicts of Interest," "Federal
Income Tax Considerations" and "Legal Matters" in this Prospectus
constituting a part of this Registration Statement on Form S-11.
WILDMAN, HARROLD, ALLEN & DIXON
Chicago, Illinois
September 24, 1998
